Non-Bayesian Testing of a Stochastic Prediction

Eddie Dekel and Yossi Feinberg

No 1418, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We propose a method to test a prediction of the distribution of a stochastic process. In a non-Bayesian non-parametric setting, a predicted distribution is tested using a realization of the stochastic process. A test associates a set of realizations for each predicted distribution, on which the prediction passes. So that there are no type I errors, a prediction assigns probability 1 to its test set. Nevertheless, these sets are small, in the sense that "most" distributions assign it probability 0, and hence there are few type II errors. It is also shown that there exists such a test that cannot be manipulated, in the sense that an uninformed predictor who is pretending to know the true distribution is guaranteed to fail on an uncountable number of realizations, no matter what randomized prediction he employs. The notion of a small set we use is category I, described in more detail in the paper.

Date: 2006-01
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Journal Article: Non-Bayesian Testing of a Stochastic Prediction (2006)
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