Abstract Frequently a test result or measure x applying to an individual is used to “predict” not a quantity y of the individual, but instead, whether the individual belongs to A or B of two mutually exclusive categories. The question discussed is how to measure the effectiveness of the test x in achieving the dichotomization. Measures such as the biserial or tetrachoric r are considered open to objection on conceptual and operational grounds. A method is advanced that consists in determining (1) the utility, defined as the fraction of individuals actually belonging to category A which the test correctly designates as A and (2) the cost defined as the fraction of individuals actually belonging to category B which the test incorrectly designates as A. Two tests are to be compared on the basis of their comparative costs for the same utility. When a test can be used at any utility, an over-all measure of effectiveness is the mean-cost (M.C.) for all utilities. Derived from this is an index, the mean-cost-rat...