Misspecified Model Estimation and Its Impact on Predictions

Junnan He, Lin Hu, Matthew Kovach and Anqi Li

Papers from arXiv.org

Abstract: We study a linear statistical model where outcomes depend on regressors with fixed population coefficients and observation-specific latent coefficients, along with measurement errors. A decision-maker estimates population coefficients and uses the estimates to predict the latent coefficients for a given observation. We analyze how misspecification of some population coefficients distorts predictions, investigating comparative statics with respect to: (1) residual information in regressors associated with misspecified coefficients after projecting out those associated with free coefficients, (2) alignment between misspecification vector and latent-to-coefficient mapping. Applications include employee rating with unconscious bias and LLM-mediated consumer research.

Date: 2023-09, Revised 2026-04
New Economics Papers: this item is included in nep-mic
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