Page 16 - FINAL CFA I SLIDES JUNE 2019 DAY 4

LOS 12.d: Explain a decision rule, the POT,
and the relation between CI and HT, p. 281 Session Unit 3:
12. Hypothesis Testing

How do we increase POT, without increasing sample?
POT = 1-p(Type II):
You must reduce Type II to get POT (p. of rejecting false Ho) up!

But to reduce Type II, you must increase type I (choice of SL): Why?

Say, lets increase SL
Say, lets reduce SL

+SL = + p of Rejecting a True Ho = + p (Type 1)
You just reduced reducing p of failing to reject (type II)
So, POT is up! As it is 1-p(type II)

-SL = + p of Failing to Reject False Ho = + p (Type II) = - POT!

For a given SL, we can - p (Type II) and + POT
ONLY by increasing sample size!

- P (Reject) when True = - p (Type 1)
- P (Reject) when True = - p (Type 1)