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Bayesian Essentials and Bayesian Regression. Y. 1. 1. X. Distribution Theory 101. Marginal and Conditional Distributions:. uniform. Simulating from Joint. To draw from the joint: i. draw from marginal on X ii. Condition on this draw, and draw from conditional of Y|X.

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distribution theory 101





Distribution Theory 101
  • Marginal and Conditional Distributions:


simulating from joint
Simulating from Joint
  • To draw from the joint:
    • i. draw from marginal on X
    • ii. Condition on this draw, and draw from conditional of Y|X
the goal of inference
The Goal of Inference
  • Make inferences about unknown quantities using available information.
  • Inference -- make probability statements
  • unknowns --
    • parameters, functions of parameters, states or latent variables, “future” outcomes, outcomes conditional on an action
  • Information –
    • data-based
    • non data-based
      • theories of behavior; “subjective views” there is an underlying structure
      • parameters are finite or in some range
data aspects of marketing problems
Data Aspects of Marketing Problems
  • Ex: Conjoint Survey
    • 500 respondents rank, rate, chose among product configurations.
    • Small Amount of Information per respondent
    • Response Variable Discrete
  • Ex: Retail Scanning Data
    • very large number of products
    • large number of geographical units (markets, zones, stores)
    • limited variation in some marketing mix vars
    • Must make plausible predictions for decision making!
the likelihood principle
The likelihood principle

Note: any function proportional to data density can be called the likelihood.

  • LP: the likelihood contains all information relevant for inference. That is, as long as I have same likelihood function, I should make the same inferences about the unknowns.
  • Implies analysis is done conditional on the data,.
bayes theorem
Bayes theorem
  • p(|D)  p(D| ) p()
  • Posterior  “Likelihood” × Prior
  • Modern Bayesian computing– simulation methods for generating draws from the posterior distribution p(|D).
summarizing the posterior
Summarizing the posterior

Output from Bayesian Inf:

A high dimensional dist

Summarize this object via simulation:

marginal distributions of

don’t just compute


See D,compute:

“Predictive Distribution”

decision theory
Decision theory
  • Loss: L(a,) where a=action; =state of nature
  • Bayesian decision theory:
  • Estimation problem is a special case:
sampling properties of bayes estimators
Sampling properties of Bayes estimators

An estimator is admissible if there exist no other estimator with lower risk for all values of . The Bayes estimator minimizes expected (average) risk which implies they are admissible:

The Bayes estimator does the best for every D. Therefore, it must work as at least as well as any other estimator.

bayes inference summary
Bayes Inference: Summary
  • Bayesian Inference delivers an integrated approach to:
    • Inference – including “estimation” and “testing”
    • Prediction – with a full accounting for uncertainty
    • Decision – with likelihood and loss (these are distinct!)
  • Bayesian Inference is conditional on available info.
  • The right answer to the right question.
  • Bayes estimators are admissible. All admissible estimators are Bayes (Complete Class Thm). Which Bayes estimator?
bayes classical estimators
Bayes/Classical Estimators

Prior washes out – locally uniform!!! Bayes is consistent unless you have dogmatic prior.

benefits costs of bayes inf
Benefits/Costs of Bayes Inf


finite sample answer to right question

full accounting for uncertainty

integrated approach to inf/decision


computational (true any more? < classical!!)

prior (cost or benefit?)

esp. with many parms

(hierarchical/non-parameric problems)

bayesian computations
Bayesian Computations

Before simulation methods, Bayesians used posterior expectations of various functions as summary of posterior.

If p(θ|D) is in a convenient form (e.g. normal), then I might be able to compute this for some h. Via iid simulation for all h.

conjugate families
Conjugate Families
  • Models with convenient analytic properties almost invariably come from conjugate families.
  • Why do I care now?
      • - conjugate models are used as building blocks
      • build intuition re functions of Bayesian inference
  • Definition:
  • A prior is conjugate to a likelihood if the posterior is in the same class of distributions as prior.
  • Basically, conjugate priors are like the posterior from some imaginary dataset with a diffuse prior.
regression model
Regression model

Is this model complete? For non-experimental data, don’t we need a model for the joint distribution of y and x?

regression model22

two separate analyses

Regression model

simultaneous systems are not written this way!

rules out x=f(β)!!!

If Ψ is a priori indep of (β,σ),

conjugate prior
Conjugate Prior

What is conjugate prior? Comes from form of likelihood function. Here we condition on X.

quadratic form suggests normal prior.

Let’s – complete the square on βor rewrite by projecting y on X (column space of X).

geometry of regression






Geometry of regression
traditional regression
Traditional regression
  • No one ever computes a matrix inverse directly.
  • Two numerically stable methods:
    • QR decomposition of X
    • Cholesky root of X’X and compute inverse using root
  • Non-Bayesians have to worry about singularity or near singularity of X’X. We don’t! more later
cholesky roots
Cholesky Roots

In Bayesian computations, the fundamental matrix operation is the Cholesky root. chol() in R

The Cholesky root is the generalization of the square root applied to positive definite matrices.

As Bayesians with proper priors, we don’t ever have to worry about singular matrices!

