The classification of individuals into two criterion groups on the basis of a discontinuous payoff function

An analytic method is presented for optimally classifying individuals into two subgroups on the basis of a cutting score on a test or test composite. The development assumes the test and criterion scores to be normally distributed, and the correlation surface to be bivariate normal. It is further assumed that individuals belong to the first or second sub-group depending on whether their criterion score is above or below a specified value. The predictor cutting score is determined so as to maximize the expected value of the decision procedure, taking gains and losses associated with correct and incorrect assignments into account.The opinions expressed are those of the authors and do not necessarily reflect those of the Navy Department. This research was supported in part by a grant from the National Institute of Mental Health, MH 10449-01.