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How to Choose the Level of Significance: A Pedagogical Note

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  • Kim, Jae

Abstract

The level of significance should be chosen with careful consideration of the key factors such as the sample size, power of the test, and expected losses from Type I and II errors. While the conventional levels may still serve as practical benchmarks, they should not be adopted mindlessly and mechanically for every application.

Suggested Citation

  • Kim, Jae, 2015. "How to Choose the Level of Significance: A Pedagogical Note," MPRA Paper 66373, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66373
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    References listed on IDEAS

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    1. Keuzenkamp, Hugo A. & Magnus, Jan R., 1995. "On tests and significance in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 5-24, May.
    2. Kim, Jae H. & Ji, Philip Inyeob, 2015. "Significance testing in empirical finance: A critical review and assessment," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 1-14.
    3. Gigerenzer, Gerd, 2004. "Mindless statistics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(5), pages 587-606, November.
    4. Soyer, Emre & Hogarth, Robin M., 2012. "The illusion of predictability: How regression statistics mislead experts," International Journal of Forecasting, Elsevier, vol. 28(3), pages 695-711.
    5. Tom Engsted, 2009. "Statistical vs. Economic Significance in Economics and Econometrics: Further comments on McCloskey & Ziliak," CREATES Research Papers 2009-17, Department of Economics and Business Economics, Aarhus University.
    6. Tom Engsted, 2009. "Statistical vs. economic significance in economics and econometrics: further comments on McCloskey and Ziliak," Journal of Economic Methodology, Taylor & Francis Journals, vol. 16(4), pages 393-408.
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    Cited by:

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    More about this item

    Keywords

    Expected Loss; Statistical Significance; Sample Size; Power of the test;
    All these keywords.

    JEL classification:

    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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