Point optimal testing: A survey of the post 1987 literature

In the absence of uniformly most powerful (UMP) tests or uniformly most powerful invariant (UMPI) tests, King (1987c) suggested the use of Point Optimal (PO) tests, which are most powerful at a chosen point under the alternative hypothesis. This paper surveys the literature and major developments on point optimal testing since 1987 and suggests some areas for future research. Topics include tests for which all nuisance parameters have been eliminated and dealing with nuisance parameters via (i) a weighted average of p values, (ii) approximate point optimal tests, (iii) plugging in estimated parameter values, (iv) using asymptotics and (v) integration. Progress on using point-optimal testing principles for two-sided testing and multidimensional alternatives is also reviewed. The paper concludes with thoughts on how best to deal with nuisance parameters under both the null and alternative hypotheses, as well as the development of a new class of point optimal tests for multi-dimensional testing. JEL: C12; C50