Summary The technique set out in the paper, chaid, is an offshoot of aid (Automatic Interaction Detection) designed for a categorized dependent variable. Some important modifications which are relevant to standard aid include: built‐in significance testing with the consequence of using the most significant predictor (rather than the most explanatory), multi‐way splits (in contrast to binary) and a new type of predictor which is especially useful in handling missing information.

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This paper initiates an investigation into the statistical significance of results obtained by analysing data through the Automatic Interaction Detection technique. A test statistic which is asymptotically independent of the sample size is examined and critical values are obtained for a special case. The asymptotic results are compared with the exact distribution for varying sample size in a specific example. A brief discussion on the application of the results to a particular case study concludes the paper.