Exchangeable Testing Against an Unknown Benchmark

Abstract

We generate infinite binary exchangeable sequences by sequential comparison of data points against a latent benchmark. Assuming a prior distribution of the benchmark rank \(R_0\) within an unobserved group, we set up the Bayesian machinery that determines the posterior distribution of the running rank \(R_n\) in purely combinatorial terms. This yields an explicitly computable predictive probability of winning against the benchmark. The normalised running rank converges to a latent strength variable \(X\) with polynomial density, possibly Beta-tilted. Some min-max tournaments lead to particularly simple multiplicative formulae for predictive probabilities related to priors that generalise the Topp--Leone distribution; for that class we analyse the asymptotics of the associated fixed-\(n\) up-down Markov chains. The limiting diffusion has the classical Wright--Fisher variance but a nonlinear drift expressed explicitly via the prior density of the benchmark. Mixtures of Beta densities are classical objects in the theory of exchangeable sequences. The contribution of the present work is the combinatorial rank-based updating mechanism and the resulting explicit predictive laws for sequential testing against an unknown benchmark.