Estimation under Profit-Driven Loss Functions

Robert C Blattberg and Edward I George

Journal of Business & Economic Statistics, 1992, vol. 10, issue 4, 437-44

Abstract: Consider the problem of estimating a price-sensitivity parameter in a demand model. Depending on the context in which the estimate will be used, traditional squared-error loss may be inappropriate. The authors consider the situation in which the estimate will be used by a manufacturer to set the price. Effectively, the manufacturer's goal of profit maximization induces a loss function that turns out to be asymmetric. Estimates that perform well with respect to such loss functions are obtained. A real example is considered in which, compared to traditional estimation under squared-error loss, this approach leads to smaller price-sensitivity estimates, suggesting higher optimal prices.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:10:y:1992:i:4:p:437-44

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