CAS Exam 8 Fall 2016, Question 7
Study guide: Exam 8
A company is considering modifying its rating plan to include factors by age group. Below are statistics for the base model and for the new model.
| Statistic | Base Model | New Model |
|---|---|---|
| Loglikelihood | -750 | -737.5 |
| Deviance | 500 | 475 |
| Parameters | 10 | 15 |
| Data points | 1,000,000 | 1,000,000 |
Part a (1 point)
Calculate the Akaike Information Criterion (AIC) and the Bayesian Information Criterion (BIC) for both models.
Part b (0.25 points)
Explain whether AIC or BIC is a more reliable test statistic as an indicator of whether to adopt the new model.
Part c (0.25 points)
Recommend and briefly justify whether to adopt the new model.
Answer this question and see the worked solution