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A Theory of Dichotomous Valuation with Applications to Variable Selection

Xingwei Hu

arXiv 1 Aug 2018 · Statistics — Machine Learning · publishedEconometric Reviews (2020) · 1 citations (OpenAlex)

arXiv:1808.00131 · PDF · DOI · OpenAlex · Extracted main text

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.

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