Real estate price prediction under asymmetric loss |
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Authors: | Michael Cain Christian Janssen |
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Institution: | (1) Department of Economics, University of Salford, The Crescent, M5 4WT Salford, UK;(2) Department of Finance and Management Science, University of Alberta, T6G 2R6 Edmonton, Canada |
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Abstract: | This paper deals with the problem of how to adjust a predictive mean in a practical situation of prediction where there is asymmetry in the loss function. A standard linear model is considered for predicting the price of real estate using a normal-gamma conjugate prior for the parameters. The prior of a subject real estate agent is elicited but, for comparison, a diffuse prior is also considered. Three loss functions are used: asymmetric linear, asymmetric quadratic and LINEX, and the parameters under each of these postulated forms are elicited. Theoretical developments for prediction under each loss function in the presence of normal errors are presented and useful tables of adjustment factor values given. Predictions of the dependent price variable for two properties with differing characteristics are made under each loss function and the results compared. |
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Keywords: | Asymmetric loss Bayesian prediction real estate valuation |
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