Info-Metrics Institute
College of Arts and Sciences, American University
Fall 2011 Newsletter
Director’s Message
Info-metrics is the science and art of processing information. Generally speaking, all information is limited
and all data are noisy. In practice, this means that all inferential problems are under-determined as all scientific
theories and models are based on limited and, at times, very scarce information. A major challenge for all
scientists is how to reason under conditions of incomplete information. The Info-Metrics Institute and its
affiliates work to address that challenge.
Contents
Director’s Message..........................1
Upcoming Events.............................1
Sponsor Spotlight...............................2
Grad Students In Their Words...........2
Notes from the Advisory Board............3
New Research Associates...................3
Our Work.........................................4
Affiliate Profile: Raphael Levine......7
Affiliate Profile: Essie Maasoumi....7
Thank You, ARO! ............................7
Short Term Visiting Fellows.............8
Institute Seminars.............................8
Recent Events..................................8
In the Institute’s second
year, we expanded our activities and focused on building the interdisciplinary
aspects of the program. We
welcomed visiting fellows
and researchers from across
the scientific spectrum and
hosted two major meetings
– the first with an emphasis on information-theoretic Roundtable participants (L-R: Alistair Hall, Duncan Foley, Ariel Caticha, Aman
econometrics, statistics and Ullah, Yuichi Kitamura, Eric Renault, Robin Lumsdaine, Peter Robinson and
Michael Stutzer) at the September 2010 conference
modeling; the second focus-
ing on the fundamental questions of inference and modeling within the natural sciences. A major objective of
both sessions was research into the foundations of info-metrics and entropic inference. Our proceedings and
special issue journal publication summarize much of this new research.
In 2010-11, the Institute’s successes included:
• an increase in participants of the Institute’s core interdisciplinary research group;
• one major conference and one workshop (September 2010 and May 2011);
• nine short term fellows (between 3 to 14 days each);
• an affiliates’ meeting following each conference to discuss
activities and research (about 25 affiliates);
• two graduate student summer fellowships;
• two short, hands-on classes taught by Ingmar Prucha and
Amos Golan;
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
• a working paper series and an updated online resource page.
We would like to thank the Office of the Comptroller of the Currency
for its continued support as well as the Army Research Office for its
generous one-time grant. Their support helped fund the majority of
the Institute’s activities.
We plan to keep pushing the research frontiers of info-metrics to
develop a leading interdisciplinary Institute. Bookmark our Web site
and check in frequently for updates. And please, give us your feedback
and ideas – we welcome your suggestions.
- Amos Golan, Director, Info-Metrics Institute
Upcoming Institute Events
October 2011 Workshop:
Philosophy of Information
(October 3, 2011)
November 2011 Workshop:
Information Theory and
Shrinkage Estimation
(November 12, 2011)
Spring 2012 Workshop:
Information and
Econometrics of Networks
(March 30-31, 2012)
All events will be held at
American University.
For more information,
please visit our website.
Info-Metrics Institute Fall 2011 Newsletter
2
The Info-Metrics Institute and Financial Reform
The Office of the
Comptroller of the
Currency
(OCC)
supervises and regulates many of the largest banks in the country,
banks that use increasingly complex modeling techniques in
a continuously expanding range of applications. The OCC is
pleased to have supported the Institute since its creation, in part
because the Institute provides a way for OCC staff to enhance
their modeling expertise through ongoing exposure to an active
research community.
OCC staff have adopted methods based in information theory for
their own research; in addition, the activities of the Institute have
helped make OCC staff better able to evaluate methods used by
banks and verify that models are not used in ways that threaten
the health of individual banks or the banking system.
The recent financial crisis highlights another potentially important
contribution of the Institute to the broader mission of the OCC.
