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Level of Significance
In testing a given hypothesis the maximum probability with which we would be willing to take risk is called level of significance of the test. This probability often denoted by is generally specified before sample are draw.
The level of significance usually employed in testing of significance are 0.05 ( or 5%) and 0.01 ( or 1%). If for example a 0.05 or 5% level of significance is chosen in deriving a test of hypothesis then there are about 5 chances in 100 that we would reject the hypothesis when it should be accepted ( i .e.). we are about 95% confident that we made the right decision. In such a case we say that the hypothesis has been rejected at 5 % level of significance which means that we could be wrong with probability 0.05.
Note : Critical Region : A region in the sample space S which amounts to rejection of HO is termed as critical region or region of rejection.
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