I'm the black sheep in my family.
Since my grandfather, every male in my immediate family has chosen to become an engineer. Uncles, cousins and even my father at least started their careers as engineers. Good for them. And I won't even mention what the conversation is like around the dinner table at Thanksgiving. Personally, however, I shudder at the thought of toiling away solving complex thermodynamic equations.
As fate would have it, I chose a similar quantitatively based field of study: economics. Engineering is nothing more than applied physics, and in the same sense, economics is mostly applied statistics.
One thing every student learns in an introductory statistics courses is the difference between Type I and Type II errors. I remember being bored to tears when we studied this topic, and it wasn't until much later that I realized that these errors have vital applications to politics and economics. In particular, Type I and Type II errors can help voters evaluate and weigh different options in an effort to make better and more informed decisions.
Humans are less than perfect, and we frequently make decisions in light of incomplete information. This means when we make decisions, there is a chance we could make an error given any course of action. A Type I error exists when you reject a true hypothesis. A Type II error occurs when you accept a false hypothesis.
By classifying these errors, we can evaluate which error would inflict the lesser damage, giving us a valuable tool in making decisions.
A great example can be found in Bob Woodward's inside look into President Bush's war cabinet: "Bush at War." Whether or not you agree the U.S. should have engaged in military operations in Iraq, error analysis can you help better understand the decisions policy makers make.
Every major intelligence agency in the world believed the Saddam Hussein had, or was dangerously close to having, nuclear, biological and chemical weapons of mass destruction. The errors the administration could have made, on deciding whether or not to invade, in this instance were: Type I – assume Hussein had these nefarious weapons when he actually did not. Type II – believe the regime did not have nuclear weapons when they really did.
We can look to history as evidence that in this case, the administration believed the cost of making a Type I error was significantly less than that of a Type II error. And the administration was probably right.
An eerily similar situation can be found today with Iran's nuclear enrichment program. Turn on any news network to see how Iran is enriching Uranium U-235 and claiming it's for nuclear power. Israel worries that Iran will use the Uranium to create nuclear weapons to rain fire and death on the Jewish state.
Obviously this is a tough decision. Making a Type I error and assuming the government of Iran does plan on using the Uranium to attack Israel when it actually does not could have fatal consequences. But making a Type II error by assuming that Iran doesn't intend to create nuclear weapons when it actually does could be more fatal still.
No one likes errors, but not evaluating the consequences of one's actions is irresponsible and a sign of failed leadership.
While simplified, understanding Type I and Type II errors give one a better appreciation for the decisions our leaders face. This tool can be applied to other public policy decisions that affect everyone. The decision to raise tax rates in hopes of increasing tax revenue, or to legalize narcotics are both examples of difficult decisions that need to be scrutinized analytically rather than argued emotionally.
This is one of the reasons I became so passionate about economics – the applications to the real world. Understanding economic principles is like understanding the physical laws of the universe. It enriches your life, and enables you to make better and more informed decisions.
The laws of economics are like the laws of physics: try as we might, we cannot break them. It's no less plausible to defy gravity here on earth as it is to defy the laws of supply and demand. This is a good thing, because it means there are some laws that even politicians can't break.
Adam Prosise is a senior in economics. He can be reached at firstname.lastname@example.org.