Analysts have cited various factors as potential contributors to the
crisis – among them the failure of at least some of the quantitative
models used in the financial sector. Although models were not
the sole or even a primary cause of the crisis, some problems did
stem from the use of analytical methods that were less effective
than they should have been. The financial crisis emphasized that
shortcomings in modeling approaches can contribute to significant
losses for investors and financial
firms, and impose serious economic
costs on society more broadly.
for control of “model risk,” defined as the potential for adverse
consequences from decisions based on incorrect or misused
model outputs. One of the themes of this new guidance is that
effective use of models by banks requires processes for ongoing
improvement, including exploration and evaluation of new and
better techniques and data. This makes it incumbent on modeling
experts to pursue new and better methods and approaches for use
in financial settings.
The OCC and other regulators around the world continue working
to strengthen the financial system through various initiatives as
part of broader financial reform. But it is clear that improvements
in financial modeling can play an important role in making the
financial system less susceptible to failure. The Institute is well
positioned to contribute to methodological improvements that
can make a practical difference in the operation of banks and
other financial firms. In this respect, the Institute supports reforms
that ultimately strengthen the global financial system and help
avert future crises.
The OCC is pleased to see the development and growth of an
organization like the Info-Metrics Institute with the potential for
such broad and substantial benefits.
- Mark Levonian, Senior Deputy Comptroller,
Office of the Comptroller of the Currency
Drawing in part from the lessons of
the financial crisis, the OCC recently
published guidance for banks
clarifying the OCC’s expectations
Info-Metrics September 2010 workshop participants gather before the beginning of a session
Graduate Students: In Their Own Words
“Over the summer, I studied the information theoretic basis of
multivariate measures of well-being. The aim of this research
is to gain an understanding of the changes in the distribution
of non-monetary measures of well-being across countries over
time.
The Institute’s summer graduate fellowship provided me
with a great opportunity to explore the literature and extend
my understanding of these information theoretic measures,
while further honing my research skills under the tutelage
of Amos.”
“As my current research involves the empirical examination
of structural transformation in Nicaraguan agriculture, I am
primarily seeking to make a probabilistic statement about entry/
exit, expansion, and contraction for different sizes/types of
producers in Nicaragua’s agricultural sector. Such questions are
typically approached with the use of Markov chain analysis,
which is a method that is particularly suited to estimation via
maximum entropy. Given that maximum entropy econometrics
was unfamiliar territory until recently, I found the summer
graduate fellowship to be extremely beneficial to my research in
particular as well as my understanding of info-metrics in general.”
- Skipper Seabold
– Heath Henderson
www.american.edu/info-metrics
3
Notes from the
Advisory Board
The Info-Metrics Institute
gained
momentum
last year with two
major conferences, the
development of web
resources,
access
to
software, a working paper
series, expansion of the
active visitor associate
program, and summer
courses on info-metrics
and spatial econometrics. The Institute’s program for the coming year is the most
ambitious yet, with three conferences (including a spring
2012 workshop on info-metrics and social networks), more
visiting associates, and initiatives to make info-metrics
techniques and research more accessible. We thank the Institute’s funders, conference planners,
speakers and participants for working with us and we
look forward to continuing to build a special network of
researchers and learners. - Robert Lerman, Chair
We are pleased to have
welcomed so many of you
to the Institute this year
through our conferences,
workshops, and shortterm visitor program. The
spirit of collegiality and
interdisciplinary interest
that we all embrace is
what makes the Institute
so special.
Welcome, New Research
Associates!
ROSSELLA BERNARDINI PAPALIA
Department of Statistical Sciences
University of Bologna, Italy
MARINE CARRASCO
Département de Sciences Economiques
Université de Montréal, Montréal, Canada
A. BOWEN GARRETT
McKinsey & Company,
Center for U.S. Health System Reform
Urban Institute,
Health Policy Center
NATHAN L. HARSHMAN
Department of Physics
American University
ATSUSHI INOUE
Department of Agricultural and Resource Economics
North Carolina State University
ILYA NEMENMAN
Departments of Physics and Biology
Population Biology, Ecology, and Evolution Graduate Program
Neuroscience Graduate Program
Computational and Life Sciences Initiative
Emory University
TAISUKE OTSU
Cowles Foundation & Department of Economics
Yale University
SHERMAN ROBINSON
Environment and Production Technology Division
Development Strategies and Governance Division
International Food Policy Research Institute
Washington, D.C.
