Econometrica: Sep 1994, Volume 62, Issue 5

The Large Sample Correspondence between Classical Hypothesis Tests and Bayesian Posterior Odds Tests

https://doi.org/0012-9682(199409)62:5<1207:TLSCBC>2.0.CO;2-K
p. 1207-1232

Donald W. K. Andrews

This paper establishes a correspondence in large samples between classical hypothesis tests and Bayesian posterior odds tests for models without trends. More specifically, tests of point null hypotheses and one- or two-sided alternatives are considered (where nuisance parameters may be present under both hypotheses). It is shown that for certain priors the Bayesian posterior odds test is equivalent in large samples to classical Wald, Lagrange multiplier, and likelihood ratio tests for some significance level and vice versa. The priors considered under the alternative hypothesis are taken to shrink to the null hypothesis at rate $n^{-1/2}$ as the sample size $n$ increases.

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