This preview shows page 1. Sign up to view the full content.
Unformatted text preview: ill be made. Two different mistakes are: • the null hypothesis is true – but the decision is to reject it. This is called a Type I error. • the null hypothesis is false – but the test does not reject it. This is called a Type II error. 2 Chapter 10 For a test method: α is the probability of a Type I error, and β is the probability of a Type II error. It would be desirable to use a test method that gives a small value for both α and β . But typically, there is some trade‐off. By setting a lower value for α this leads to reluctance to reject the null hypothesis and therefore a greater risk of a Type II error and a larger value for β . For a given level of α , a way to lower β is to increase the sample size n. How can a decision rule be set ? A decision rule can be set to give a probability of a Type I error at some fixed level α . α is called the significance level of the test. Common choices for α are: α = 0.10, 0.05 or 0.01. 3 Chapter 10 Chapter 10.2 Hypothesis Tests of the Mean Suppose economic theory pro...
View
Full
Document
This note was uploaded on 02/06/2014 for the course ECON ECON 325 taught by Professor Whistler during the Spring '10 term at The University of British Columbia.
 Spring '10
 WHISTLER

Click to edit the document details