Exact test

In statistics, an exact (significance) test is a test where all assumptions, upon which the derivation of the distribution of the test statistic is based, are met as opposed to an approximate test (in which the approximation may be made as close as desired by making the sample size big enough). This will result in a significance test that will have a false rejection rate always equal to the significance level of the test. For example an exact test at significance level 5% will in the long run reject true null hypotheses exactly 5% of the time.

Parametric tests, such as those described in exact statistics, are exact tests when the parametric assumptions are fully met, but in practice the use of the term exact (significance) test is reserved for those tests that do not rest on parametric assumptions – non-parametric tests. However, in practice most implementations of non-parametric test software use asymptotical algorithms for obtaining the significance value, which makes the implementation of the test non-exact.

So when the result of a statistical analysis is said to be an “exact test” or an “exact p-value”, it ought to imply that the test is defined without parametric assumptions and evaluated without using approximate algorithms. In principle however it could also mean that a parametric test has been employed in a situation where all parametric assumptions are fully met, but it is in most cases impossible to prove this completely in a real world situation. Exceptions when it is certain that parametric tests are exact include tests based on the binomial or Poisson distributions. Sometimes permutation test is used as a synonym for exact test, but although all permutation tests are exact tests, not all exact tests are permutation tests.

The basic equation underlying permutation tests is

where:

and where the sum ranges over all outcomes y (including the observed one) that have the same value of the test statistic obtained for the observed sample x, or a larger one .

A simple example of the occasion for this concept may be seen by observing that Pearson's chi-squared test is an approximate test. Suppose Pearson's chi-squared test is used to ascertain whether a six-sided die is "fair", i.e. gives each of the six outcomes equally often. If the die is thrown n times, then one "expects" to see each outcome n/6 times. The test statistic is

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