VICTOR M. YAKOVENKO
Department of Physics
University of Maryland, College Park
For those of us who have come to info-metrics from the
social sciences, the spring 2011 workshop, “Info-Metrics
Across the Sciences,” exposed us to a new area of scholarly
inquiry and emphasized the extent to which entropic
inference crosses disciplinary boundaries. I’m confident
that our fall workshops on the Philosophy of Information
and Shrinkage Estimation will similarly expand our
understanding and create further discussion synergies. As
always, the Advisory Board welcomes your suggestions.
- Robin Lumsdaine, Member
Help us design a new logo!
We are seeking talented students, graphic designers,
and artists to enter the Info-Metrics Institute logo
design contest. The winning logo will be selected
by Institute staff and featured on our website and
all supporting materials. To enter, contact Aisha
Malik at malik@american.edu.
Info-Metrics Institute Fall 2011 Newsletter
4
Our Work: Promoting Interdisciplinary Research
Following is a list of representative research and recent publications by some of the Institute’s affiliates. More detailed information can be
found in the 2010-11 Info-Metrics Annual Report, which will be available on our website in November 2011.
Pieter Adriaans (University of Amsterdam)
Current research:
§Philosophy of information, generalized Kolmogorov complexity (with Golan), mathematical basis for a theory of facticity, study of data sets that show so-called saw tooth curve
dependencies (with Schultes)
Recent publications:
§Philosophy of information, Stanford Encyclopedia of Philosophy.
Rossella Bernardini Papalia (University of Bologna)
Current research:
§Exploration of entropy-based methods in ecological inference with spatial dependence; small area estimation problems; and spatial econometric models for panel data
James Bono (American University)
Current research:
§Investigation of entropic inference as a solution concept in
noncooperative games (with Golan)
§Development of a statistical strategic model of air carrier behavior
§Development of statistical strategic models of cyber security
for smart energy grids
Mehmet Caner (NC State University)
Current research:
§Adaptive lasso with heteroskedastic data
§Instrumental variable selection
Recent publications:
§A Near Minimax Risk Bound: Adaptive Lasso with Heteroskedastic Data in Instrumental Variable Selection (with M.
Fan)
Marine Carrasco (University of Montreal)
Current research:
§Generalization of empirical likelihood estimation to handle a
continuum or a countable infinite number of moment conditions
§Regularization techniques of the covariance matrix and its
application to portfolio selection in finance
Ariel Caticha (SUNY – Albany)
Current research:
§Development of general methods of entropic and Bayesian
inference
§Application of principles of entropic inference to the foundations of physics
§Quantum theory and the derivation of the Schroedinger
equation, of uncertainty relations, and an analysis of the
quantum measurement problem
§Application of principles of entropic inference to economic
modeling by focusing attention on simple models of highly
idealized economies (with Golan)
Duncan Foley (New School for Social Research and Santa Fe Institute)
Recent publications:
§Global warming and economic externalities, Economic
Theory (with Rezai and Taylor).
§Model description length priors in the urn problem, Computable, Constructive and Behavioural Economic Dynamics,
Routledge.
§The long-period method and Marx’s theory of value, The
Evolution of Economic Theory: Essays in Honour of Bertram Schefold, Routledge, Abington and New York.
§Mathematical formalism and political-economic content,
INET.
§Dynamics of output and employment in the U.S. economy,
NSSR SCEPA PERI Working Paper Series (with Basu).
A. Bowen Garrett (McKinsey & Co. and Urban Institute)
Current research:
§Economic and applied econometric modeling of health care
and policy
§Using info-metric methods in micro-simulation modeling of
health reforms
Ramo Gencay (Simon Fraser University)
Recent publications:
§Trading frequency and volatility clustering, Journal of Banking and Finance (with Xue).
§Financial Applications of Non-extensive Entropy, IEEE Signal Processing Magazine (with Gradojevic).
