Exam 2, Q154

[Jeffrey Chudy]

Exam 2, Q154

[Anonymous]

Hi, it looks like the wrong answer is entered into the system. The answer says B is correct, but when B is selected it registered as ‘incorrect’.

Question 154 : What is a type II error?
(a) Rejecting the null hypothesis when it is true
(b) Accepting the null hypothesis when it is false
(c) Rejecting the alternate when it is false
(d) None of the above

Your Answer is Incorrect

The correct answer is choice ‘a’

A type I error is said to occur when a null hypothesis is rejected when it should have been accepted. A type II error is said to occur when a null hypothesis is accepted when it should have been rejected. Therefore Choice ‘b’ is the correct answer.

typeIandtypeIIerrors

When doing hypothesis testing, there is an initial point of view, or the status quo (for the analyst performing the testing), which is called the ‘null hypothesis’. The alternate hypothesis is the one that contradicts the null hypothesis. For our purposes in risk management, the null hypothesis is generally stated in terms of a particular variable (mean, variance, a regression coefficient) being a certain value (the point estimate), and the alternate hypothesis is stated in terms of the variable in question being different from the null (different as in being greater than, less than, or unequal to).

Hypothesis testing then takes the form of calculating the range (either side or one side of the point estimate) in which the variable might lie with a certain degree of confidence, and then comparing if the null hypothesis could lie within that range. Since we carry out hypothesis testing at a certain level of confidence (95%, 99% etc), we can never be absolutely certain if the results of our testing are right, and there is a probability (equal to the level of significance, ie 5%, 1%) that we will reject the null hypothesis when it is actually true. This is a type I error. The other error – that we accept the null hypothesis when it is not actually true – is called a type II error.

[Anonymous]

Thanks – typo corrected now.

Mukul

[Author]

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