Log-Odds Ratio- Analytics Function Series
Log odds ratio is simply the natural log of the odds ratio. An odds ratio is a relationship between the exposure of one variable and the occurrence of the other. What are the odds of Y occurring given the exposure to X as opposed to no exposure.
The log odds ratio is the logarithm of this ration. Mathematically it is the log of the odds ratio which is:
Application & Interpretation:
For example, if we want to find out the log odds ratio of default of customers if they have low income versus if they have a high income. In the above equation, Px would be the probability of default of customers with low income and (1-Px) the probability of non-default of customers with low income. While Py is the probability of default of customers with high income and (1-Py) of non-default of customers with high income. The Log odds ratio would give the logarithmic odds of a customer with low income defaulting over a customer with high income defaulting.
Input:
To run the Log Odds ratio in Analyttica TreasureHunt, you should select the target binary variable and one independent variable. If you select multiple independent variables, it will do the calculation only the last independent variable in the list.
Output:
The function creates 20 buckets of the independent variables in the increasing order of value and produces a table of Mean value of each bucket and calculated Log Odds value.
See Also:
