Sign up  |  Log in

Type I, II Error

For a hypothesis test with a probability of a Type II error of 60% and a
probability of a Type I error of 5%, which of the following statements is most
accurate?
 
A. The power of the test is 40%. and there is a 5% probability that the test
statistic will exceed the critical value(s).
B. There is a 95% probability that the test statistic will be between the critical
values if this is a two-tailed test.
C. There is a 5% probability that the null hypothesis will be rejected when
actually true. and the probability of rejecting the null when it is false is
40%.
 
They claim that the answer is C, on the basis that in A,B the null hypothesis could be false, which would make the claims invalid in options (A,B) since the probability of rejection would be unknown. 
 
How does this make sense? I do not get their reasoning. Is the probability of rejecting the null hypothesis already incorporated into the probabilities?
 
Thanks! 

Kick start your CFA® Program prep with Top Instructors you’ll love and a course that offers free updates until you pass – We’ve got you covered.

keep_running wrote:

For a hypothesis test with a probability of a Type II error of 60% and a
probability of a Type I error of 5%, which of the following statements is most
accurate?
 
A. The power of the test is 40%. and there is a 5% probability that the test
statistic will exceed the critical value(s).
B. There is a 95% probability that the test statistic will be between the critical
values if this is a two-tailed test.
C. There is a 5% probability that the null hypothesis will be rejected when
actually true. and the probability of rejecting the null when it is false is
40%.
 
They claim that the answer is C, on the basis that in A,B the null hypothesis could be false, which would make the claims invalid in options (A,B) since the probability of rejection would be unknown. 
 
How does this make sense? I do not get their reasoning. Is the probability of rejecting the null hypothesis already incorporated into the probabilities?
 
Thanks! 

A isn’t necessarily true because the null could be true or false– the statement would need to say “assuming the null is true, there is a 5% probability…”

B isn’t necessarily true for the same reason above.

C is always true assuming the probability of each error is as described in the question– it’s definitional for the chosen significance level (alpha, P(Type I Error)) and the power of a test (1-P[Type II Error]) [P(rejecting Ho | Ho is false)]. You may see beta instead of P(Type II Error).

I don’t think this is a good question, but it is accurate. It may be helpful to review the definitions of Type I and Type II errors as well as power of a test.

α is the probability of rejecting a true null hypothesis (i.e., the probability of a Type I error).

α is not the probability of rejecting the null hypothesis.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

So does it mean Type I error defines the significance level I need in the hypothesis test.

But it doesn’t mean the test statics will actually fall out of the confidence interval of 95% with the given mean value in the null hypothesis.

Am I right?

silver_gp wrote:
So does it mean Type I error defines the significance level I need in the hypothesis test.

The probability of a Type I error defines the significance you choose in the hypothesis test.

silver_gp wrote:
But it doesn’t mean the test statics will actually fall out of the confidence interval of 95% with the given mean value in the null hypothesis.

Am I right?

It does mean that if and only if the distribution of the (sample) test statistics is exactly the same as the distribution you use to create the confidence interval.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Thank you very much.

My pleasure.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Type I error is when you keep a manager that provides no value.

Type II error is when you fire a manager that is providing value.

Null is true, but rejected.

That’s the error for me.