Model-robust regression and a Bayesian "sandwich" estimator

Abstract

We present a new Bayesian approach to model-robust linear regression that leads to uncertainty estimates with the same robustness properties as the Huber-White sandwich estimator. The sandwich estimator is known to provide asymptotically correct frequentist inference, even when standard modeling assumptions such as linearity and homoscedasticity in the data-generating mechanism are violated. Our derivation provides a compelling Bayesian justification for using this simple and popular tool, and it also clarifies what is being estimated when the data-generating mechanism is not linear. We demonstrate the applicability of our approach using a simulation study and health care cost data from an evaluation of the Washington State Basic Health Plan. © Institute ol Mathematical Statistics, 2010.