Machine learning applications in household-level demand prediction

Shuoli Zhao, Yufeng Lai, Chenglong Ye, Keehyun Lee

Research output: Contribution to journalArticlepeer-review

Abstract

Machine learning (ML) is becoming one of the most anticipated methods in predicting consumer demand. However, it is still uncertain how ML methods perform relative to traditional econometric methods under different dataset scales. This study estimates and compares the out-of-sample predictive accuracy of household budget share for organic fresh produce using two parametric models and six ML methods under regular and large sample sizes. Results show that ML method, particularly Logistic Elastic Net, performs better than econometric models under regular sample size. Contrarily, when dealing with big data, econometric models reach to same accuracy level as ML methods whereas random forest presents a possible overfitting problem. This study illustrates the competence of ML methods in demand prediction, but choosing the optimal method needs to consider product specifics, sample sizes, and observable features.

Original languageEnglish
JournalApplied Economics Letters
DOIs
StateAccepted/In press - 2022

Bibliographical note

Publisher Copyright:
© 2022 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • household demand
  • Machine learning
  • sample prediction
  • scanner data

ASJC Scopus subject areas

  • Economics and Econometrics

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