Info-Metrics Institute College of Arts and Sciences, American University Fall 2010 Newsletter Info-Metrics: An Interdisciplinary Institute Contents Director’s Update.........................1 Institute Events............................1 In Memoriam: Arnold Zellner........2 About the OCC............................2 Advisory Board Chair’s Message...2 Research Updates.....................3-4 Thanks to our Sponsors................3 Future Institute Events.................4 Essie Maasoumi, Arnold Zellner, Eric Renault, Robin Lumsdaine, Yuichi Kitamura, and Ariel Caticha speak at the Institute’s inaugural workshop in November 2009 The philosophy behind the Info-Metrics Institute is that information, information processing and entropic inference provide a unified approach to inference and learning across disciplines. The Institute’s mission is to promote the interdisciplinary study of information, information processing and decision rules based on efficient use of information. That mission is achieved through collaborations among researchers across the scientific spectrum and dissemination of knowledge through conferences, workshops and seminars as well as through short-term, hands-on classes at the graduate and post-graduate level. The Institute was established in August 2009 thanks to funding from the Office of the Comptroller of the Currency and additional support, including office space, provided by the College of Arts and Sciences at American University. The Institute meets a growing need to connect researchers across disciplines who are working on issues related to information processing and inference with limited information, including the fundamental problem of how to connect the observed and unobserved quantities in a coherent way. In its first year, the Institute has successfully Institute Fellows Seminars...........4 • established a core interdisciplinary research group (including an Advisory Board chaired by Robert Lerman of AU and the Urban Institute); Our Website..................................4 • organized two workshops (November 2009 and April 2010); • hosted five short term Senior Fellows (up to two weeks each) and a semester Senior Fellow; • provided one junior faculty summer fellowship and one graduate student summer fellowship; • organized two short, hands-on classes taught by John Geweke of UTS, Sydney and a member of the Institute’s Advisory Board, and Graham Elliott of UC San Diego; and • started building a major Info-Metrics resource environment for researchers on our Web site (managed by Ximing Wu of Texas A&M and a Research Associate of our Institute). American University Info-Metrics Institute Department of Economics Kreeger Hall 4400 Massachusetts Ave, NW Washington, D.C. 20016-8029 202-885-3770 202-885-3970 (fax) info-metrics@american.edu www.american.edu/info-metrics We plan to keep pushing the research frontiers of entropic inference and the search for improved information processing rules. We also hope to establish more longterm fellowships for students, as well as junior and senior researchers. Bookmark our Web site and check in frequently to find information about our activities. We are always open to new ideas. As we celebrate our first anniversary, we are also saddened by the death of our colleague and friend Arnold Zellner - a true academician and a founding member of the Institute. Our September 2010 conference is dedicated to his memory. - Amos Golan, Director, Info-Metrics Institute Key Institute Events 2009-10 • Fall 2009 Info-Metrics Workshop: Information Theoretic Estimation and Data Analysis November 20, 2009 • Spring 2010 Info-Metrics Workshop: Info-Metrics in the Natural Sciences and Its Implications for the Social Sciences April 27, 2010 • Fall 2010 Info-Metrics Conference: Theory and Applications September 24–25, 2010 Info-Metrics Institute Fall 2010 Newsletter 2 In Memoriam: Arnold Zellner (1927 – 2010) Arnold Zellner, a founding member of the Info-Metrics Institute, passed away on August 11, 2010. Arnold was one of the world’s leading econometricians and a kind and generous person. His work on Bayesian econometrics, statistics, system of equations, and entropic inference opened the door on new ways to understand data. Summaries of Arnold’s contributions can be found on the Web pages of the University of Chicago and UC–Berkeley. We will miss you, Arnold. Info-Metrics Institute and the OCC: Working Together to Serve the Public The Office of the Comptroller of the Currency (OCC) has been actively involved with the Info-Metrics Institute on several levels throughout its first year of existence. The OCC views the Institute as well positioned to make meaningful contributions to the agency’s ability to carry out its mission of ensuring a safe and sound national banking system; the activities