Info-Metrics May 2011 workshop participants
continues on page 5
www.american.edu/info-metrics
5
§Exploring instabilities and misspecification and their relationship with information theory
§Errors-in-variables estimation with
wavelets, Journal of Statistical
Computation and Simulation (with
Gradojevic).
George Judge (University of California - Berkeley)
§Investment horizon effect on asset allocation between value and
growth strategies, Economic Modelling (with In and Kim).
Recent publications:
§An Information Theoretic Approach to Econometrics. Cambridge University Press (with Mittelhammer).
§A family of empirical likelihood functions and estimators
for the binary response model, Journal of Econometrics
(with Mittelhammer).
John Geweke (U. of Technology Sydney)
Current research:
§Pooling financial and macroeconomic models for improved prediction
Ramo Gencay presents
at the September 2010
conference
Recent publications:
§Optimal Prediction Pools, Journal of Econometrics.
§Massively Parallel Sequential Importance Sampling with
Markov Chain Renewal (with Amisano).
Other updates:
§Appointed Theil Chair in Econometrics at Erasmus University Rotterdam, succeeding Clive Granger.
Amos Golan (American University)
Current research:
§Foundations of info-metrics and entropic inference
§Info-metrics and extreme events; info-metrics modeling and
applications
Alastair Hall (University of Manchester)
Current research:
§Estimation of the parameters of economic and statistical
models based on the information in moment conditions
§Generalized Method of Moments and Generalized Empirical Likelihood, including moment selection and structural stability testing.
§Applications of GMM and GEL to financial, macroeconomic
and health economic data
Nathan Harshman (American University)
Current research:
§Investigating how information, correlation, and entanglement can
be used to understand interacting quantum systems and the emergent distinctions between the quantum and the classical world
§Applying symmetry methods to characterize invariant measures of information and entanglement in physical systems
Recent publications:
§Observables can be tailored to change the entanglement of
any pure state, Physical Review A.
Atsushi Inoue (NC State University)
Current research:
§Macroeconometrics, time series econometrics, forecasting
§Large deviations theory and econometric information recovery, Handbook of Empirical Economics and Finance (with
Grendar).
Nicholas Kiefer (Cornell University)
Current research:
§Bayesian methods in risk management and compensation
design in banks and financial institutions
§Incentive compatible elicitation and representation of information
Recent publications:
§The Bayesian Approach to Default Risk: A Guide, Rethinking Risk Measurement and Reporting: Vol II (with Jacobs).
Robin Lumsdaine (American University)
Current research:
§Exploring the relationship between financial market perceptions and reality, and the role of news and information in shaping those perceptions
§Testing conventional wisdoms in the inflation-linked bond
market
§How survey design affects participant responses and subsequent inference
§The impact of the changing demographic landscape on the
global financial markets
Ilya Nemenman (Emory University)
Current research:
§Information channel capacities of molecular networks
Recent publications:
§Information channel capacities of molecular networks
§Information theory and adaptation, Quantitative Biology,
(Ed. M.E. Wall)
Taisuki Otsu (Yale University)
Current research:
§Application of information theoretic method for Bayesian
semiparametric analysis, such as moment condition models
and single index models
continues on page 6
Info-Metrics Institute Fall 2011 Newsletter
6
§Robustness analysis of information theoretic bootstrap inference by using breakdown point theory
§Large deviation analysis of information theoretic approach
for statistical estimation, hypothesis testing, and model selection techniques
§Causal inference
§The relationship between coherence, confirmation and causation
§Applications of causal model search applied to genetic regulatory network search
Jeffrey Racine (McMaster University)
Richard Smith (University of Cambridge)
Current research:
§Regression spline methods in categorical predictors setup
Current research:
§Exploring the theory of estimation and inferential methods
for econometric models specified through moment conditions
§Kernel smoothing and regression splines
Recent publications:
§Additive Regression Splines with Irrelevant Categorical and
Continuous Regressors, The Comprehensive R Archive Network (www.r-project.org), (with Ma).
§Spline Regression in the Presence of Categorical Predictors,
The Comprehensive R Archive Network (www.r-project.
org), (with Ma and Yang).
