What are type I and type II errors?

No hypothesis test is 100% certain. Because the test is based on probabilities, there is always a chance of making an incorrect conclusion. When you do a hypothesis test, two types of errors are possible: type I and type II. The risks of these two errors are inversely related and determined by the level of significance and the power for the test. Therefore, you should determine which error has more severe consequences for your situation before you define their risks.

Type I error: When the null hypothesis is true and you reject it, you make a type I error. The probability of making a type I error is α, which is the level of significance you set for your hypothesis test. An α of 0.05 indicates that you are willing to accept a 5% chance that you are wrong when you reject the null hypothesis. To lower this risk, you must use a lower value for α. However, using a lower value for alpha means that you will be less likely to detect a true difference if one really exists.
Type II error: When the null hypothesis is false and you fail to reject it, you make a type II error. The probability of making a type II error is β, which depends on the power of the test. You can decrease your risk of committing a type II error by ensuring your test has enough power. You can do this by ensuring your sample size is large enough to detect a practical difference when one truly exists.

The probability of rejecting the null hypothesis when it is false is equal to 1–β. This value is the power of the test.

	Truth about the population
Decision based on sample	H₀ is true	H₀ is false
Fail to reject H₀	Correct Decision (probability = 1 - α)	Type II Error - fail to reject H₀ when it is false (probability = β)
Reject H₀	Type I Error - rejecting H₀ when it is true (probability = α)	Correct Decision (probability = 1 - β)

Example of type I and type II error

To understand the interrelationship between type I and type II error, and to determine which error has more severe consequences for your situation, consider the following example.

A medical researcher wants to compare the effectiveness of two medications. The null and alternative hypotheses are:

Null hypothesis (H₀): μ₁= μ₂

The two medications are equally effective.
Alternative hypothesis (H₁): μ₁≠ μ₂

The two medications are not equally effective.

A type I error occurs if the researcher rejects the null hypothesis and concludes that the two medications are different when, in fact, they are not. If the medications have the same effectiveness, the researcher may not consider this error too severe because the patients still benefit from the same level of effectiveness regardless of which medicine they take. However, if a type II error occurs, the researcher fails to reject the null hypothesis when it should be rejected. That is, the researcher concludes that the medications are the same when, in fact, they are different. This error is potentially life-threatening if the less-effective medication is sold to the public instead of the more effective one.

As you conduct your hypothesis tests, consider the risks of making type I and type II errors. If the consequences of making one type of error are more severe or costly than making the other type of error, then choose a level of significance and a power for the test that will reflect the relative severity of those consequences.