Error in hypothesis testing

During hypothesis testing we assume something, we then test our assumption (or Null Hypothesis) using sample data. We either reject the null hypothesis when find it to be false or we are not able reject (we accept) when it is true .

As we test these hypothesis on a sample and draw our conclusion, there is always a risk associated. It might happen, that our conclusion doesn't correspond well to overall population characteristics and hence there is possibility of an error. We might reject the null hypothesis while it is true or accept it while it is false; these are called Type I and Type II errors respectively.

 Let's try to understand these errors : Type I and Type II, with an interesting business example.



We have discussed about hypothesis and its validation in our previous articles.
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Related previous articles :




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Let's understand the errors with an example :

Suppose, a statistician test the null hypothesis on a sample and decides whether to pass the stock for sales or not. Businessman, on the other hand, knows his business in and out and in this example let's consider him to be population.




and hence




Although, I have tried to make it quite simple to understand, yet you might find it quite not digestible. I totally understand, as I also belong to your league. Better we try to understand with an example.







Erratum : Earlier in the article, we were conferring the decision power to Businessman and hence it was making article confusing. We have done a orthogonal rotation on the article  and now statistician is making the final decision on test basis. Now it is much more clear. If you have any confusion, please feel free to connect on our Facebook Page.