Power of Tests in Binary Response Models

Posted: 15 Apr 1998

See all articles by N. Eugene Savin

N. Eugene Savin

University of Iowa - Henry B. Tippie College of Business - Department of Economics

Allan Wurtz

Aarhus University - Department of Economics and Business Economics

Date Written: Undated

Abstract

Most hypotheses in binary response models are composite. The null hypothesis is usually that one or more slope coefficients are zero. Typically, the sequence of alternatives of interest is one in which the slope coefficients are increasing in absolute value. In this paper, we prove that the power goes to zero for this sequence of alternatives of interest in cases which often occur in practice. The practical implication is that for the sequence of alternatives of interest the power is nonmonotonic. This is true for any non-randomized test with size less than one and for a wide class of binary response models which includes the logit and probit models.

JEL Classification: C1, C2, C3, C4, C5, C8

Suggested Citation

Savin, Nathan Eugene and Wurtz, Allan, Power of Tests in Binary Response Models (Undated). Available at SSRN: https://ssrn.com/abstract=4180

Nathan Eugene Savin (Contact Author)

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0855 (Phone)

Allan Wurtz

Aarhus University - Department of Economics and Business Economics ( email )

Universitetsparken
Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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