Intro to Business Statistics

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Significance level

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Intro to Business Statistics

Definition

The significance level, denoted by $\alpha$, is the probability of rejecting the null hypothesis when it is actually true. It represents the threshold for determining whether a result is statistically significant.

5 Must Know Facts For Your Next Test

  1. Common significance levels are 0.05, 0.01, and 0.10.
  2. A lower significance level means stricter criteria for rejecting the null hypothesis.
  3. The significance level is chosen before conducting a hypothesis test.
  4. If the p-value is less than or equal to $\alpha$, the null hypothesis is rejected.
  5. Significance level controls the Type I error rate in hypothesis testing.

Review Questions

  • What does a significance level of 0.05 mean in terms of Type I error?
  • How do you determine whether to reject the null hypothesis using the p-value and significance level?
  • Why is it important to choose a significance level before conducting a hypothesis test?
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