A BAYESIAN APPROACH TO DISCRIMINATION AMONG ECONOMIC MODELS*

Frequently, alternative theories are proposed as relevant models for an economic process. Which alternative is a relatively better representation is a question of fact, but empirical methods of resolving the issue have not been compelling. This study developes a technique for discrimination from Bayesian statistical theory. This technique can analyze an arbitrary number of alternatives simultaneously, and each alternative can be characterized by distribution theory appropriate to its structure. An example, the aggregate consumption function, is considered, and each alternative is characterized by the Normal regression process. The results may only be regarded as suggestive, as the parameterization of the structure may be incomplete on that assumption.