Prediction in M-complete problems with limited sample size

Abstract

We define a new Bayesian predictor called the posterior weighted median (PWM) and compare its performance to several other predictors includ- ing the Bayes model average under squared error loss, the Barbieri-Berger me- dian model predictor, the stacking predictor, and the model average predictor based on Akaike's information criterion. We argue that PWM generally gives better performance than other predictors over a range of M-complete problems. This range is between the M-closed-M-complete boundary and the M-complete- M-open boundary. Indeed, as a problem gets closer to M-open, it seems that M-complete predictive methods begin to break down. Our comparisons rest on extensive simulations and real data examples. As a separate issue, we introduce the concepts of the 'Bail out effect' and the 'Bail in effect'. These occur when a predictor gives not just poor results but defaults to the simplest model ('bails out') or to the most complex model ('bails in') on the model list. Either can occur inM-complete problems when the complexity of the data generator is too high for the predictor scheme to accommodate. © 2013 International Society for Bayesian Analysis.