Minimizing Losses (or Maximizing Gains) and Choosing Confidence Levels
Abstract:
Some researches are less flexible than they should be in their approach to research. They tend to use the same number of observations and the same statistical techniques repeatedly. This rigidity is particularly prevalent in choosing a level of confidence. Contrary to common practice, choosing a 95% or higher level of confidence is not mandatory when performing a statistical test. A high level of confidence is often chosen simply because it is customary to do so. Decisions based on a high level of confidence may be subject to large losses when a decision is made in error. Whenever possible, a level of confidence should be chosen such that losses are minimized. The rationale for choosing a level of confidence is discussed in this report.
