Topic 5 Prediction
In this part of the class, we’ll learn how to use regressions and “machine learning” in order to predict outcomes of interest using available, related data. One key issue when it comes to making predictions is that we typically have lots of possible models that we could use to make the predictions. Choosing which of these models works best, or model selection, is therefore often an important step when it comes to making good predictions.
Another important issue with prediction is a focus on making out-of-sample predictions. We can usually make better within-sample predictions just by making the model more complicated, but this often leads to over-fitting — predictions that are “too specific” to our particular data.