Hypothesis Test

Douglas A Lind, William G Marchal and

Samuel A Wathen. Statistical techniques
in Business and Economics
Chapter 10, 11

What is a Hypothesis?
What is a Hypothesis?
A Hypothesis is a statement about the value of a population

parameter developed for the purpose of testing. Examples

of hypotheses made about a population parameter are:
The mean monthly income for systems analysts is $3,625.
What is Hypothesis Testing?
Hypothesis testing is a procedure, based on sample
evidence and probability theory, used to determine whether
the hypothesis is a reasonable statement and should not be
rejected, or is unreasonable and should be rejected.

Hypothesis Testing Steps

Important Things to Remember

about H0 and H1
H0: null hypothesis and H 1: alternate hypothesis
H0 and H1 are mutually exclusive and collectively

exhaustive
H0 is always presumed to be true
H1 has the burden of proof
A random sample (n) is used to reject H0
If we conclude 'do not reject H 0', this does not necessarily
mean that the null hypothesis is true, it only suggests that
there is not sufficient evidence to reject H 0; rejecting the
null hypothesis then, suggests that the alternative
hypothesis may be true.
Equality is always part of H0 (e.g. = , ,

).
< and > always part of H1
4

How to Set Up a Claim as

Hypothesis
In actual practice, the status quo is set

up as H0
If the claim is boastful the claim is set
up as H1. Remember, H1 has the burden
of proof
In problem solving, look for key words
and convert them into symbols. Some
key words include: improved, better
than, as effective as, different from, has
changed, etc.
5

Parts of a Distribution in
Hypothesis Testing

One-tail vs. Two-tail Test

Hypothesis Setups for Testing a

Mean ()

Hypothesis Setups for Testing a

Proportion ()

Example
Jamestown Steel Company manufactures

and assembles desks and other office

equipment at several plants in western New
York State. The weekly production of the
Model A325 desk at the Fredonia Plant
follows the normal probability distribution
with a mean of 200 and a standard deviation
of 16. Recently, because of market
expansion, new production methods have
been introduced and new employees hired.
The vice president of manufacturing would
like to investigate whether there has been a
change in the weekly production of the
Model A325 desk.

10

Problem
Step 1: State the null hypothesis and the alternate
hypothesis.

H0: = 200
H1: 200
(note: keyword in the problem has changed)
Step 2: Select the level of significance.
= 0.01 as stated in the problem
Step 3: Select the test statistic.
Use Z-distribution since is known
11

Problem
Step 4: Formulate the decision rule.
Reject H0 if |Z| > Z/2
Z Z / 2
X
Z / 2
/ n
203.5 200
Z .01 / 2
16 / 50
1.55 is not 2.58

12

Step 5: Make a decision and interpret the result.

Because 1.55 does not fall in the rejection region, H0 is not rejected.
We conclude that the population mean is not different from 200. So we
would report to the vice president of manufacturing that the sample
evidence does not show that the production rate at the Fredonia Plant
has changed from 200 per week.

Type of Errors in Hypothesis Testing

Type I Error Defined as the probability of rejecting the

null hypothesis when it is actually true.

This is denoted by the Greek letter
Also known as the significance level of a test

Type II Error:
Defined as the probability of accepting the

null hypothesis when it is actually false.

This is denoted by the Greek letter

13

Test Error

14

p-Value in Hypothesis Testing

p-VALUE is the probability of observing a

sample value as extreme as, or more extreme

than, the value observed, given that the null
hypothesis is true.
In testing a hypothesis, we can also compare

the p-value to with the significance level ().

If the p-value < significance level, H0 is

rejected, else H0 is not rejected.

15

p-Value in Hypothesis Testing Example

Recall the last problem where the hypothesis and
decision rules were set up as:
H0: 200
H1: > 200
Reject H0 if Z > Z
where Z = 1.55 and Z =2.33
Reject H0 if p-value <
0.0606 is not < 0.01
Conclude: Fail to reject H0
16

What does it mean when p-value <

?
(a) .10, we have some evidence that H0 is not
true.
(b) .05, we have strong evidence that H0 is not
true.
(c) .01, we have very strong evidence that H0 is
not true.
(d) .001, we have extremely strong evidence that
H0 is not true.
17

Testing for the Population Mean: Population

Standard Deviation Unknown
When the population standard deviation () is

unknown, the sample standard deviation (s) is

used in its place
The t-distribution is used as test statistic, which
is computed using the formula:

18

Testing for the Population Mean: Population

Standard Deviation Unknown - Example
The McFarland Insurance Company Claims

Department reports the mean cost to process a

claim is $60. An industry comparison showed
this amount to be larger than most other
insurance companies, so the company
instituted cost-cutting measures. To evaluate
the effect of the cost-cutting measures, the
Supervisor of the Claims Department selected
a random sample of 26 claims processed last
month. The sample information is reported
below.
At the .01 significance level is it reasonable a
claim is now less than $60?
19

Testing for a Population Mean with a

Known Population Standard Deviation- Example
Step 1: State the null hypothesis and the alternate
hypothesis.

