Hi guys,
Trying to check on the folloiwng understanding
Type 1 error occurs because you set your confidence level too low which means your confidence band is too low
(Based on Page 177 Diagram 17)
This means that it is easier to breach the upper edge of the confidence band….And you reject Ho far too often(which means keep managers with zero value added)
Let decipher a scenario where the manager underperform.
A manager consistently breach the lower bound of the confidence band…indicates it is peforming badly.The firm fire the manager. After further investigation it shows that the manager is running into bad luck and not really an under performer.
So what type of error is that? Type 2 or Type 1?