Testing predictive performance of binary choice models
AbstractBinary choice models occur frequently in economic modeling. A measure of the predictive performance of binary choice models that is often reported is the hit rate of a model. This paper develops a test for the outperformance of a predictor for binary outcomes over a naive prediction method, which predicts the outcome that is most often observed. This is done for a general class of prediction models, including the well known Probit and Logit models. In many cases the test is easy to compute. The test is then applied and compared to a general test of Pesaran and Timmermann (1992) for dependence between predictors and realizations.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2002-01.
Date of creation: 07 Feb 2002
Date of revision:
Binary choice; Marketing; Predictive performance; Testing;
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