Question: A medical insurance company wants to know whether the proportion of its customers requiring a hospital stay during a year will decrease if it provides coverage for certain types of alternative medicine. The company conducts a 1-year study in which it gives insurance coverage for alternative medicine to 5000 randomly selected customers. Using the data from this study, the company tests the following hypotheses about the effect of offering the alternative medicine coverage to its customers:
H0: proportion requiring a hospital stay will not decrease
Ha: proportion requiring a hospital stay will decrease
If the null hypothesis is rejected, the company will offer this coverage to all of its customers in the future.
a. Explain what a Type 1 error would be in this situation.
b. Explain what a Type 2 error would be in this situation.
c. Explain which type of error would be more serious for the insurance company.
d. Explain which type of error would be more serious for the customers.