Estimating random effects via adjustment for density maximization

. Like the MLE, ADM bases inferences on two derivatives, but ADM can approximate with any Pearson family, with Beta distributions being appropriate because shrinkage factors satisfy

0 l e B_{i} l e 1

. Our emphasis is on frequency properties, which leads to adopting a uniform prior on

A g e 0

, which then puts Stein's harmonic prior (SHP) on the

k

random effects. It is known for the "equal variances case"

V_{1} = ... = V_{k}

that formal Bayes procedures for this prior produce admissible minimax estimates of the random effects, and that the posterior variances are large enough to provide confidence intervals that meet their nominal coverages. Similar results are seen to hold for our approximating "ADM-SHP" procedure for equal variances and also for the unequal variances situations checked here. For shrinkage coefficient estimation, the ADM-SHP procedure allows an alternative frequency interpretation. Writing

L (A)

as the likelihood of

B_{i}

with

i

fixed, ADM-SHP estimates

B_{i}

as

h a t B_{i} = V_{i} / (V_{i} + h a t A)

with

h a t A e q u i v o p e r a t o r n a m e a r g m a x (A * L (A))

. This justifies the term "adjustment for likelihood maximization," ALM.

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