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Types of Error
In general, there are two different types of error that can occur when making a
decision: the first kind ("type 1 errors") are those errors which occur when we
reject the null hypothesis although the null hypothesis is true. The second kind
("type 2 errors") of errors arise when we accept the null hypothesis although
the alternative hypothesis is true.
An example should clarify the situation. Suppose you want to buy ore to
produce iron. You decide that the ore has to have a certain minimum
concentration of iron to be useful for the process. Since the concentration of
iron varies for each delivery, you have to ensure that, on average, you receive
more than the specified minimum concentration. In order to be cautious you
don't trust your suppliers, assuming they can't fulfill your requirements (H 0,
or null hypothesis). You will believe them only if they can supply evidence
that the reqirements are met (H1, or alternative hypothesis).
Since our decision can be false or true, and the null hypothesis can also be
false or true, there are four possible outcomes of a test. The probabilities for a
type 1 error and type 2 error are usually denoted by α and β, respectively.
Which of the errors is more serious, depends on the damage that is related to
it. Type 1 and type 2 errors are related to each other. Increasing the type 1
error decreases the type 2 error and vice versa.
In the case given above a type II error does not harm us, except one of the
rejected bidders offers a much lower price. But we are concerned about
making a type I error, it would mean we would buy the ore without getting the
required content of iron. A more elaborate description about type I and type II
errors can be found in the following interacte example:
NOTES
α is the failure rate of the test procedure, not that of a particular test
result, and
1-α is the confidence in the test procedure.
Rejecting a hypothesis is stronger, than accepting a hypothesis, so we
reject H0 with an error probability of α or there is not sufficient evidence
for the rejection of H0, but we do not accept H0 unless β is known.
1-β is called the power of a test