U is upper triangular with positive diagonal elements. U-1 is easy to compute by recursively solving TU = I for T, backsolve() in R.

cholesky roots27
Cholesky Roots

Cholesky roots can be useful to simulate from Multivariate Normal Distribution.

To simulate a matrix of draws from MVN (each row is a separate draw) in R,



regression with r


A 1 0.23815 0.43730

A 2 0.55508 0.47938

A 3 3.03399 -2.17571

A 4 -1.49488 1.66929

B 10 -1.74019 0.35368

B 9 1.40533 -1.26120

B 8 0.15628 -0.27751

B 7 -0.93869 -0.04410

B 6 -3.06566 0.14486




# purpose: compute lsq regression


# arguments:

# y -- vector of dep var

# X -- array of indep vars


# output:

# list containing lsq coef and std errors









Regression with R
regression likelihood30
Regression likelihood

This is called an inverted gamma distribution. It can also be related to the inverse of a Chi-squared distribution.

Note the conjugate prior suggested by the form the likelihood has a prior on βwhich depends on σ.

bayesian regression
Bayesian Regression


Interpretation as from another dataset.

Inverted Chi-Square:

Draw from prior?

iid simulations
IID Simulations

Scheme: [y|X, , 2] [|2] [2]

1) Draw [2 | y, X]

2) Draw [ | 2,y, X]

3) Repeat

bayes estimator
Bayes Estimator

The Bayes Estimator is the posterior mean of β.

Marginal on β is a multivariate student t.

Who cares?

shrinkage and conjugate priors
Shrinkage and Conjugate Priors

The Bayes Estimator is the posterior mean of β.

This is a “shrinkage” estimator.

Is this reasonable?

assessing prior hyperparameters
Assessing Prior Hyperparameters

These determine prior location and spread for both coefs and error variance.

It has become customary to assess a “diffuse” prior:

This can be problematic. Var(y) might be a better choice.

improper or non informative priors
Improper or “non-informative” priors

Classic “non-informative” prior (improper):

  • Is this “non-informative”?
    • Of course not, it says that  is large with high prior “probability”
  • Is this wise computationally?
    • No, I have to worry about singularity in X’X
  • Is this a good procedure?
    • No, it is not admissible. Shrinkage is good!
  • runireg=
  • function(Data,Prior,Mcmc){
  • #
  • # purpose:
  • # draw from posterior for a univariate regression model with natural conjugate prior
  • #
  • # Arguments:
  • # Data -- list of data
  • # y,X
  • # Prior -- list of prior hyperparameters
  • # betabar,A prior mean, prior precision
  • # nu, ssq prior on sigmasq
  • # Mcmc -- list of MCMC parms
  • # R number of draws
  • # keep -- thinning parameter
  • #
  • # output:
  • # list of beta, sigmasq draws
  • # beta is k x 1 vector of coefficients
  • # model:
  • # Y=Xbeta+e var(e_i) = sigmasq
  • # priors: beta| sigmasq ~ N(betabar,sigmasq*A^-1)
  • # sigmasq ~ (nu*ssq)/chisq_nu
  • RA=chol(A)
  • W=rbind(X,RA)
  • z=c(y,as.vector(RA%*%betabar))
  • IR=backsolve(chol(crossprod(W)),diag(k))
  • # W\'W=R\'R ; (W\'W)^-1 = IR IR\' -- this is UL decomp
  • btilde=crossprod(t(IR))%*%crossprod(W,z)
  • res=z-W%*%btilde
  • s=t(res)%*%res
  • #
  • # first draw Sigma
  • #
  • sigmasq=(nu*ssq + s)/rchisq(1,nu+n)
  • #
  • # now draw beta given Sigma
  • #
  • beta = btilde + as.vector(sqrt(sigmasq))*IR%*%rnorm(k)
  • list(beta=beta,sigmasq=sigmasq)
  • }
inverted wishart distribution
Inverted Wishart distribution

Form of the likelihood suggests that natural conjugate (convenient prior) for  would be of the Inverted Wishart form:


  • - tightness

V- location

however, as  increases, spread also increases

limitations: i. small  -- thick tail ii. only one tightness parm

drawing from posterior rmultireg
Drawing from Posterior: rmultireg






# note: Y,X,A,Bbar must be matrices!


# W\'W = R\'R & (W\'W)^-1 = IRIR\' -- this is the UL decomp!


# IRIR\'(W\'Z) = (X\'X+A)^-1(X\'Y + ABbar)





# now draw B given Sigma note beta ~ N(vec(Btilde),Sigma (x) Cov)

# Cov=(X\'X + A)^-1 = IR t(IR)

# Sigma=CICI\'

# therefore, cov(beta)= Omega = CICI\' (x) IR IR\' = (CI (x) IR) (CI (x) IR)\'

# so to draw beta we do beta= vec(Btilde) +(CI (x) IR)vec(Z_mk)

# Z_mk is m x k matrix of N(0,1)

# since vec(ABC) = (C\' (x) A)vec(B), we have

# B = Btilde + IR Z_mk CI\'


B = Btilde + IR%*%matrix(rnorm(m*k),ncol=m)%*%t(rwout$CI)

conjugacy is fragile
Conjugacy is Fragile!


set of regressions “related” via correlated errors

BUT, no joint conjugate prior!!