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Credibility vs time shifting parameters
When there are shifting param over time, older years of data should be given substantially less cred than more recent years. There may be only a minimal gain in efficiency from using add'l yrs of data.
Testing for shifting parameters over time
Chi-square: |actual - exp|2/exp, df = n - 1
Interpretation: x% chance diff obs from same distribution
Avg Correlation btwn pair of yrs
Interpretation: look if evolves or not over time
Simple methods to derive new estimate
all weight in mean (Z = 0)
all weight in latest data (Z = 1)
X = ZY1 + (1 - Z)Y2X = (Z/M)ΣYi + (1-Z)M
Note: A simplification of a general method is equal or inferior
General methods to derive new estimate
goal is to reflect the fact that most recent yrs have more value