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Estimation under Profit-Driven Loss Functions
Robert C. Blattberg and Edward I. George
Journal of Business & Economic Statistics
Vol. 10, No. 4 (Oct., 1992), pp. 437-444
Stable URL: http://www.jstor.org/stable/1391819
Page Count: 8
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Consider the problem of estimating a price-sensitivity parameter in a demand model. Depending on the context in which the estimate will be used, traditional squared-error loss may be inappropriate. We consider the situation in which the estimate will be used by a manufacturer to set the price. Effectively, the manufacturer's goal of profit maximization induces a loss function that turns out to be asymmetric. Estimators that perform well with respect to such loss functions are obtained. A real example is considered in which, compared to traditional estimation under squared-error loss, this approach leads to smaller price-sensitivity estimates, suggesting higher optimal prices.
Journal of Business & Economic Statistics © 1992 American Statistical Association