On the Equivalence between Bayesian and Classical Hypothesis Testing

Abstract

For hypotheses of the type H_0:theta=theta_0 vs H_1:theta ne theta_0 we demonstrate the equivalence of a Bayesian hypothesis test using a Bayes factor and the corresponding classical test, for a large class of models, which are detailed in the paper. In particular, we show that the role of the prior and critical region for the Bayes factor test is only to specify the type I error. This is their only role since, as we show, the power function of the Bayes factor test coincides exactly with that of the classical test, once the type I error has been fixed. For more complex tests involving nuisance parameters, we recover the classical test by using Jeffreys prior on the nuisance parameters, while the prior on the hypothesized parameters can be arbitrary up to a large class. On the other hand, we show that using proper priors on the nuisance parameters results in a test with uniformly lower power than the classical test.