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Discussion (WK4) - statistical significance not necessarily...

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Discussion (WK4) Question 1: What is a type I and type II errors in hypothesis testing? What would be examples of each? Explain . Hypothesis is a statement yet to be tested. Type I error refers to wrongly rejecting a hypothesis instead of accepting it. Type II error refers to wrongly accepting or retaining a hypothesis instead of rejecting it. An example of type I error is when the stock market prediction show that the prices of stock A will increase, and an investor, sells the stock instead of retaining it, based on the rejection of the hypothesis. An example of type II error is when a market research indicates that there is no significant demand in the market, yet an industrialist produces a product, based on a hypothesis that, “there is sufficient demand in the market”. Reference: Lind, Marchal, Wathen. Basic Statistics for Business & Economics, 7 th Ed. McGraw-Hill Irwin. 2011: Pages 290-291. Questions 2: What is the difference between statistical significance and practical significance? Why is
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Unformatted text preview: statistical significance not necessarily of practical important difference to a business decision? Provide an example of this. Statistical significance refers to any project or activity having a 90% significance or chance of success. Practical significance refers to the actual analysis based on empirical reasoning and logic for taking a decision. Statistical significance is not necessarily of practical importance to a business decision as many times decisions have to be taken without availability of statistical information and have to be based on experience. An example of this is when a marketer decides to not introduce a product in the market in spite of statistical information indicating that there is sufficient demand as he can see that competition is very high, thus leading to dropping he idea sue to prospective risk. Reference: Lind, Marchal, Wathen. Basic Statistics for Business & Economics, 7 th Ed. McGraw-Hill Irwin. 2011: Pg 299....
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