Updating Probabilities: An Econometric Example
Abstract
Description
We demonstrate how information in the form of observable data and moment constraints are introduced into the method of Maximum relative Entropy (ME). A general example of updating with data and moments is shown. A specific econometric example is solved in detail which can then be used as a template for real world problems. A numerical example is compared to a large deviation solution which illustrates some of the advantages of the ME method.
Presented at the 3rd Econophysics Colloquium, Ancona, Italy, Sept 27-29, 2007. 12 pages, 1 figure
Presented at the 3rd Econophysics Colloquium, Ancona, Italy, Sept 27-29, 2007. 12 pages, 1 figure