Hi,
The definition of Type II error: Not hiring or firing a manager who subsequently outperforms, or performs in line with, expectations.
But “If performance is mean reverting, firing a poor performer (or hiring a strong performer) only to see a reversion in performance results is a Type I error”.
I really do not see the consistency here: Firing a poor performer only to see a reversion in performance results >> meaning that the manager will subsequently outperform, or performs in line with expectations >> should be Type II.
Could anyone help me to understand it?
Thanks!