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Ridge Regression with Non-Zero Priors: Some Monte Carlo Results. Volume II.
Annual rept. 1 Sep 72-31 Aug 73,
ADMINISTRATIVE SCIENCES CORP ALEXANDRIA VA
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The report begins with a brief description of the analytic setting in which regression methods are applied in defense systems costing. Because of the characteristics of the data with which cost analysts typically work, classical least Squares can be a very unsatisfactory estimation procedure. This has prompted a number of analysts to turn to Hoerl and Kennards relatively new procedure known as Ridge Analysis, or Ridge Regression. It is shown that straightforward application of this method involves an implicit prior assignment of zero values to each of the unknown regression parameters being estimated. A rationale and method for introducing explicit non-zero priors is developed, and the theoretical properties of these estimates are examined. Modified author abstract
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