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For each situation described, indicate whether it makes more sense to use a relatively large significance level (such as \(\alpha=0.10\) ) or a relatively small significance level (such as \(\alpha=0.01\) ). Testing to see if a well-known company is lying in its advertising. If there is evidence that the company is lying, the Federal Trade Commission will file a lawsuit against them.

Short Answer

Expert verified
A smaller significance level, such as \(\alpha=0.01\), is more appropriate in this scenario as it reduces the chances of accusing a company wrongly.

Step by step solution

01

Understand the implications of Type I and Type II errors in this specific context

In the current scenario, a type I error would mean wrongly punishing a company for lying in its advertisements when they actually are not. This could have a negative economic impact on the company and would be highly controversial. A type II error would mean a dishonest company gets away with its false advertising, which is harmful to consumers and unfair to other honest competitors.
02

Determine whether a larger or smaller significance level is more appropriate

A larger significance level means that there is a higher risk of committing a Type I error, and a smaller significance level means that there is a higher risk of committing a Type II error. Given the high stakes, it is critical to be conservative and avoid wrongly accusing the company. Therefore, it's better to use relatively small significance level such as \(\alpha=0.01\). It's more damaging to accuse an innocent company than miss punishing a guilty one.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Type I and Type II Errors
Understanding the difference between Type I and Type II errors is crucial in the realm of statistics, especially when it comes to making decisions based on data. Imagine a courtroom situation: a Type I error is akin to falsely convicting an innocent person, while a Type II error is like allowing a guilty individual to walk free. In the context of hypothesis testing, a Type I error occurs when we incorrectly reject a true null hypothesis, which could mean unjustly claiming that a company is lying in advertising. This can tarnish reputations and lead to legal consequences. Conversely, a Type II error happens when we fail to reject a false null hypothesis, possibly letting a company guilty of false advertising off the hook.

Type I errors are usually deemed more severe because of their implications, hence they carry a lower probability (significance level). Ethically and economically, it's vital to minimize these errors to ensure fairness and accuracy in statistical conclusions and real-world implications.
Hypothesis Testing
Hypothesis testing serves as the backbone of making decisions based on statistical analysis. It begins with the formulation of two opposing statements: the null hypothesis (H0) which represents the status quo or a position of no effect/change, and the alternative hypothesis (H1), which suggests a significant effect/change. We then collect data and calculate a test statistic to measure whether the observed data strongly enough contradicts H0 to support H1.

Using our example of a company's advertising credibility, hypothesis testing helps ascertain whether there's statistically significant evidence to claim the company is lying. The choice of significance level (α) reflects our tolerance for error. A lower α implies we require stronger evidence to reject the null hypothesis, favoring caution and reducing the likelihood of wrongfully discrediting a company.
Statistical Significance
Statistical significance is a term that quantifies the probability of the observed results occurring by chance under the assumed null hypothesis. A test result is considered statistically significant if it falls below a pre-defined threshold known as the significance level (α). This threshold is crucial as it dictates the stringency of the testing process and determines how conclusive the test's results are.

Choosing the appropriate level of significance depends on the context of the test and the potential consequences of errors. In our advertising scenario, setting a small α (like 0.01) means we demand more substantial evidence before we claim the company is lying, due to the grave repercussions of a Type I error. It's a more conservative approach that prioritizes precision and caution, ensuring that the probability of committing a grave Type I error by wrongly accusing the company is kept to a minimum.

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Most popular questions from this chapter

For each situation described, indicate whether it makes more sense to use a relatively large significance level (such as \(\alpha=0.10\) ) or a relatively small significance level (such as \(\alpha=0.01\) ). Using a sample of 10 games each to see if your average score at Wii bowling is significantly more than your friend's average score.

In Exercise 3.129 on page \(254,\) we see that the home team was victorious in 70 games out of a sample of 120 games in the FA premier league, a football (soccer) league in Great Britain. We wish to investigate the proportion \(p\) of all games won by the home team in this league. (a) Use StatKeyor other technology to find and interpret a \(90 \%\) confidence interval for the proportion of games won by the home team. (b) State the null and alternative hypotheses for a test to see if there is evidence that the proportion is different from 0.5 . (c) Use the confidence interval from part (a) to make a conclusion in the test from part (b). State the confidence level used. (d) Use StatKey or other technology to create a randomization distribution and find the p-value for the test in part (b). (e) Clearly interpret the result of the test using the p-value and using a \(10 \%\) significance level. Does your answer match your answer from part (c)? (f) What information does the confidence interval give that the p-value doesn't? What information does the p-value give that the confidence interval doesn't? (g) What's the main difference between the bootstrap distribution of part (a) and the randomization distribution of part (d)?

In this exercise, we see that it is possible to use counts instead of proportions in testing a categorical variable. Data 4.7 describes an experiment to investigate the effectiveness of the two drugs desipramine and lithium in the treatment of cocaine addiction. The results of the study are summarized in Table 4.14 on page \(323 .\) The comparison of lithium to the placebo is the subject of Example 4.34 . In this exercise, we test the success of desipramine against a placebo using a different statistic than that used in Example 4.34. Let \(p_{d}\) and \(p_{c}\) be the proportion of patients who relapse in the desipramine group and the control group, respectively. We are testing whether desipramine has a lower relapse rate then a placebo. (a) What are the null and alternative hypotheses? (b) From Table 4.14 we see that 20 of the 24 placebo patients relapsed, while 10 of the 24 desipramine patients relapsed. The observed difference in relapses for our sample is $$\begin{aligned}D &=\text { desipramine relapses }-\text { placebo relapses } \\\&=10-20=-10\end{aligned}$$ If we use this difference in number of relapses as our sample statistic, where will the randomization distribution be centered? Why? (c) If the null hypothesis is true (and desipramine has no effect beyond a placebo), we imagine that the 48 patients have the same relapse behavior regardless of which group they are in. We create the randomization distribution by simulating lots of random assignments of patients to the two groups and computing the difference in number of desipramine minus placebo relapses for each assignment. Describe how you could use index cards to create one simulated sample. How many cards do you need? What will you put on them? What will you do with them?

Does consuming beer attract mosquitoes? Exercise 4.17 on page 268 discusses an experiment done in Africa testing possible ways to reduce the spread of malaria by mosquitoes. In the experiment, 43 volunteers were randomly assigned to consume either a liter of beer or a liter of water, and the attractiveness to mosquitoes of each volunteer was measured. The experiment was designed to test whether beer consumption increases mosquito attraction. The report \(^{30}\) states that "Beer consumption, as opposed to water consumption, significantly increased the activation \(\ldots\) of \(A n\). gambiae [mosquitoes] ... \((P<0.001)\)." (a) Is this convincing evidence that consuming beer is associated with higher mosquito attraction? Why or why not? (b) How strong is the evidence for the result? Explain. (c) Based on these results, it is reasonable to conclude that consuming beer causes an increase in mosquito attraction? Why or why not?

Hypotheses for a statistical test are given, followed by several possible confidence intervals for different samples. In each case, use the confidence interval to state a conclusion of the test for that sample and give the significance level used. Hypotheses: \(H_{0}: \rho=0\) vs \(H_{a}: \rho \neq 0\). In addition, in each case for which the results are significant, give the sign of the correlation. (a) \(95 \%\) confidence interval for \(\rho: 0.07\) to 0.15 . (b) \(90 \%\) confidence interval for \(\rho:-0.39\) to -0.78 . (c) \(99 \%\) confidence interval for \(\rho:-0.06\) to 0.03 .

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