This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.
a. When the person defaults on a loan, which type of error did the bank make?
Type 1 Error i.e. rejecting the null hypothesis when it is actually true.
b. Which kind of error is it when the bank misses an opportunity to make a loan to someone who would have repaid it?
Type II Error. Failing to reject the null hypotheses when it is actually False.
c. Suppose the bank decides to lower the cut off score from 250 points to 200 points. Is that analogous to choosing a higher or lower of α for a hypothesis test?
No. Reducing the cut off score is not similar to choosing a higher or lower alpha. Alpha indicates a confidence in the test and is independent of the test statistic. Apparently it is the chance that the bank is willing to take in order to commit a type I error.
d. What impact does this change in the cutoff value have on the chance of each type of error?
The change will not have any effect on the type I error neither does it have any effect on the type II error....
This is only a preview of the solution. Please use the purchase button to see the entire solution