H0: $60
H1: < $60
(note: keyword in the problem now less than)
Step 2: Select the level of significance.
= 0.01 as stated in the problem
Step 3: Select the test statistic.
Use t-distribution since is unknown
20

Testing for a Population Mean with a

Known Population Standard Deviation- Example
Step 4: Formulate the decision rule.
Reject H0 if t < -t,n-1

21

Step 5: Make a decision and interpret the result.

Because -1.818 does not fall in the rejection region, H0 is not rejected at the .
01 significance level. We have not demonstrated that the cost-cutting
measures reduced the mean cost per claim to less than $60. The difference
of $3.58 ($56.42 - $60) between the sample mean and the population mean
could be due to sampling error.

Testing for a Population Mean with an Unknown

Population Standard Deviation- Example
The current rate for producing 5 amp fuses at

Neary Electric Co. is 250 per hour. A new

machine has been purchased and installed
that, according to the supplier, will increase the
production rate. A sample of 10 randomly
selected hours from last month revealed the
mean hourly production on the new machine
was 256 units, with a sample standard
deviation of 6 per hour.

At the .05 significance level can Neary

conclude that the new machine is faster?

22

Testing for a Population Mean with a

Known Population Standard DeviationExample continued
Step 1: State the null and the alternate
hypothesis.
H0: 250; H1: > 250
Step 2: Select the level of significance.
It is .05.
Step 3: Find a test statistic. Use the t distribution
because the population standard deviation is
not known and the sample size is less than 30.
23

Testing for a Population Mean with a

Known Population Standard DeviationExample continued
Step 4: State the decision rule.
There are 10 1 = 9 degrees of freedom. The null
hypothesis is rejected if t > 1.833.

X
s

256 250
6

10

3.162

Step 5: Make a decision and interpret the results.

The null hypothesis is rejected. The mean number
produced is more than 250 per hour.

24

Tests Concerning Proportion

A Proportion is the fraction or percentage that

indicates the part of the population or sample

having a particular trait of interest.
The sample proportion is denoted by p and is
found by x/n
The test statistic is computed as follows:

25

Assumptions in Testing a Population

Proportion using the z-Distribution
A random sample is chosen from the population.
It is assumed that the binomial assumptions discussed

in Chapter 6 are met:

1. the sample data collected are the result of counts;

2. the outcome of an experiment is classified into one of

two mutually exclusive categoriesa success or a

failure;
3. the probability of a success is the same for each trial;
and (4) the trials are independent

The test we will conduct shortly is appropriate when

both n and n(1- ) are at least 5.

When the above conditions are met, the normal
distribution can be used as an approximation to the
binomial distribution
26

Test Statistic for Testing a Single

Population Proportion
Hypothesized
population proportion

Sample proportion

(1 )
n
Sample size

27

Test Statistic for Testing a Single

Population Proportion - Example
Suppose prior elections in a certain state
indicated it is necessary for a candidate for
governor to receive at least 80 percent of the
vote in the northern section of the state to be
elected. The incumbent governor is interested
in assessing his chances of returning to office
and plans to conduct a survey of 2,000
registered voters in the northern section of the
state. Using the hypothesis-testing procedure,
assess the governors chances of reelection.

28

Test Statistic for Testing a Single

Population Proportion - Example
Step 1: State the null hypothesis and the alternate
hypothesis.

H0: .80
H1: < .80
(note: keyword in the problem at least)
Step 2: Select the level of significance.
= 0.01 as stated in the problem
Step 3: Select the test statistic.
Use Z-distribution since the assumptions are met
and n and n(1-) 5
29

Testing for a Population Proportion - Example

Step 4: Formulate the decision rule.
Reject H0 if Z <-Z

Step 5: Make a decision and interpret the result.

The computed value of z (2.80) is in the rejection region, so the null hypothesis is rejected
at the .05 level. The difference of 2.5 percentage points between the sample percent (77.5
percent) and the hypothesized population percent (80) is statistically significant. The
evidence at this point does not support the claim that the incumbent governor will return to
30 the governors mansion for another four years.

Problem # 33
According to a recent survey, Americans

get a mean of 7 hours of sleep per night. A

random sample of 50 students at West
Virginia University revealed the mean
number of hours slept last night was 6
hours and 48 minutes. The standard
deviation of the sample was 0.9 hours. Is it
reasonable to conclude that students at
West Virginia sleep less than the typical
American? Compute the p-value.

