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Chapter 7: Q112S (page 442)

If the rejection of the null hypothesis of a particular test would cause your firm to go out of business, would you want ato be small or large? Explain

Short Answer

Expert verified

The firm would want a to be small.

Step by step solution

01

Given information

The rejection of the null hypothesis of a particular test would cause a firm to go out of business.

02

State level of significance

Significance level (a):

The level of significance is the size of the type I error. In other words, rejecting the null hypothesis when it is true.

i.e.,a=P(rejectH0/H0istrue)

03

Explain about the a, is small or large

If a null hypothesis rejection resulted in a farm going out of business, that firm would put in significant effort ensuring that it does not falsely identify a null hypothesis as correct. So, which is a type I error. Since, a symbolizes this type I error.

Hence, the firm would want a to be small.

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Most popular questions from this chapter

The opinions of employees at Asia-Pacific firms regarding fraud, bribery, and corruption in the workplace were elicited in the 2015 AsiaPacific (APAC) Fraud Survey. Interviews were conducted with a sample 1,508 employees of large APAC companies. One question concerned whether or not the employee’s company had implemented a “whistle-blower” hotline—that is, a phone number that an employee can call to report fraud or other types of misconduct without fear of retribution. The 2015 survey found that 680 of the 1,508 respondents’ companies had not implemented a whistle-blower hotline. In comparison, 436 of the 681 respondents in the 2013 survey reported their companies had not implemented a whistle-blower hotline.

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