Note: Derivation of Normal Bayesian Test

The Normal Bayesian test is a statistical method used in hypothesis testing, particularly in the context of Bayesian statistics. It is applied to assess the validity of a null hypothesis (H0H_0) versus an alternative hypothesis (H1H_1) by considering the posterior distribution of a parameter of interest. This method is exemplified in Statistical Inference (2nd edition) by Casella and Berger, as shown on page 379.

Problem

Let X1,…,Xn∼iidN(θ,σ2)X_1, \dots, X_n \sim_{iid} N(\theta, \sigma^2) and the prior distribution θ∼N(μ,τ2)\theta \sim N(\mu, \tau^2). According to Example 7.2.16, the posterior θ∣xˉ∼N(nτ2xˉ+σ2μnτ2+σ2,σ2τ2nτ2+σ2)\theta \vert \bar{x} \sim N\left(\frac{n\tau^2\bar{x}+\sigma^2\mu}{n\tau^2 + \sigma^2}, \frac{\sigma^2\tau^2}{n\tau^2 + \sigma^2}\right).

The hypotheses of interest are:

H0:θ≤θ0\mboxvs.H1:θ>θ0.\text{H}_0: \theta\leq\theta_0 \mbox{ vs. } \text{H}_1: \theta > \theta_0.

What is the Bayesian test?

Normal Bayesian Test Derivation

If we choose to accept H0\text{H}_0, we have:

P(θ∈Θ0∥X1,…,Xn)≥P(θ∈Θ0c∥X1,…,Xn)=1−P(θ∈Θ0∥X1,…,Xn).P(\theta \in \mathcal{\Theta}_0 \|X_1, \dots, X_n) \geq P(\theta \in \mathcal{\Theta}^c_0 \|X_1, \dots, X_n) = 1 - P(\theta \in \mathcal{\Theta}_0 \|X_1, \dots, X_n).

Namely,

P(θ∈Θ0∥X1,…,Xn)=P(θ≤θ0∥X1,…,Xn)≥12.P(\theta \in \mathcal{\Theta}_0 \|X_1, \dots, X_n) = P(\theta \leq \theta_0 \|X_1, \dots, X_n) \geq \frac{1}{2}.

Let ZZ be defined as:

Z=θ−nτ2Xˉ+σ2μnτ2+σ2σ2τ2nτ2+σ2.Z = \frac{\theta - \frac{n\tau^2\bar{X}+\sigma^2\mu}{n\tau^2 + \sigma^2}}{\sqrt{\frac{\sigma^2\tau^2}{n\tau^2 + \sigma^2}}}.

Based on the posterior distribution π(θ∥xˉ)\pi(\theta \| \bar{x}), we have:

Z∥X1,…,Xn∼N(0,1).Z \| X_1, \dots, X_n \sim N(0, 1).

Accordingly, we can rewrite the inequality as:

P(θ≤θ0∥X1,…,Xn)=P(Z≤θ0−nτ2Xˉ+σ2μnτ2+σ2σ2τ2nτ2+σ2∥X1,…,Xn)≥12=P(Z≤0∥X1,…,Xn).P(\theta \leq \theta_0 \| X_1, \dots, X_n) = P\left(Z \leq \frac{\theta_0 - \frac{n\tau^2\bar{X}+\sigma^2\mu}{n\tau^2 + \sigma^2}}{\sqrt{\frac{\sigma^2\tau^2}{n\tau^2 + \sigma^2}}}\| X_1, \dots, X_n\right) \geq \frac{1}{2} = P(Z \leq 0\|X_1, \dots, X_n).

Therefore, the acceptance region is derived as:

θ0−nτ2Xˉ+σ2μnτ2+σ2σ2τ2nτ2+σ2≥0.\frac{\theta_0 - \frac{n\tau^2\bar{X}+\sigma^2\mu}{n\tau^2 + \sigma^2}}{\sqrt{\frac{\sigma^2\tau^2}{n\tau^2 + \sigma^2}}} \geq 0.

This simplifies to:

(nτ2+σ2)θ0≥nτ2Xˉ+σ2μ.(n\tau^2 + \sigma^2) \theta_0 \geq n\tau^2\bar{X} + \sigma^2\mu.

And further simplifies to:

Xˉ≤θ0+σ2(θ0−μ)nτ2.\bar{X} \leq \theta_0 + \frac{\sigma^2(\theta_0 - \mu)}{n\tau^2}.

Summary

In summary, the Normal Bayesian test is a hypothesis test that uses the posterior distribution of a parameter to evaluate a null hypothesis that the parameter is less than or equal to a specific value under the assumption of normality. This test involves standardizing the parameter and defining an acceptance region for a standardized variable, allowing us to make a decision about the null hypothesis based on the observed data and posterior distribution.