Type I and II errors

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Updated: Aug 20, 2021

The two types of mistake that can be made when deciding whether or not to reject the null hypothesis. A type I error is rejecting a true null hypothesis; the probability of committing a type I error can be controlled by choosing the sigmficance level of the test. A type II error is failing to reject a false null hypothesis; the probability of committing a type II error, in general, cannot be computed. The probability of not committing a type II error, that is, of correctly rejecting a false null hypothesis, is called the power of the test.

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.