Does anyone have a trick to remember Type I & 2 errors?

CFA Level III
#1

I can memorize 300 formulas but for some reason I cannot keep these two straight. Any tricks to help remember would be appreciated.

#2

is this for the manager continuing policy? my clue for this is that

Type I error - having a friend that is fake

Type II error - rejected a true friend

:slight_smile:

#3

Think of yourself as a good manager who makes $ for your firm.

If a firm fires you, it would be making a type II error.

#4

False positive = Type I error

False negative = Type II error

#5

Idk if it helps but Schweser gives a tip that is:

Type I - “HORN” -> H0 R eject N ull (when null is true), aka false positive

#6

Here’s how I remeber it:

I know that the null hypothesis always contains the “=0”. In this case, Ho = manager’s value-added skill = 0, then I just use this trick to remember the action (DO reject or DO NOT reject)

Type 2 - 2 words - DO NOT reject

Type 1 - 1 word - DO reject

These are errors, so if Type 2 occurs - then the null was not rejected (value - added = 0), when it should have been rejected, and as a result a good manger (with value - added not equal to 0) was fired.

#7

^That’s perfect for me. Thanks

#8

Thanks for the suggestions.