Testing Hypotheses

Presentation Outline
Hypothesis
Types of Hypotheses
Null and Alternative Hypothesis
Motivation for Hypothesis Testing
Two-tailed and One-tailed Hypothesis
Test Statistic
Decision Errors
Decision Rules
Two-tailed and One-tailed Tests
Test of hypothesis for a population mean (Z Test , t Test)
Hypothesis Test for a Proportion
What is Hypothesis ??

A hypothesis is a statement that something is true.

A hypothesis is an assumption about the population
parameter.









A parameter is a characteristic of the population, like
its mean or variance.
The parameter must be identified before analysis.
I assume the mean height of
students in this class is 5 feet 4
inches.

Hypothesis Testing


Statisticians follow a formal process to determine
whether to reject a null hypothesis, based on sample
data.

This process is called hypothesis testing.






Types of Hypotheses

Null Hypothesis

A hypothesis to be tested.

The symbol H
0
is used to represent the null hypothesis

Alternative Hypothesis

A hypothesis which is alternative to the null hypothesis.

The symbol H
A
or H
1
is used to represent the alternative
hypothesis.

It is the hypothesis that is believed to be true, or what
you are trying to prove is true.
Null Hypothesis Vs. Alternative Hypothesis
Null Hypothesis Alternative Hypothesis

Begin with the assumption that the
null hypothesis is TRUE

Is generally the hypothesis that is
believed to be true by the
researcher


Always contains the = sign


Never contains the = sign


Null Hypothesis may or may not be
rejected

Alternative Hypothesis may or may
not be accepted

Observed difference is due to
chance and there is no significant
difference.
Observed difference is real
Example: Null Hypothesis and Alternative Hypothesis

Numbered
Tickets
The average of
the box equals 50
The average of the
box is less than 50
Mr. Null Mr. Alt
Null Hypothesis Alternative Hypothesis
Arguing about the average
of a large box of numbered
tickets

Motivation for Hypothesis Testing

The intent of hypothesis testing is formally examine two
opposing hypotheses, H
0
and H
A
.

These two hypotheses are mutually exclusive so that one
is true to the exclusion of the other.

We accumulate evidence - collect and analyze sample
information - for the purpose of determining which of
the two hypotheses is true and which of the two
hypotheses is false.


One-tailed Hypothesis

A Hypothesis in which the value of a parameter is specified
as being either:
above a certain value, or
below a certain value.
Eg: Mean height of students is less than 5 feet 4inches


Two-tailed Hypothesis

A form of alternative hypothesis in which a population
parameter is different than a specified value.

Example: Mean height of students is not 5 feet 4inches


0
: O = O
a
H
0
: O < O
a
H
Test Statistic

i. The decision to reject or fail to reject is based on
information contained in a sample drawn from the
population of interest.

ii. The sample values are used to compute a single number,
which operates as a decision maker.

iii. This decision maker is called test statistic
A test statistic is used to measure the difference
between the data and what is expected on the null
hypothesis.
Determining Rejection and Acceptance Region


Rejection Region
If test
statistic falls
in some
interval which
support
alternative
hypothesis, we
reject the null
hypothesis.
Acceptance
Region
It test
statistic falls
in some
interval which
support null
hypothesis, we
fail to reject
the null
hypothesis.
Critical Value
The value of
the point,
which divide
the rejection
region and
acceptance one
Decision Errors


Type I Error

Reject Null Hypothesis when it is true

Probability of Type I Error is denoted by alpha
a

The probability of committing a Type I error is

called the significance level.
Decision Errors

Type II Error

Researcher fails to reject a null hypothesis
that is false

Probability of Type II Error is denoted by
Beta,

The probability of not committing a Type II

error is called the Power of the test.
Decision Rules

In practice, statisticians describe decision rules for
rejecting the null hypothesis in two ways
with reference to a P-value or

with reference to a region of acceptance.

P-value
The strength of evidence in support of a null hypothesis is measured
by the P-value.

Suppose the test statistic is equal to S. The P-value is the
probability of observing a test statistic as extreme as S, assuming
the null hypothesis is true.

If the P-value is less than the significance level, we reject the null
hypothesis.
Decision Rules



Rejection region
If test statistic falls in some interval which support
alternative hypothesis, we reject the null hypothesis.

The set of values outside the region of acceptance.
Acceptance Region
The region of acceptance is a range of values. If the test
statistic falls within the region of acceptance, the null
hypothesis is not rejected.

It test statistic falls in some interval which support null
hypothesis, we fail to reject the null hypothesis.
The value of the point, which divide the rejection region
and acceptance one is called Critical value
Two-tailed vs. One-tailed Tests
Two-tailed Test One-tailed Test
Test of deciding whether a
population parameter is different
than a specified value
Test is about whether a population
parameter is less than a specified
value (left-tailed test) or more
than a specified value (right-
tailed test)
In a two-tailed test, the direction
of the difference is not predicted.

In a one-tailed test, the researcher
predicts the direction (i.e.
greater or less than) of the
difference.

A two-tailed test splits the critical
region equally on both sides of
the curve.

All of the critical region is placed
on one side of the curve in the
direction of the prediction.

1. Test of hypothesis for a population mean


Two-Tailed Test

Large Sample

With reference to region of acceptance or
rejection






Example - The population of all minority workers has a
mean wage of $14,500 with a standard deviation of $200.
Test whether a sample of 100 having an average of $14,300
and o= .05 differs from the population average.

