Investment and optimal error rates: moonshots and mundanes

The main point of this note is to suggest that an investor should have a higher tolerance for false positive classifications when selecting shares with right-skew and/or fat-tailed returns (potential “moonshots”).  Terminological preamble Statistical discussions of hypothesis testing commonly refer to “false positive” (Type I) and “false negative” (Type II) errors. The term “error” is value-neutral in statistical testing, … Read more