Abstract
The Minerals Management Service (MMS) produces estimated probability distributions for undiscovered oil resources for several offshore planning areas. For each planning area, the mean of this distribution is taken as the point estimate of the resource quantity. We formulate the problem of point estimation in decision-theoretic terms. Under this formulation, the choice of the mean as the point estimate involves the implicit adoption of a quadratic loss function. We show that, as a consequence of the form of the distributions produced by the MMS, the optimal point estimate is very sensitive to the choice of loss function.
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