What is odds ratio analysis?

Odds ratio analysis is a statistical method employed by product managers to measure the likelihood of one event occurring in relation to another, specifically focusing on discrete, binary outcomes. Unlike correlation analysis, which examines continuous outcomes, odds ratio analysis is used to determine the probability of outcomes like user retention, conversion, or churn based on specific actions such as feature adoption or marketing interactions. To conduct an odds ratio analysis, data must be labeled and organized into a confusion matrix that categorizes users into four quadrants based on their actions and outcomes. The odds ratio is calculated by comparing the odds of the desired outcome between users who performed the action and those who did not, with a ratio above two indicating a potentially significant association. Stress testing these findings with negative and positive predictive values (NPV and PPV) helps assess the reliability of the results, as these values measure the proportion of false positives and negatives. A robust odds ratio analysis requires both a high odds ratio and predictive values close to one, and it often necessitates multiple analyses with varied variables to derive meaningful insights. LogRocket is highlighted as a tool that assists product teams in identifying user experience friction points, thereby aiding in informed decision-making and prioritizing necessary changes.