Question

This week's discussion focuses on decision error costs with regard to hiring new talent. Use the provided scenario as a basis to inform your post on decision-making impacts and Type I and Type II errors.

Answer 1

In statistical hypothesis testing, a type I error is the rejection of a true null hypothesis (also known as a "false positive" finding or conclusion), while a type II error is the non-rejection of a false null hypothesis (also known as a "false negative" finding or conclusion).

There may always be a decision error cost with regard to higiring new talent because there is information assymetry among the employer and the candidates. The employer don't know more about the skills and productivity of the candidate and hence they may take a wrong decision in hiring them. There may be different costs to the employer depending on the type of error they make.

In hiring new talent there may be both type 1 and type2 errors. Type 1 error will occur if the employer rejects a talanted candidate or offers a very low package to a highly productive candidate. This will be a loss to the firm because in first case there is loss of a talented employee and in second case the product five candidate will loose its productivity due to unwillingness because of less wage. Type 2 error will occur if the employer hires a less talented or less productive candidate on a high package. In this case there will be directly monetary loss to the firm.

So both of these types of errors must be kept in mind while hiring new talents, and steps must be taken to remove it.