Testing predictive performance of binary choice models

Bas Donkers and Bertrand Melenberg

No EI 2002-01, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Binary 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.

Keywords: Binary choice; Marketing; Predictive performance; Testing (search for similar items in EconPapers)
Date: 2002-02-07
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Citations: View citations in EconPapers (6)

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