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Thisiscalledatypeiierror 2 chapter 10 foratestmethod

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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...
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