NO.PZ202110280100000702
问题如下：
Identify the type of error Connell is at risk of committing and its associated cost for each alternative. Justify your selection.
选项：
解释：
Alternative 1
If Connell avoids the Eta fund because of its recent underperformance, with performance reverting to the mean, he is at risk of making a Type II error (by not retaining managers with skill). A Type II error is an error of omission or inaction, or in this case, the opportunity cost associated with not hiring Eta and seeing its performance improve.
Alternative 2
If Connell selects the Theta fund because of its recent superior performance, with performance reverting to the mean, he is at risk of making a Type I error. A Type I error occurs when hiring or retaining a manager who subsequently underperforms expectations. The cost of a Type I error is explicit and relatively straightforward to measure.
In deciding which fund to hire, the goal is to avoid making decisions based on short-term performance (trend following) and to identify evidence of behavioral biases in the evaluation of managers during the selection process.
Alternative I is type II error.Not hiring a manager who outperforms expectations will increase implicit cost.
Alternative II is type I error.Hiring a manager who underperforms expectations will increase explicit cost.
Type I error is more painful than type II error.