of the Institute touch on multiple elements of the OCC’s regulatory work. The OCC supervises and regulates many of the largest banks in the country. Those banks use increasingly complex modeling techniques in an ever wider range of applications, from credit scoring for credit cards and mortgages, to pricing of structured financial products and other derivative instruments, to models that identify suspicious transactions to fight money laundering. OCC modeling experts evaluate these bank models to verify that they are not being used in ways that might threaten the health of the banking system. Often we encounter issues or questions that are not adequately addressed in the existing literature, and therefore require research. We do some of that research ourselves, but we also reach out to the broader research community – including scholars associated with this Institute – for ideas and possible answers. The OCC sees the Info-Metrics Institute as a particularly timely initiative, and one that likely will produce real value for our agency and for the public we serve. Those expectations certainly have been met in the Institute’s inaugural year; we have been pleased to be able to support the Institute, and look forward to its continued success in the year ahead. - Mark Levonian, Senior Deputy Comptroller, Office of the Comptroller of the Currency A Message from the Advisory Board Chair The development of the Info-Metrics Institute offers great potential for the application of stateof-the-art methods. As an economist who first became familiar with entropy concepts when analyzing income inequality, I generally focus on economic applications, such as distributional issues, industry studies, and finance. Yet, equally exciting is the cross-fertilization of ideas coming from disciplines outside economics. We hope and believe the Institute will become one of the rare places in academia where serious scholars will learn from each other, engage in intellectual arbitrage, and thereby widen their perspectives on using data to make progress on real-world problems in the natural and social sciences. - Robert Lerman, Chair, Info-Metrics Institute Advisory Board Info-Metrics Institute Fall 2010 Newsletter 3 Our Work – Expanding the Frontiers of Research Following is a sampling of the research agenda of some of the Institute’s affiliates. More information, including a detailed research agenda for each of our Affiliates, can be found in the 2009-10 Info-Metrics Institute Annual Report and on our website. Pieter Adriaans (University of Amsterdam) • Exploring facticity as a measure for meaningful information • Achieving a unified theory of entropy, computation and information Anil Bera (University of Illinois – Urbana-Champaign) • Developing information theoretic approaches to density estimation with applications to finance and income distribution • Investigating the interface between spatial analysis and entropy, leading to the thermodynamics of population concentration in big cities James Bono (American University) • Using the maximum entropy principle to infer the strategies of economic agents without assumptions on rationality or common knowledge • Applying ideas from information theory and game theory to mediation and peace negotiations Mehmet Caner (NC State University) • Violation of exogeneity in an instrumental variable regression framework • Joint testing of structural parameter and the correlation between instrument and the errors • Ariel Caticha (SUNY - Albany) • Applying entropic principles to thermodynamics and statistical mechanics • Testing an entropic approach to economic modeling by focusing attention on simple models of highly idealized economies Duncan Foley (New School for Social Research and Santa Fe Institute) • Application of statistical cluster analysis to images of the supra-chiasmatic nucleus (the locus of circadian rhythms in mammals) • Study of two-part coding in the process of theory choice within a Bayesian framework • Political economy of post-crisis global capitalism Ramo Gencay (Simon Fraser University) • Testing the presence of serial correlation in a stochastic process using a wavelet approach John Geweke (UTS - Sydney) • Time series analysis and Bayesian modeling of economic theory The Info-Metrics Institute thanks our primary sponsor: the Office of the Comptroller of the Currency. We also greatly appreciate the support we have received from the College of Arts and Sciences and the Department of Economics at American University. Audience members at the Institute’s inaugural workshop in November 2009 • Determining the posterior modal subjective probability distribution of an indifferent trader in prediction markets Amos Golan (American University) • Connecting theory, observable data and information processing into a