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Effect fusion using model-based clustering

Malsiner-Walli, Gertraud and Pauger, Daniela and Wagner, Helga (2018) Effect fusion using model-based clustering. Statistical Modelling, 18 (2). pp. 175-196. ISSN 1477-0342

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Abstract

In social and economic studies many of the collected variables are measured on a nominal scale, often with a large number of categories. The definition of categories can be ambiguous and different classification schemes using either a finer or a coarser grid are possible. Categorization has an impact when such a variable is included as covariate in a regression model: a too fine grid will result in imprecise estimates of the corresponding effects, whereas with a too coarse grid important effects will be missed, resulting in biased effect estimates and poor predictive performance. To achieve an automatic grouping of the levels of a categorical covariate with essentially the same effect, we adopt a Bayesian approach and specify the prior on the level effects as a location mixture of spiky Normal components. Model-based clustering of the effects during MCMC sampling allows to simultaneously detect categories which have essentially the same effect size and identify variables with no effect at all. Fusion of level effects is induced by a prior on the mixture weights which encourages empty components. The properties of this approach are investigated in simulation studies. Finally, the method is applied to analyse effects of high-dimensional categorical predictors on income in Austria.

Item Type: Article
Additional Information: This research was financially supported by the Austrian Science Fund FWF (P25850, V170 and P28740) and the Austrian National Bank (Jubiläumsfond 14663).
Keywords: categorical covariate, Sparse finite mixture prior, sparsity, MCMC sampling
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Version of the Document: Published
Depositing User: Gertraud Novotny
Date Deposited: 20 Feb 2018 15:46
Last Modified: 14 Mar 2019 10:32
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/85243/
URI: http://epub.wu.ac.at/id/eprint/6064

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