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# Maximum Likelihood Estimation

(MLE)

## The likelihood ratio test

Model-fitting provides a framework within which we can not just estimate the
maximum likelihood estimates for parameters: we can also test whether or not
they are significantly different from other fixed values.

The likelihood ratio test provides the means for comparing the likelihood of the
data under one hypothesis (usually called the alternate hypothesis) against the
likelihood of the data under another, more restricted hypothesis (usually called
the null hypothesis, for the experimenter tries to nullify this hypothesis in order
to provide support for the former).

For example, we may wish to ask: was the coin we tossed 100 times fair? This
is rephrased as :

## Alternate hypothesis (HA ) : p does not equal 0.50

Null hypothesis (H0 ) : p equals 0.50

The likelihood ratio test answers this question: are the data significantly less
likely to have arisen if the null hypothesis is true than if the alternate hypothesis is
true?

## We proceed by calculating the likelihood under the alternate hypothesis, then

under the null, then we calculate test the difference between these two
likelihoods

2 ( LLA - LL0 )

Note that if a=b/c then log(a)=log(b)-log(c). This is why it is called a likelihood ratio
test, but we look at the difference between log-likelihoods.

## The difference between the likelihoods is multiplied by a factor of 2 for technical

reasons, so that this quantity will be distributed as the familiar statistic. This

## can then be assessed for statistical significance using standard significance

levels. In most simple cases, the degrees of freedom for the test will equal the
difference in the number of parameters being estimated under the alternate and
null models. In the case of the coin, we estimate one parameter under the
alternate (p) and none under the null (as p is fixed) so the has 1 degree of
freedom.

In the case of the coin tossing experiment, comparing the log-likelihood under
the alternate (i.e. when p is estimated at its MLE) and the null (i.e. when p is
fixed at 0.50):

Alternate Null
----------------------------------------
p 0.56 0.50
Likelihood 0.0801 0.0389
Log Likelihood -2.524 -3.247
----------------------------------------

## Therefore, as the critical significance level for a 1 degree of freedom is

3.84 (see the Probability Function Calculator also on this site) we can conclude
that the fit is not significantly worse under the null. That is, we have no reason to
reject the null hypothesis that the coin is fair. So, the answer to the question is
that the data are indeed consistent with the coin being a fair coin.