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A theory of dichotomous valuation with applications to variable selection

Xingwei Hu ()

Econometric Reviews, 2020, vol. 39, issue 10, 1075-1099

Abstract: An econometric or statistical model may undergo a marginal gain if we admit a new variable to the model, and a marginal loss if we remove an existing variable from the model. Assuming equality of opportunity among all candidate variables, we derive a valuation framework by the expected marginal gain and marginal loss in all potential modeling scenarios. However, marginal gain and loss are not symmetric; thus, we introduce three unbiased solutions. When used in variable selection, our new approaches significantly outperform several popular methods used in practice. The results also explore some novel traits of the Shapley value.

Date: 2020
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Working Paper: A Theory of Dichotomous Valuation with Applications to Variable Selection (2017) Downloads
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DOI: 10.1080/07474938.2020.1735750

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