In setting the level of significance if costs associated with type 1 error are
A) high and a type 2 error is not costly set the level of significance very low
B) high and a type 2 error is not costly set the level of significance very high
C) not very high and a type 2 error is costly set the level of significance very low
D) not very high and a type 2 error is not costly set the level of significance much higher

Question

Quizplus · Accepted Answer

When costs associated with type 1 error are high and a type 2 error is not costly, it is important to minimize the probability of making a type 1 error (i.e. reject a true null hypothesis). This can be achieved by setting the level of significance very low, such as 0.01 or 0.001, to increase the stringency of the test and reduce the chance of a false positive result. However, if costs associated with type 1 error are not high and a type 2 error is costly, a higher level of significance may be more appropriate to reduce the probability of a false negative result (i.e. fail to reject a false null hypothesis).

In Setting the Level of Significance If Costs Associated with Type