Merging expert and empirical data for rare event frequency estimation: Pool homogenisation for empirical Bayes models

John Quigley, Gavin Hardman, Tim Bedford and Lesley Walls

Reliability Engineering and System Safety, 2011, vol. 96, issue 6, 687-695

Abstract: Empirical Bayes provides one approach to estimating the frequency of rare events as a weighted average of the frequencies of an event and a pool of events. The pool will draw upon, for example, events with similar precursors. The higher the degree of homogeneity of the pool, then the Empirical Bayes estimator will be more accurate. We propose and evaluate a new method using homogenisation factors under the assumption that events are generated from a Homogeneous Poisson Process. The homogenisation factors are scaling constants, which can be elicited through structured expert judgement and used to align the frequencies of different events, hence homogenising the pool. The estimation error relative to the homogeneity of the pool is examined theoretically indicating that reduced error is associated with larger pool homogeneity. The effects of misspecified expert assessments of the homogenisation factors are examined theoretically and through simulation experiments. Our results show that the proposed Empirical Bayes method using homogenisation factors is robust under different degrees of misspecification.

Keywords: Empirical Bayes; Pairwise comparison; PRA; Poisson processes (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reensy:v:96:y:2011:i:6:p:687-695

DOI: 10.1016/j.ress.2010.12.007

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