28th October 2019


What is the decision rule when using the P value approach to hypothesis testing?

If P ≤ α, then reject H0. 2. If P >α, then fail to reject H0. Recall: A P-value (or probability value) is the probability of getting a value of the the sample test statistic that is at least as extreme as the one found from the sample data, assuming that the null hypothesis is true.

Consequently, what is the decision rule in economics?

Economic decision rule. A rule in economics asserting that if the marginal benefit of an action is higher than the marginal cost, then one should undertake the action; however if the marginal cost is higher than the marginal benefit of the action, one should not undertake it.

How does a researcher decide the level of significance for a hypothesis test?

The significance level, also denoted as alpha or α, is the probability of rejecting the null hypothesis when it is true. For example, a significance level of 0.05 indicates a 5% risk of concluding that a difference exists when there is no actual difference.
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