A Bayesian method of sample size determination with practical applications

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Abstract:

Summary. 

The problem motivating the paper is the determination of sample size in clinical trials under normal likelihoods and at the substantive testing stage of a financial audit where normality is not an appropriate assumption. A combination of analytical and simulation-based techniques within the Bayesian framework is proposed. The framework accommodates two different prior distributions: one is the general purpose fitting prior distribution that is used in Bayesian analysis and the other is the expert subjective prior distribution, the sampling prior which is believed to generate the parameter values which in turn generate the data. We obtain many theoretical results and one key result is that typical non-informative prior distributions lead to very small sample sizes. In contrast, a very informative prior distribution may either lead to a very small or a very large sample size depending on the location of the centre of the prior distribution and the hypothesized value of the parameter. The methods that are developed are quite general and can be applied to other sample size determination problems. Some numerical illustrations which bring out many other aspects of the optimum sample size are given.

Keywords: Auditing; Bayesian inference; Book values; Clinical trials; Fitting prior; Mixture distribution; Rare errors; Sampling prior; Simulation-based approach; Taints

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1467-985X.2006.00408.x

Affiliations: University of Southampton, UK

Publication date: March 1, 2006

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