Step 1 Stating the null and alternative hypothesis








1. H
O
: = $14,500
H
A
: = $14,500



Step 2 - Select Sampling Distribution and Establish the
Critical Region

Critical Region begins at Z= 1.96

This is the critical Z score associated with =
.05, two-tailed test.

If the obtained Z score falls in the Critical
Region, or the region of rejection, then we
would reject the H
0
.


Step 3:

Applying the Formula to Compute the Test Statistic (Z
for large samples ( 100)




N
Z
o
X
=
When the Population Standard deviation is not known
the formula is:





1
X
=
N s
Z

Standard
Error
Sample SD

4. z =
x
SE
=
14, 30014,500
200
100
= 10
Substituting the values into the formula, we calculate a
Z score of -10
Rule of Thumb:

If the test statistic is in the Critical Region ( =.05, beyond
1.96):
Reject the H
0
. The difference is significant.

If the test statistic is not in the Critical Region (at =.05,
between +1.96 and -1.96):
Fail to reject the H
0
. The difference is not significant.

Step 5

Make a Decision and Interpret Results

The obtained Z (-10) score falls in the Critical Region,
so we reject the H
0
.
Therefore, the H
0
is false and must be rejected. There
is evidence that the salaries are different.

C
C
Z = -10
Rejection region

2. Test of hypothesis for a population mean


Two-Tailed Test

Small Sample

With reference to region of acceptance or
rejection





Example - A manufacturer of ball bearings have a diameter of
.25 inches and a sample standard deviation of .05 inches. A
random sample of n = 25 ball bearings reveal a mean diameter
of .2670 inches. Conduct a hypothesis test at the 10 % level of
significance to determine whether there is statistical
significance that the manufacturing process is not running
correctly, that is .25 inches.
Step 1 Stating the null and alternative hypothesis










1. H
O
: = .25
H
A
: = .25
Step 2

n < 30
unknown o

The appropriate t distribution has (n- 1) Degrees of
freedom
Degrees of Freedom = n- 1 = 25 - 1 = 24

Step 3 Determining the Critical value

Given significance level of 0.10 and degree of freedom of 24,
we look in the t distribution table.

Under 0.10 column until we reach 24 degrees of freedom row.

There we find the critical value of t, which is 1.711
Thus we use t distribution.

Step 4 Calculating the t - statistic




4. t =
x
SE
=
.2670.25
.05
25
=1.7
Critical value
t = - 1.711
Critical value
t = 1.711
t = 1.7
Acceptance
region
Step 5 Sketching the distribution and marking the
sample value and critical value
Step 6 Interpreting the
Result

The sample mean falls in
the acceptance region,
hence Fail to reject H
O


There is not enough
evidence that it is not
running incorrectly.
Main Considerations in Hypothesis Testing

Sample size

Use Z for large samples, t for small (<100)

There are two other choices to be made : One-tailed or
two-tailed test

Is there a difference? = 2-tailed test
Is the difference less than or greater than? = 1-
tailed test

Alpha () level

0.05, .01, or .001 ? ( = .05 is most common)

The Curve for Two- vs. One-tailed Tests at = .05


Two-tailed test:

is there a significant difference?





One-tailed tests:

is the sample mean
greater than ?




is the sample mean
less than ?

Type I and Type II Errors

Type I, or alpha error:

Rejecting a true null hypothesis


Type II, or beta error:

Failing to reject a false null hypothesis




START
Decide whether this is a two-tailed or a one-tailed test. State your hypothesis. Select a
level of significance appropriate for this decision
Decide which distribution(tor z)is appropriate and find the critical value for the chosen
level of significance from the appropriate appendix table.
Circulate the standard error of the sample statistic. Use the standard error to
standardize the observed sample value.
Sketch the distribution and mark the position of the standardized sample value and the
critical values for the test
Is the sample
statistic within
the acceptance
region?
Accept
Ho
Translate the statistical results
into appropriate managerial action
Accept
Ho
Yes

No
Hypothesis Test for a Proportion

Two-Tailed Test

With reference to P-Value

The CEO of a large electric utility claims that 80 % of his
1,000,000 customers are very satisfied with the service
they receive. To test this claim, the local newspaper
surveyed 100 customers, using simple random sampling.
Among the sampled customers, 73 % say they are very
satisified. Based on these findings, can we reject the CEO's
hypothesis that 80% of the customers are very satisfied?
Using a 0.05 level of significance.
Solution

Step 1

Stating the null hypothesis and an alternative hypothesis.



Null hypothesis : P = 0.80


Alternative hypothesis : P 0.80


Step 2

Deciding the following:

a. Nature of the test Two-tailed test

b. Level of Significance 0.05

c. Choosing the distribution Normal distribution
(as n > 30) Z-test





Step 3 - Analyse sample data

Using sample data, we calculate the standard deviation () and
compute the z-score test statistic (z).

= square root[ P * ( 1 - P ) / n ]

= sqrt [(0.8 * 0.2) / 100] = sqrt(0.0016) = 0.04

z = (p - P) /

= (.73 - .80)/0.04 = -1.75

Where,
P is the hypothesized value of population proportion in the null
hypothesis
p is the sample proportion
n is the sample size.

Step 4 Determimg P Value


P-value is the probability that the z-score is less than -
1.75 or greater than 1.75.


We use the Normal Distribution Calculator to find

P(z < -1.75) = 0.04

P(z > 1.75) = 0.04

Thus, the P-value = 0.04 + 0.04 = 0.08




Step 5 - Interpreting the results

If p value > a, Do Not Reject H
0

If p value < a, Reject H
0



Since the P-value (0.08) is greater than the significance

level (0.05), we cannot reject the null hypothesis.