Paper #1109

Title:

A new method for constructing exact tests without making any assumptions

Author:

Karl Schlag

Date:

August 2008

Abstract:

We present a new method for constructing exact distribution-free tests (and confidence intervals) for variables that can generate more than two possible outcomes. This method separates the search for an exact test from the goal to create a non- randomized test. Randomization is used to extend any exact test relating to means of variables with finitely many outcomes to variables with outcomes belonging to a given bounded set. Tests in terms of variance and covariance are reduced to tests relating to means. Randomness is then eliminated in a separate step. This method is used to create confidence intervals for the difference between two means (or variances) and tests of stochastic inequality and correlation.

Keywords:

Distribution-free, nonparametric, exact hypothesis testing, unavoidable inaccuracy, nonparametric Behrens-Fisher problem, UMPU test, Kendall's tau, Qn

JEL codes:

C12, C14

Area of Research:

Microeconomics

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