Model specification via sequential coherence and backward induction

Abstract: This paper describes how to specify probability models for data analysis via a backward induction procedure. The new approach yields coherent, prior-free uncertainty assessment. After presenting some intuition-building examples, the new approach is applied to a kernel density estimator, which leads to a novel method for computing point-wise credible intervals in nonparametric density estimation. The new approach has two additional advantages; 1) the posterior mean density can be accurately approximated without resorting to Monte Carlo simulation and 2) concentration bounds are easily established as a function of sample size.