type-1 error


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type-1 error

An error made when a null hypothesis is rejected but is actually true.
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Each line in the figure starts at the upper left corner because labeling no banks as unsatisfactory implies that all of the truly unsatisfactory banks are mislabeled, so that type-1 error is 100 percent and type-2 error is zero.
This pattern means that, for any level of type-2 error, type-1 error is lower for FIMS than for the UBSS.
In this case, a type-1 error occurs when the model incorrectly classifies a downgraded bank, and a type-2 error occurs when the model misclassifies a bank that is not down-graded.
According to table 6, FIMS incorrectly labeled 58.8 percent of downgraded banks as satisfactory (type-1 error) and incorrectly labeled only 2.7 percent of the CAMEL 1- or 2-rated banks as a down-grade (type-2 error).