THREE ESSAYS ON THE APPLICATION OF MACHINE LEARNING METHODS IN ECONOMICS
Over the last decades, economics as a field has experienced a profound transformation from theoretical work toward an emphasis on empirical research (Hamermesh, 2013). One common constraint of empirical studies is the access to data, the quality of the data and the time span it covers. In general, a...
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| Format: | Others |
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UKnowledge
2018
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| Online Access: | https://uknowledge.uky.edu/agecon_etds/68 https://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1072&context=agecon_etds |
| Summary: | Over the last decades, economics as a field has experienced a profound transformation from theoretical work toward an emphasis on empirical research (Hamermesh, 2013). One common constraint of empirical studies is the access to data, the quality of the data and the time span it covers. In general, applied studies rely on surveys, administrative or private sector data. These data are limited and rarely have universal or near universal population coverage. The growth of the internet has made available a vast amount of digital information. These big digital data are generated through social networks, sensors, and online platforms. These data account for an increasing part of the economic activity yet for economists, the availability of these big data also raises many new challenges related to the techniques needed to collect, manage, and derive knowledge from them.
The data are in general unstructured, complex, voluminous and the traditional software used for economic research are not always effective in dealing with these types of data. Machine learning is a branch of computer science that uses statistics to deal with big data. The objective of this dissertation is to reconcile machine learning and economics. It uses threes case studies to demonstrate how data freely available online can be harvested and used in economics. The dissertation uses web scraping to collect large volume of unstructured data online. It uses machine learning methods to derive information from the unstructured data and show how this information can be used to answer economic questions or address econometric issues.
The first essay shows how machine learning can be used to derive sentiments from reviews and using the sentiments as a measure for quality it examines an old economic theory: Price competition in oligopolistic markets. The essay confirms the economic theory that agents compete for price. It also confirms that the quality measure derived from sentiment analysis of the reviews is a valid proxy for quality and influences price. The second essay uses a random forest algorithm to show that reviews can be harnessed to predict consumers’ preferences. The third essay shows how properties description can be used to address an old but still actual problem in hedonic pricing models: the Omitted Variable Bias. Using the Least Absolute Shrinkage and Selection Operator (LASSO) it shows that pricing errors in hedonic models can be reduced by including the description of the properties in the models. |
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