Article ID: | iaor201524043 |
Volume: | 61 |
Issue: | 7 |
Start Page Number: | 532 |
End Page Number: | 548 |
Publication Date: | Oct 2014 |
Journal: | Naval Research Logistics (NRL) |
Authors: | Miyaoka Julia, Azoury Katy S |
Keywords: | statistics: regression, learning |
We consider two regression models: linear and logistic. The dependent variable is observed periodically and in each period a Bayesian formulation is used to generate updated forecasts of the dependent variable as new data is observed. One would expect that including new data in the Bayesian updates results in improved forecasts over not including the new data. Our findings indicate that this is not always true. We show there exists a subset of the independent variable space that we call the ‘region of no learning.’ If the independent variable values for a given period in the future are in this region, then the forecast does not change with any new data. Moreover, if the independent variable values are in a neighborhood of the region of no learning, then there may be little benefit to wait for the new data and update the forecast. We propose a statistical approach to characterize this neighborhood which we call the ‘region of little learning.’ Our results provide insights into the trade‐offs that exist in situations when the decision maker has an incentive to make an early decision based on an early forecast versus waiting to make a later decision based on an updated forecast.