Type I vs Type II Error

2 years later and I am still discussing this…

Again, I understand the concept behind type 1 and 2 errors and I really don’t need a simple refresher. What I am saying is, that what we classify as each one is arbitrary!! Please see my warning above that if anyone tries to explain this to me, I am going to make them watch my 30 standup from high school!!

Yes, there are certain conventions of what we typically classify as 1 or 2 errors but that’s it, these are not rules, we can create these in multiple ways. That is all I am saying since I opened this post in May 2018.

It’s not an arbitrary classification, re-read my answer or refer to the curriculum. If its an error of commission and has explicit costs then it’s Type 1, otherwise type 2.

It IS arbitrary and no textbook in the world (including the CFA material) tells you that it has to be this way. They recommend to use this approach, as it might be customary, but you can design your entire set up the opposite way without any problems. And how could there be any rule?? I am designing the set up based on my preferences (say based on the type of error I might want to avoid, but you might want to avoid a different error than me).

In any case, I am giving up on this one, it’s been more than 2 years that I have had this discussion now.

Good luck to y’all on the exams!!

Well explain in plan English here thanks @Mr_RS

I agree with you.

Failing to fire a bad manager = Retaining a bad manager.
Failing to fire → act of omission (Type II) = Retaining → act of commission (Type I).

How far along are you with your FRM ?