Type ii error

Failing to reject a null hypothesis that is actually false. One minus its probability is the power of the test, and it becomes more likely as the significance level is tightened.

Where you will meet it

Type ii error appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain what a p-value means and the two kinds of testing error
  CFA Level I · Quantitative Methods

  “A Type II error fails to reject a false one.”

• Distinguish Type I from Type II errors when deciding whether to hire or keep a manager
  CFA Level III · Performance Measurement

  “A Type II error fails to reject a false null: passing over a skilled manager, or firing one after a run of poor results.”

See also

Null hypothesis

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

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