## reflections on the probability space induced by moment conditions with implications for Bayesian Inference [discussion]

[Following my earlier reflections on Ron Gallant’s paper, here is a more condensed set of questions towards my discussion of next Friday.]

“If one specifies a set of moment functions collected together into a vector m(x,θ) of dimension M, regards θ as random and asserts that some transformation Z(x,θ) has distribution ψ then what is required to use this information and then possibly a prior to make valid inference?” (p.4)

The central question in the paper is whether or not given a set of moment equations

$\mathbb{E}[m(X_1,\ldots,X_n,\theta)]=0$

(where both the Xi‘s and θ are random), one can derive a likelihood function and a prior distribution compatible with those. It sounds to me like a highly complex question since it implies the integral equation

$\int_{\Theta\times\mathcal{X}^n} m(x_1,\ldots,x_n,\theta)\,\pi(\theta)f(x_1|\theta)\cdots f(x_n|\theta) \text{d}\theta\text{d}x_1\cdots\text{d}x_n=0$

must have a solution for all n’s. A related question that was also remanent with fiducial distributions is how on Earth (or Middle Earth) the concept of a random theta could arise outside Bayesian analysis. And another one is how could the equations make sense outside the existence of the pair (prior,likelihood). A question that may exhibit my ignorance of structural models. But which may also relate to the inconsistency of Zellner’s (1996) Bayesian method of moments as exposed by Geisser and Seidenfeld (1999).

For instance, the paper starts (why?) with the Fisherian example of the t distribution of

$Z(x,\theta) = \frac{\bar{x}_n-\theta}{s/\sqrt{n}}$

which is truly is a t variable when θ is fixed at the true mean value. Now, if we assume that the joint distribution of the Xi‘s and θ is such that this projection is a t variable, is there any other case than the Dirac mass on θ? For all (large enough) sample sizes n? I cannot tell and the paper does not bring [me] an answer either.

When I look at the analysis made in the abstraction part of the paper, I am puzzled by the starting point (17), where

$p(x|\theta) = \psi(Z(x,\theta))$

since the lhs and rhs operate on different spaces. In Fisher’s example, x is an n-dimensional vector, while Z is unidimensional. If I apply blindly the formula on this example, the t density does not integrate against the Lebesgue measure in the n-dimension Euclidean space… If a change of measure allows for this representation, I do not see so much appeal in using this new measure and anyway wonder in which sense this defines a likelihood function, i.e. the product of n densities of the Xi‘s conditional on θ. To me this is the central issue, which remains unsolved by the paper.

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