unified framework of inference • Information theory, information processing and optimal decision rules based on efficient use of information Alastair Hall (University of Manchester) • Estimation of the parameters of economic and statistical models based on the information in moment conditions • Generalized Method of Moments, including moment selection, structural stability testing, inference in misspecified models and non-nested model comparison George Judge (University of California - Berkeley) • Unifying entropy functionals and applying them to information theory • Identifying an appropriate flexible parametric family and corresponding statistical models and estimators for binary response models Yuichi Kitamura (Yale University) • Incorporating Bayesian methods in semiparametric models using Information-Theoretic techniques • Investigating applications of nonparametric Bayesian methods in moment restriction models, where information theory plays an essential role Raphael Levine (The Hebrew University) • Fundamental principles of Information Theory and entropic inference across the sciences • Applying information theory to molecular reaction dynamics • Exploring the maximal entropy inference of oncogenicity Info-Metrics Institute Fall 2010 Newsletter 4 Check out our website for updates on the Institute’s work and upcoming events. Bookmark our site and visit often! www.american.edu/info-metrics Duncan Foley, Nick Kiefer, and Pieter Adriaans in a panel discussion at the Spring 2010 Workshop Robin Lumsdaine (American University) • Exploring the relationship between financial market perceptions and reality, and the role of news and information in shaping those perceptions • Studying the relationship between news attention and equity performance, questioning conventional wisdom related to the inflation-linked bond market Esfandiar Maasoumi (Emory University) • Employing nonparametric identification of aggregator functions to characterize and rank the multidimensional distribution of indicators of well being • Developing a more general approach to "matching" in program evaluation and treatment effect contexts via InfoMetrics Jeffrey Perloff (University of California - Berkeley) • Developing a new Information-Theoretic approach for estimating a demand system that takes account of zeroes, using the choke price and not the observed price for those who do not purchase M. Hashem Pesaran (Cambridge University) • Exploring econometric analysis of heterogeneous panels with spatial and common unobserved effects, panel unit root tests in the presence of error cross section dependence, global macroeconometric modelling, analysis of growth and convergence, and time series forecasting Upcoming Events* Eric Renault (University of North Carolina) • Moment selection through implied probabilities and efficient use of conditional moment restrictions in the context of time series with applications to efficient pricing of financial derivatives • Relationships between Information-Theoretic approaches to General Method of Moments (GMM) and Bayesian Method of Moments Michael Stutzer (University of Colorado - Boulder) • Exploring entropy-based estimation models, including the estimation of risk-neutra probabilities needed for derivative security valuation, and the estimation of parameters in econometric models amenable to GMM estimation David H. Wolpert (NASA Ames Research Center) • Exploring quantifications of self-dissimilarity that can be measured for many kinds of real-world data • Investigating a Bayesian approach to formulating distributionvalued concepts in predictive game theory Ximing Wu (Texas A&M University) • Exploring use of the maximum entropy density method for multivariate density estimation nonparametrically • Applying information-theoretic methods to inferences Institute Fellows Seminars: Spring 2010* Jeffrey S. Racine “Entropy in Hypothesis Testing: Review and Applications” Anil Bera “Spacial Analysis and Entropy” Ariel Caticha “Quantifying Rational Belief - Probability” “Updating Probabilities - Entropy” “Measuring Distinguishability - Information Geometry” • Spring 2011 Info-Metrics Workshop: Info-Metrics Across the Sciences May 2, 2011 – American University Esfandiar Maasoumi and Jeffrey S. Racine “Info-Metrics: Research Summary and Q & A with Students” • Fall 2011 Info-Metrics Workshop: Philosophy of Information October 3, 2011 – American University Dennis Glennon “Estimating Transition Matrices of Rated Syndicated Loans Using an Information Theoretic Approach” • Spring 2012 Info-Metrics Workshop: Information and Econometrics of Networks March 30-31, 2012 – American University *Visit our website for more information. The Institute thanks Bethany Hardy (http://bethanyhardy.com) and Aisha Malik for their help in producing this newsletter.