What tends to happen when the continuation policy is more stringent?

When the continuation policy is more stringent, it requires a higher level of evidence or performance to continue with a particular investment or strategy. This increased rigor in evaluation means that it becomes more challenging for a strategy to meet the necessary criteria for continuation.

As a result, the likelihood of type 2 errors increases. A type 2 error occurs when a policy fails to reject a false null hypothesis, meaning that a potentially successful investment might be incorrectly eliminated or judged as unworthy. In this context, a stringent continuation policy may lead to valuable strategies being discarded because they do not meet the heightened standards of performance or evidence, even if they could have ultimately led to positive outcomes.

This outcome exemplifies the trade-off in stricter evaluation processes—while they may help filter out underperforming investments (reducing type 1 errors, which involve incorrectly rejecting a true null hypothesis), the risk of overlooking potentially valuable opportunities increases, leading to more type 2 errors.