Abstract

We address the issue of using a set of covariates to categorize or predict a binary outcome. This is a common problem in many disciplines including economics. In the context of a prespecified utility (or cost) function we examine the construction of fore-casts suggesting an extension of the Manski (1975, 1985) maximum score approach. We provide analytical properties of the method and compare it to more common ap-proaches such as forecasts or classifications based on conditional probability models and discriminant analysis. The results are informative for both forecasting environ-ments as well as program allocation where the value of including the participant in th