§The ‘crs’ package for R, The Comprehensive R Archive Network (www.r-project.org).
Eric Renault (Brown University)
Current research:
§Variance targeting for heavy tailed time seriess
§Inference with implied probabilities
§Testing strength of identification in moment conditions models
§Stochastic Volatility models for Option Pricing
§Volatility Measurement with High Frequency Data in Finance
Recent publications:
§Nonparametric Instrumental Regression (with Darolles, Fan
and Florens), Econometrica.
§Efficient Derivative Pricing by Extended Method of Moments (with Gourieroux and Gagliardini), Econometrica.
Other updates:
§Joined Brown University as the C.V. Starr Professor of Economics, effective July 1, 2011.
§Development of valid inferential methods when confronted
by instruments weakly correlated with endogenous variables
§Development of reliable inferential methods in the moment
condition context based on the bootstrap, a computationally
intensive tool that has had success in other applications
Michael Stutzer (University of Colorado – Boulder)
Current research:
§Exploration of info-metric optimal hedging using futures
contracts
David Wolpert (NASA Ames Research Center)
Current research:
§Self-dissimilarity and complexity, quantification of selfdissimilarity for real world data (with Macready)
§Predictive game theory, Bayesian approach to formulating
distribution-valued concepts, entropic priors (with Bono)
Recent publications:
§Decision Making with Imperfect Decision Makers, Springer.
Ximing Wu (Texas A&M University)
Current research:
§Nonparametric and information-theoretic methods in econometrics
§Data-driven information-theoretic methods of distributional
and specification hypotheses
§Nonparametric estimation of multivariate density and copula
density functions
Sherman Robinson (International Food Policy Research Institute)
§Semiparametric estimation of shape-constrained functions
Current research:
§Maximum entropy estimation methods, including estimating
national accounts and Social Accounting Matrices (SAMs)
for developing countries, and cross-entropy estimation of GIS
data at the pixel level for countries in sub-Saharan Africa
§Multi-attribute welfare inferences
Richard Scheines (Carnegie Mellon University)
Current research:
§Psychometric models and methods
Victor Yakovenko (University of Maryland)
Current research:
§Application of methods of statistical physics to economic,
financial, and social problems
§Exploration of probability distributions of money, wealth,
income, and energy consumption per capita
www.american.edu/info-metrics
7
Affiliate Profile:
Esfandiar (Essie) Maasoumi
Affiliate Profile:
Raphael Levine
Essie Maasoumi, Info-Metrics Institute Affiliate
Raphael Levine, Info-Metrics Institute Affiliate
Esfandiar “Essie” Maasoumi advances the objectives of the
Institute by sharing his extensive knowledge in the disciplines of
economics, econometrics, financial econometrics, information
theory and information-theoretic estimation methods.
Chemical Physicist Raphael “Raphy” Levine brings the
interdisciplinary work of the Institute to life through his
expertise in the foundation of information theory, maximum
entropy and the fundamentals of the natural sciences.
Essie’s wide-ranging areas of research include nonlinear
time series, nonparametric estimation methods, tests for
heteroskedasticity and structural change, measures of welfare
and mobility, and the study of neural networks.
Raphy is widely known for his contributions to the role of
energy in chemical reactions, but his work also involves
examining more abstract issues. “For this, methodologies based
on information theory and on algebraic quantum mechanics
are useful, as well as models that emphasize key aspects of
the problem and allow for a simple conceptual picture of the
dynamics as much as exact numerical simulations,” he says.
In our new section, Affiliate
Profiles, we share
the stories of the
people behind the
Institute’s success
and shed light on
the interdisciplinary nature of their
work. Our first installment features
Essie Maasoumi
and Raphy Levine.
He serves as the Arts and Sciences
Distinguished
Professor
of
Economics at Emory University
in Atlanta and he is the editor of
Econometric Reviews. He has
been a Fellow of the Journal of
Econometrics since 1989 and a
Fellow of the Royal Society since
1991.
In 2011, he was named as
a Fellow of the American
Statistical Association.
