A Statistical Correction to 20 years of Banding

Statistically based banding is often considered a viable method for minimizing adverse impact in test‐based employment decisions. By utilizing the standard error of the difference (SED), scores are equated based on the assumption that there is substantial unreliability in any single observed score. However, based on the derivations of Dudek, the formula commonly used to calculate the standard error of measurement (SEM) – a component that is typically used to calculate the SED – is incorrect. Specifically, utilizing the SEM when calculating the SED produces a band of observed scores around a true score, not a band of true scores around an observed score as would be appropriate for banding. This study compares the differences between banding‐based selection decisions when the appropriate SED formula – which utilizes the standard error of estimate – is and is not applied. Overall, results suggest that utilizing the appropriate formula for calculating the SED produces substantial variations in employment decisions. The potential legal and ethical implications of these discrepancies are discussed.