Using The .01 Level Of Significance Instead Of The .05 Level Decreases The Chance Of Making What Type Of Error?

Question

Using The .01 Level Of Significance Instead Of The .05 Level Decreases The Chance Of Making What Type Of Error?

2 Answers

Answer Question

Answer 1

Is it reasonable to conclude the mean rate charged is greater than 14 percent? Use the .01 significance level.
A recent article in the Wall Street Journal reported that the 30-year mortgage rate is now less than 6 percent. A sample of eight small banks in the midwest revealed the following 30-year rates (percent)

4.8 5.3 6.5 4.8 6.1 5.8 6.2 5.6

Answer 2

In testing of hypothesis, type one error is an error committed by rejecting a true null hypothesis. For example, a type one error is committed when a deserving player is not selected in the team or when an innocent driver is held by traffic constable etc. Level of significance is a small preassigned probability of rejecting a true null hypothesis and is denoted by a letter alpha. The commonly used values for level of significance are 0.01, 0.05 and 0.10. Moreover, if we use 0.01 level of significance instead of 0.05 level, we decrease the chance of type one error.