QUAN 2010 Type I and Type II Errors

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Section 10.3 Type I and Type II Errors

Recall that the purpose of a hypothesis test is to verify the validity of a claim about a population based on a single sample. Since we are relying on a sample, there is risk that the conclusions we draw about the population will be wrong due to sampling error.

Definition 10.3.1.

Type I error: occurs when $H_0$ is rejected when in reality it is true.
- The probability of making this error is known as $\alpha\text{,}$ the significance level.
- A Type I error is known as the producer’s risk.
Type II error: occurs when we fail to reject $H_0$ when it is false.
- The probability of making this error is $\beta\text{.}$
- A Type II error is known as the consumer’s risk.

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