DEFINITION of 'Type I Error'
A type of error that occurs when a null hypothesis is rejected although it is true. The error accepts the alternative hypothesis, despite it being attributed to chance.
Also referred to as a "false positive".
INVESTOPEDIA EXPLAINS 'Type I Error'
Type I error rejects an idea that should have been accepted. It also claims that two observances are different, when they are actually the same.
For example, let's look at the trail of an accused criminal. The null hypothesis is that the person is innocent, while the alternative is guilty. A Type I error in this case would mean that the person is found guilty and is sent to jail, despite actually being innocent.
RELATED TERMS

Alpha Risk
The risk in a statistical test that a null hypothesis will be ... 
Beta Risk
The probability that a false null hypothesis will be accepted ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
Technical Analysis
A method of evaluating securities by analyzing statistics generated ... 
Quantitative Analysis
A business or financial analysis technique that seeks to understand ... 
Monte Carlo Simulation
A problem solving technique used to approximate the probability ...
RELATED FAQS

Is finance an art or a science?
The short answer to this question is "both". Finance, as a field of study and an area of business, definitely has strong ... Read Full Answer >> 
Are all fixed costs considered sunk costs?
In accounting, finance and economics, all sunk costs are fixed costs. However, not all fixed costs are considered to be sunk. ... Read Full Answer >> 
What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?
The parametric method, also known as the variancecovariance method, is a risk management technique for calculating the value ... Read Full Answer >> 
What is backtesting in Value at Risk (VaR)?
The value at risk is a statistical risk management technique that monitors and quantifies the risk level associated with ... Read Full Answer >> 
How much variance should an investor have in an indexed fund?
An investor should have as much variance in an indexed fund as he is comfortable with. Variance is the measure of the spread ... Read Full Answer >> 
Can the correlation coefficient be used to measure dependence?
The correlation coefficient can be used to measure the linear dependence between two random variables. The most common correlation ... Read Full Answer >>
Related Articles

Mutual Funds & ETFs
5 Ways To Measure Mutual Fund Risk
These statistical measurements highlight how to mitigate risk and increase rewards. 
Active Trading Fundamentals
Efficient Market Hypothesis: Is The Stock Market Efficient?
Deciding whether it's possible to attain aboveaverage returns requires an understanding of EMH. 
Options & Futures
Financial Concepts
Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear. 
Fundamental Analysis
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Economics
Understanding the Fisher Effect
The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. 
Fundamental Analysis
Explaining the Geometric Mean
The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio. 
Investing
The Labor Market Recovery’s Missing Ingredient
Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly. 
Trading Strategies
Best Undergraduate Degrees For Day Traders
We look at some popular undergrad majors for those wanting to begin a career in the exciting world of fastpaced trading. 
Fundamental Analysis
Explaining Standard Error
Standard error is a statistical term that measures the accuracy with which a sample represents a population. 
Economics
Understanding Economic Order Quantity
Economic order quantity is an inventoryrelated equation that determines the optimum order quantity that a company should hold in its inventory.