Chapter 9 Fundamental of Hypothesis Testing
Chapter 9 Fundamental of Hypothesis Testing
Chapter 9 Fundamental of Hypothesis Testing
Testing
MBA652A
• There two types of statistical inferences, Estimation and
Hypothesis Testing
• Hypothesis Testing: A hypothesis is a claim (assumption)
about one or more population parameters.
– Average price of a six-pack in the U.S. is μ = $4.90
– The population mean monthly cell phone bill of this
city is: μ = $42
– The average number of TV sets in U.S. Homes is equal
to three; μ = 3
• It Is always about a population parameter, not about a
sample statistic
• Sample evidence is used to assess the probability that the
claim about the population parameter is true
A. It starts with Null Hypothesis, H0
B. We begin with the assumption that H0 is true and any
difference between the sample statistic and true
population parameter is due to chance and not a real
(systematic) difference.
1. Similar to the notion of “innocent until proven guilty”
2. That is, “innocence” is a null hypothesis.
3. Refers to the status quo
4. Always contains “=” , “≤” or “ ” sign
5. May or may not be rejected
H1: μ ≠ 12
Two-tail test 0
H0: μ ≤ 12 a Rejection
H1: μ > 12 region is
Upper-tail test 0 shaded
H0: μ ≥ 12
a
H1: μ < 12
Lower-tail test 0
• P-Value Approach –
• P-value=Max. Probability of (Type I Error), calculated from
the sample.
• Given the sample information what is the size of blue are?
H0: μ = 12
H1: μ ≠ 12
Two-tail test 0
H0: μ ≤ 12
H1: μ > 12
Upper-tail test 0
H0: μ ≥ 12
H1: μ < 12
0
Type I and II Errors:
• The size of , the rejection region, affects the risk of making different
types of incorrect decisions.
Type I Error
– Rejecting a true null hypothesis when it should NOT be rejected
– Considered a serious type of error
– The probability of Type I Error is
– It is also called level of significance of the test
Type II Error
– Fail to reject a false null hypothesis that should have been rejected
– The probability of Type II Error is β
Decision Actual Situation
Hypothesis Legal System
Testing
H0 True H0 False Innocence Not innocence
No Type II No Error Type II Error
Do Not (not guilty, found (guilty, found not
Reject H0 Error Error not guilty) guilty)
( 1 ) ( ) ( 1 ) ( )
Type I No Type I Error No Error
(Not guilty, (guilty, found
Reject H0 Error Error found guilty) guilty)
( ) (1 ) ( ) (1 )
Type I and Type II errors cannot happen at the same time
1. Type I error can only occur if H0 is true
2. Type II error can only occur if H0 is false
3. There is a tradeoff between type I and II errors. If the
probability of type I error ( ) increased, then the
probability of type II error ( β ) declines.
4. When the difference between the hypothesized parameter
and the actual true value is small, the probability of type
two error (the non-rejection region) is larger.
5. Increasing the sample size, n, for a given level of ,
reduces β
B. P-Value approach to Hypothesis Testing:
X μ X μ
Z t n-1
σ S
n n
Steps to Hypothesis Testing
1. State the H0 and H1 clearly
2. Identify the test statistic (two-tail, one-tail, and Z or t
distribution
3. Depending on the type of risk you are willing to take,
specify the level of significance,
4. Find the decision rule, critical values (CV), and rejection
regions.
5. If –CV<actual value (sample statistic) <+CV, then do
not reject the H0
6. Collect the data and do the calculation for the actual
values of the test statistic from the sample
Steps to Hypothesis testing, continued
Make management/business/administrative
decision
When do we use a two-tail test?
when do we use a one-tail test?
H : 12 oz
1
12
• One-tail test is used when the researcher is interested in the
direction.
• Example: The soft-drink company puts a label on cans claiming
they contain 12 oz. A consumer advocate desires to test this
statement. She would assume that each can contains at least 12
oz and tries to find evidence to the contrary. That is, she
examines the evidence for less than 12 oz.
• What tail of the distribution is the most logical (higher
probability) to find that evidence? The only way to reject the
claim is to get evidence of less than 12 oz, left tail.
H : 12oz
0
H : 12 oz
1
11.5 12 14
Review of Hypo. Testing
• What is HT?
• Probability of making erroneous conclusions
• Type I – only when Null Hypo is true
• Type II – only when Null Hypo is false
• Two Approaches
• The Rejection or Critical Value Approach
• The P-value Approach (we calculate the observed level of significance)
• Test Statistics
• Z- distribution if Population Std. Dev. is Know
• t-distribution if the Population Std. Dev. is unknown
Rejection Region or Critical Value Approach:
The given level of significance =
Non-rejection region
Represents
H0: μ = 12 a /2 a /2 critical value
H1: μ ≠ 12
Two-tail test 0
H0: μ ≤ 12 a Rejection
H1: μ > 12 region is
Upper-tail test 0 shaded
H0: μ ≥ 12
a
H1: μ < 12
Lower-tail test 0
• P-Value Approach –
• P-value=Max. Probability of (Type I Error), calculated from
the sample.
• Given the sample information what is the size of the blue areas? (The
observed level of significance)
H0: μ = 12
H1: μ ≠ 12
Two-tail test 0
H0: μ ≤ 12
H1: μ > 12
Upper-tail test 0
H0: μ ≥ 12
H1: μ < 12
0
• Example 1:
• Let’s assume a sample of 25 cans produced a sample
mean of 11.5 0z and the population std dev=1 0z.
• Question 1:
– At a 5% level of significance (that is allowing for a
maximum of 5% prob. of rejecting a true null hypo), is
there evidence that the population mean is different from
12 oz?
• Did not reject and within the interval, thus consistent results.