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For a hypothesis test on a Poisson mean lambda or a binomial probability p, a null hypothesis H0 states a fixed value of the parameter, and an alternative hypothesis H1 states that the parameter has increased, has decreased (a one-tailed test), or is simply different (a two-tailed test). A test statistic X, assumed to follow the distribution stated in H0, is compared against a critical region: the set of values of X for which H0 is rejected in favour of H1.
Because X is discrete, the probability of X falling in a proposed critical region can rarely be made to equal a chosen significance level exactly. The usual convention is to choose the largest critical region whose probability does not exceed the significance level requested. This probability is called the actual significance level of the test, and it is also equal to P(Type I error), the probability of wrongly rejecting a true H0.
A Type II error occurs when H0 is not rejected even though H1 is actually true. Its probability depends on the true value of the parameter, and is found by calculating the probability that X falls outside the critical region, using the true (alternative) value of the parameter in place of the value stated in H0. The power of a test is defined as 1 - P(Type II error): the probability of correctly rejecting a false H0. Power increases as the true parameter value moves further from the value stated in H0, and is also affected by the significance level chosen and the sample size used.