Essie’s 1993 compendium in
Econometric Reviews is the first
survey article on information
theory in economics and
econometrics.
He is ranked 37th in the world in The Econometricians’ Hall
of Fame.
Thank You, ARO!
The U.S. Army Research Laboratory’s Army
Research Office (ARO) has co-sponsored
two Info-Metrics Institute workshops to date.
We wish to thank Dr. Janet Spoonamore and the Decision and
Neurosciences Program of ARO for their generous support.
Raphy’s work combines the principle of maximum entropy
with information theoretic inversion procedures to the basics
of chemical, physical and biological applied and theoretical
research.
He is a member of Academia Europaea, American Academy
of Arts and Sciences, American Philosophical Society,
International Academy of Quantum Molecular Science, Israel
Academy of Sciences & Humanities, Max Planck Society,
Royal Danish Academy of Sciences and Letters, and the U.S.
National Academy of Sciences.
He was Alfred P. Sloan Fellow and has honorary degrees from
the Technische Universität München and from Liege University.
He has been the Miller Research Professor at UC Berkeley, the
A.D. While Professor at Large at Cornell, and the Max Born
Professor of Natural Philosophy at the Hebrew University. He
has received the Wolf Prize in Chemistry, the Max Planck Prize
for International Cooperation and other awards.
Raphy currently serves as distinguished professor of chemistry
in the College of Letters and Science and as distinguished
professor of medical and molecular pharmacology at the
School of Medicine of UCLA. He also serves as a member of
the editorial board of the Proceedings of the National Academy
of Sciences and of other scientific publications.
Info-Metrics Institute Fall 2011 Newsletter
8
Fall 2010/Spring 2011
Institute Visiting Fellows
Ramo Gencay (Simon Fraser University)
Luca Secondi (University of Florence)
Alastair Hall (University of Manchester)
Ximing Wu (Texas A&M University)
Eric Renault (Brown University)
Aman Ullah (University of California, Riverside)
Steve Pincus
Pieter Adriaans (University of Amsterdam)
Ariel Caticha (SUNY–Albany)
Recent Institute Events
FALL 2010 WORKSHOP
INFO-METRICS: THEORY AND
APPLICATIONS IN
THE SOCIAL SCIENCES
(September 24-25, 2010)
SPRING 2011 WORKSHOP
INFO-METRICS ACROSS
THE SCIENCES
(May 2, 2011)
Fall 2010/Spring 2011
Institute Seminars
Ximing Wu (Texas A&M)
“Semiparametric Estimation of Production Functions
with Shape Constraints” (with Robin Sickles)
Elvira Sojli and Wing Wah Tham (Erasmus University)
“The Impact of Foreign Government Investments:
Sovereign Wealth Fund Investments in the U.S.”
Ramo Gencay (Simon Fraser University)
“Testing Jumps with Wavelets”
Eric Renault (Brown)
“Generalized Method of Moments with Tail Trimming”
Petra Todd (U. Penn)
“Structural Estimation and Policy Evaluation in
Developing Countries”
Robin Lumsdaine (American U.)
“The Relationship between Oil Prices and Breakeven
Inflation Rates”
Amos Golan (American U.)
“An Entropic Framework for Modelling Economies”
Aman Ullah (UC, Riverside)
“Estimation and Forecasting of Dynamic Conditional
Covariance: A Semiparametric Multivariate Model”
Hashem Pesaran (University of Cambridge)
“On Identification of Bayesian DSGE Models”
*Visit our website for more information.
Support the Institute!
Info-Metrics Spring 2011 workshop roundtable L-R: Nick Kiefer,
David Wolpert, Robin Lumsdaine, and Pieter Adriaans
Please visit our website for archived materials.
Editors: Bethany Hardy (http://bethanyhardy.com) and Aisha Malik.
Interested in providing financial support to the
Institute? We are always open to new funding
sources and donations. With these resources, we
hope to establish more long-term fellowships for
students and junior and senior researchers. We
also hope to be able to expand our classes and
knowledge dissemination activities.
For more information, contact Aisha Malik
(malik@american.edu or 202-885-3770).