When drawing conclusions based on test results, statisticians and scientists often factor in the possibility of erroneous results, or “false negatives” and “false positives.” Some economists have extended this concept to assessing the effectiveness of regulation. Imagine that you visit your doctor for an annual checkup and have your cholesterol level tested.
When the results come back from the lab, they show that all is well. But what if your cholesterol actually was high and an error in the test resulted in a clean bill of health? That would be a false negative, and I’m sure you can see the problems it would pose.