16.1 Prediction
Definition: Prediction, denoted as \(\hat{y}\), is about creating an algorithm for predicting the outcome variable \(y\) from predictors \(x\).
Goal: The primary goal is loss minimization, aiming for model accuracy on unseen data:
\[ \hat{f} \approx \min E_{(y,x)} L(f(x), y) \]
Applications in Economics:
- Measure variables.
- Embed prediction tasks within parameter estimation or treatment effects.
- Control for observed confounders.