31

Problem # 46
In the year 2006 the mean fare to fly from

Charlotte, North Carolina, to Seattle,

Washington, on a discount ticket was $267.
A random sample of round-trip fares on this
route last month gives in the following
table. At the 0.01 significance level can we
conclude that the mean fare has increased?
What is the p-value?

32

Problem # 57
The U.S. presidents call for designing and

building a missile defense system that

ignores restrictions of the Anti-Ballistic
Missile Defense System treaty (ABM) is
supported by 438 of the respondents in a
nationwide poll of 1002 adults. Is it
reasonable to conclude that the nation is
evenly divided on the issue? Use the 0.05
significance level.

33

Testing Hypothesis about Difference between

Two Population Means (Two Sample Tests of
Hypothesis)
or
Null Hypothesis: H0: (1 - 2)=D
H1: (1 - 2)>D
Alternate Hypothesis
(1 - 2)<D
[1 > 2
1 < 2] ..one-tailed test
Alternate Hypothesis
H1: (1 - 2) D
[1 2 ]
.. two-tailed test
Test Statistics:
z

( x1 x2 ) D0

12 22

n1 n2

or

( x1 x2 )

12 22

n1 n2

(replace s when not available)

Rejection Region z > z or z < -z
z > z/2 or z < -z/2
two tailed test)
(
34

1 = 2

one tailed test)

Mary Jo Fitzpatric is the Vice President for Nursing

Services at St. Lukes Memorial Hospital. Recently
she noticed in the job posting for nurses that those
that are unionised seem to offer higher wages. She
decided to investigate and gathered the following
sample information.
Group

Mean
Wage

Sample
Standard
Deviation

Sampl
e Size

Union

$20.75

$2.25

40

Nonunion

$19.80

$1.90

45

Would it be reasonable for her to conclude that

there is significant difference in earning
between union and non-union nurses? Use the .
01 significance level.
35

Example
A manpower-development statistician is asked to

determine whether the hourly wages of semiskilled

workers are the same in two cities. The results of the
survey are presented in the following table:
Hourly Wage Rate

36

Solution
Step 1:
This is a two-tailed test. The hypothesis is stated below. The
significance level is 0.05 (given)
H0: 1 = 2 versus H1: 1 2
Step 2:
Since this is a test of the means and the degrees of freedom (n1 + n2
- 2) is in excess of 30, a z test is appropriate. The critical
values are 1.96 (from a z table).
Step 3:

37

Solution
Step 4: Sketch the distribution, locate the critical values

and the test statistic.

Step 5: Decide! Since the test statistic values lies within
the rejection region then there is sufficient statistical
evidence based on this sample to reject H0.
The test for a difference between parameters does not have

to be zero, it can be non-zero. For example:

H0: 1 - 2 0.10 versus H1: 1 - 2 > 0.10

38

Problem: 9-3
Two research laboratories have

39

independently produced drugs that

provide relief to arthritis sufferers. The
first drug was tested on a group of 90
arthritis sufferers and produced an
average of 8.5 hours of relief, and a
sample standard deviation of 1.8 hours.
The second drug was tested on 80
arthritis sufferers, producing an average
of 7.9 hours of relief, and a sample
standard deviation of 2.1 hours. At the
0.05 level of significance, does the
second drug provide a significantly
shorter period of relief?

Problem: 9-6
Notwithstanding the Equal Pay Act of

40

1963, in 1993 it still appeared that men

earned more than women in similar jobs.
A random sample of 38 male machine
tool operators found a mean hourly
wage of $11.38, and the sample
standard deviation was $1.84. A random
sample of 45 female machine-tool
operators found their mean wage to be
$8.42, and the sample standard
deviation was $1.31. On the basis of
these samples, is it reasonable to
conclude (at a = 0.01) that the male
operators are earning over $2.00 more
per hour than the female operators?

Testing Hypothesis about Difference

1.Null
Hypothesis:
H0: (p1 - p2Proportion
)=D
or
between
Two Population

p1 =

p2
2.Alternate Hypothesis H1: (p1 - p2)>D (p1 - p2)<D
[p1 > p2 p1 < p2]
..one-tailed test
Alternate HypothesisH1: (p1 - p2) D
[p1 p2 ]
.. two-tailed test
3. Test Statistics:
Rejection Region z > z or z < -z (one tailed
test)
z > z/2 or z < -z/2 (two tailed test)
41

Testing Hypothesis about Difference between

Two Population Proportion: Pooled
When population parameters p and q are unknown:
1. Null Hypothesis:
H0:
p1 =p2
[p1 p2 =0]
2. Alternate Hypothesis
H1: p1 >p2 p1 <p2
..one-tailed test
Alternate Hypothesis
H1: p1 p2
two-tailed test
3. Pooled proportion:

4. Test Statistics:

5. Rejection Region
42

x1 x2
p
n1 n2
( p1 p 2 )
1
1
p q[
]
n1 n2

z >z or z <-z (one tailed test)

z >z/2 or z <-z/2(two tailed test)

Example:
1.

