BAYESIAN OCKHAM'S RAZOR AND NESTED MODELS. (14th January 2019)

• Record Type: Journal Article
• Authors: Autzen, Bengt
• Is Part Of: Economics and philosophy. Volume 35:Number 2(2019)
• Page Start: 321
• Page End: 338
• Publication Date: 2019-01-14
• Subjects: Ockham's razor, -- Bayesianism, -- model, -- simplicity, -- prior probability; Economics -- Philosophy -- Periodicals; 330.01
• DOI: 10.1017/S0266267118000305
• Languages: English
• ISSNs: 0266-2671

Abstract

Abstract: While Bayesian methods are widely used in economics and finance, the foundations of this approach remain controversial. In the contemporary statistical literature Bayesian Ockham's razor refers to the observation that the Bayesian approach to scientific inference will automatically assign greater likelihood to a simpler hypothesis if the data are compatible with both a simpler and a more complex hypothesis. In this paper I will discuss a problem that results when Bayesian Ockham's razor is applied to nested economic models. I will argue that previous responses to the problem found in the philosophical literature are unsatisfactory and develop a novel reply to the problem.