Business Statistics

314 Business Statistics

tabLe10.3

Errors in hypothesis testing and power of the test

State of nature

Statistical decision H

0

True H

0

False

Accept H

0

Correct decision with condence

level (1 – )

Type II error, P(Type II error) = 

Reject H

0

Type I error, P(Type I error) =  Correct decision, Power of the test = (1 – )

1. Rejecting a true null hypothesis (Type I error)

2. Accepting a false null hypothesis (Type II error)

3. Accepting a true null hypothesis (Correct decision)

4. Rejecting a false null hypothesis (Correct decision)

1. A Type I error is committed by rejecting a null hypothesis when it is true. For example, a

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