Odds Ratio

The odds ratio is used to find the probability of an outcome of an event when there are two possible outcomes and there is a plausible causal effect. For example, it can be used to measure the probability of a health repercussion based on whether or not the patient has been exposed to a certain substance. Or to find the probability of default when the customer income is high versus when it is low.

Application & Interpretation:

Odds Ratio is a robust statistic and has versatile applications. Suppose, from the above example we want to find out the odds of customer default with low income versus high income.

The function is defined by the following formula:

Where Px is the probability of default with low income and (1-Px) is the probability of non-default with low income. While Py is the probability of default with high income and (1-Py) of non-default with high income.

Thus, the above odds ratio will give the odds of a customer defaulting with low income over a customer defaulting with high income. You can apply this function on your own datasets in Analyttica TreasureHunt, by uploading your project and using our inbuilt algorithms.

See Also:

Log Odds Ratio, Logit Plot, Logistic Probability Score.