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A Theory of Dichotomous Valuation with Applications to Variable Selection

Xingwei Hu

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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 few evaluation methodologies by the expected marginal gain and marginal loss in all potential modeling scenarios. However, marginal gain and loss are not symmetric; thus, we introduce several unbiased solutions. Simulation studies show that our approaches significantly outperform a few variable selection methods used in practice. The results also explore several novel features of the Shapley value.

Date: 2018-07, Revised 2019-01
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