Could someone explain what the below lines in the topic Performanance Implications of Type 1 & Type 2 errors in Volume 6 Page 250
The extent to which markets are mean-reverting also has a bearing on the cost of Type I and Type II errors. If performance is mean reverting, firing a poor performer (or hiring a strong performer) only to see a reversion in performance results is a Type I error. A Type II error would be not trimming strong performers and avoiding hiring managers with weaker short-term track records, which can be costly
My question is How can firing a poor performer be a type 1 error when the markets are mean reverting , type 1 error is you reject the null hypothesis when it is true ie you hire or retain a manager who is unskilled but the statement says firing a poor manager
Similarly Not Trimming a strong manager is type 2 error as per the book but type 2 error is firing a manager when he is indeed skilled.
Could someone please explain this. Thanks.