Sarah Letourneau is the management accountant at Turcotte Manufacturing, an auto supplier that produces brake pads. Turcotte’s customers have high safety standards, and managers at Turcotte believe they can gain a competitive advantage by reducing the number of defective brake pads they produce. Sarah works with an external data science consulting company to develop a prediction model that identifies defective brake pads (y = 1) before they are shipped to Turcotte’s clients. After building the model on a training dataset, Sarah tests its accuracy on the validation set below.

Required

1. Calculate the likelihood value for each observation in the validation set using the following equation: 

L = p^y  x (1 - p) ^{1 - y} (remember x¹ = x and x⁰ = 1)
2. Calculate the overall likelihood value for the validation set.
3. As the management accountant, what should Sarah do with this information?

Transcribed Image Text:

Observation number Model probability (p) Actual outcome (y) 12 3 4 5 0.99 0.01 0.33 0.20 0.01 10 1 0 0 6 0.33 0 7 0.33 0