A Simple Bayesian Procedure for Sample Size Determination in an Audit of Property Value Appraisals

Abstract

The article proposes a simple Bayesian technique for auditing property appraisals to determine whether state accuracy guidelines are met. The proposed technique addresses elicitation of appraisers' prior beliefs, computation of reappraisal sample sizes and reporting of audit results. To facilitate communication of quantitative audit findings to nonstatistician stakeholders, the concept of variance appears nowhere in prior elicitation or reporting. In contrast to classical frequentist techniques, the Bayesian procedure easily integrates expert judgment and responds flexibly to the arrival of new information. In addition, the Bayesian procedure significantly reduces the number of reappraisals required to regulate appraisal systems when they are functioning well. The technique can be applied in other settings where government officials audit their own work and must convince overseers, especially the public, that accuracy requirements are satisfied.