2.

43

According to a report by the American Cancer Society, more men

than women smoke and twice as many smokers die prematurely
than nonsmokers. In random samples of 200 males and 200 females,
62 of the males and 54 of the females were smokers. Is there
sufficient evidence to conclude that the proportion of male smokers
higher from the proportion of female smokers when = .01?
A financial analyst wants to compare the turnover rates, in percent,
for shares of oil related stocks versus other stocks. She selected 32
oil-related stocks and 49 other stocks. The mean turnover of oil
related stocks is 31.4 percent and the standard deviation 5.1 percent.
For the other stocks, the mean rate was computed to be 34.9 percent
and the standard deviation 6.7 percent. Is there a significant
difference in the turnover rates of the two types of stock?

Problem: 9-22
A coal-fired power plant is considering two

44

different systems for pollution abatement. The

first system has reduced the emission of
pollutants to acceptable levels 68 percent of
the time, as determined from 200 air samples.
The second, more expensive system has
reduced the emission of pollutants to ac
ceptable levels 76 percent of the time, as
determined from 250 air samples. If the
expensive system is significantly more
effective than the inexpensive system in
reducing pollutants to acceptable levels, then
the management of the power plant will install
the expensive system. Which system will be
installed if management uses a significance
level of 0.02 in making its decision?

Problem: 9-23
A group of clinical physicians is performing tests on patients to

determine the effectiveness of a new antihypertensive drug.

Patients with high blood pressure were randomly chosen and then
randomly assigned to either the control group (which received a
well-established antihypertensive) or the treatment group (which
received the new drug). The doctors noted the percentage of
patients whose blood pressure was reduced to a normal level
within 1 year. At the 0.01 level of significance, test appropriate
hypotheses to determine whether the new drug is significantly
more effective than the older drug in reducing high blood pressure.

45

Group

Proportion That
Improved

Number of
Patients

Treatment

0.45

120

Control

0.36

150

Test for difference between

Means: small sample size
For small samples sizes, we must estimate

a 'pooled' estimate (a.k.a. a weighted

average) of the variances for the two
groups. This estimate is:

and then, the estimated standard error is:

46

Tests for Difference Between Two Means: Small Sample Size

1. Null Hypothesis
H0: 1=2
2. Alternative Hypothesis
H1: 1 >2 or 1 <2
(one tailed test)
H1: 1
(two-tailed
2
test)
3. Pooled Estimator: s p

( n1 1) s12 ( n 2 1) s 22

( n1 1) ( n 2 1)

4. Test Statistics:

x1 x 2
x1 x2

x1 x 2

t
sp

1
1

n1
n2

df ( n1 n2 2)
5. Rejection Region
47

t >t or t <-t(one tailed test)

t >t/2 or t <-t/2(two tailed test)

Example:
A company wishes to test when the sensitivity achieved by

a new program is significantly higher than achieved under

the legacy program. The following information is
available from test results.
Sensitivity

Mean

48

Proposed

92

Standard
Deviation
15

P.M.O.

84

19

Sample
Size
12
15

Solution
Step 1:
This is a one-tailed test. The hypothesis is stated below. The
significance level is 0.05 (given) H0: 1 2 versus H1: 1 > 2
Step 2:
Since this is a test of the means and neither n1 or n2 is in
excess of 30, a t test is appropriate. The critical value is
1.708 (from a t table with 25 degrees of freedom).
Step 3:

49

Solution
Step 4:
Sketch the distribution, locate the critical values and the

test statistic.
Step 5:
Decide! Since the test statistic values lies within the

retention region then there is no sufficient statistical

evidence based on this sample to reject H0.

50

Problem: 9-8
A credit-insurance organization has

51

developed a new high-tech method of

training new sales personnel. The
company sampled 16 employees who
were trained the original way and found
average daily sales to be $688 and the
sample standard deviation was $32.63.
They also sampled 11 employees who
were trained using the new method and
found average daily sales to be $706
and the sample standard deviation was
$24.84. At a = 0.05, can the company
conclude that average daily sales have
increased under the new plan?

Problem: 9-9
A large stock-brokerage firm wants to

determine how successful its new account

executives have been at recruiting clients.
After completing their training, new account
execs spend several weeks calling prospective
clients, trying to get the prospects to open
accounts with the firm. The following data give
the numbers of new accounts opened in their
first 2 weeks by 10 randomly chosen female
account execs and by 8 randomly chosen male
account execs. At a = 0.05, does it appear that
the women are more effective at generating
new accounts than the men are?

52