Robust latent data representations

Economic agents often infer latent structures—such as preference types— from data, without exogenously specified priors. We model such agents as empirical Bayesians. They estimate both the prior over types and the meanings of types via maximum likelihood. We show this estimation is equivalent to decomposing the sample into subsamples, each best explained by a single available latent type, with the decomposition minimizing the average misfit. The equivalence yields structural properties: optimal latent representations are robust (type definitions locally invariant to data changes) and simple (type count bounded). We extend these properties to agents who face frictions in evaluating likelihoods.

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Publication Details

Journal
Universität Zürich, ZORA
Published
2024-11-19
DOI
https://doi.org/10.5167/uzh-283351
Primary Topic
Consumer Market Behavior and Pricing
Type
article
Field-Weighted Citation Impact
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article

Robust latent data representations

Jakub Steiner, Larry Samuelso
Universität Zürich, ZORA
Consumer Market Behavior and Pricing
article

Robust latent data representations

Jakub Steiner, Larry Samuelso
article en

Abstract

Economic agents often infer latent structures—such as preference types— from data, without exogenously specified priors. We model such agents as empirical Bayesians. They estimate both the prior over types and the meanings of types via maximum likelihood. We show this estimation is equivalent to decomposing the sample into subsamples, each best explained by a single available latent type, with the decomposition minimizing the average misfit. The equivalence yields structural properties: optimal latent representations are robust (type definitions locally invariant to data changes) and simple (type count bounded). We extend these properties to agents who face frictions in evaluating likelihoods.

Universität Zürich, ZORA
Openalex Percentile: Top 35%
Consumer Market Behavior and Pricing
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