Hypothesis Testing Using P-Values

Hypothesis testing is sometimes done by using p-values. This is just a minor variation to classical hypothesis testing. Consider the following problem: It is claimed that, in a particular population, the mean amount of money a person has with him in cash is $50. To test this claim a researcher is taking a sample of 36 people from this population finding a mean amount of $52 in cash with a standard deviation of $8. Does this indicate that the actual amount of cash people have on them in this population is higher than the claimed $50? Let us do a classical one-tailed hypothesis test at a 0.05 level of significance first. Step 1 : The null hypothesis is that the population mean amount of cash is not significantly higher than the claimed $50. Step 2 : The z-table gives us a critical z-value of 1.65. The decision rule is thus that we accept the null hypothesis if z < 1.65 Step 3 : The test statistic gives us a value of
z= X 52 50 = = 1.50 s 8 n 36

This is all summarized in the following picture:

$50 $52 (z=0) (z=1.5)

zcr=1.65

Step 4 : Since z < 1.65 we accept the null hypothesis. This means that at the 0.05 level of significance there does not seem to be sufficient evidence that the mean amount of cash people have on them is significantly higher that $50. Note : Please note that a graphical way of looking at the decision rule is to accept the null hypothesis whenever the calculated z-value is not found in a tail of the curve.
2008 UMUC European Division Ron Souverein and Nada Wray

Using p-values is just a somewhat different way of arriving at the decision. Consider the normal curve above: since we have used a level of significance of 0.05 the critical value of 1.96 indicates that the probability to the left of the line above the 1.96 is 95% and the probability to the right is 5%. Thus, since we are 95% confident that the null hypothesis is accepted if z < 1.96, we have a probability of 5% of rejection the null hypothesis. Again, please note that this 5% appears in the right tail of the curve. Let us now use the calculated result of z = 1.50 in a somewhat different way: looking up z = 1.50 in the z-table gives us a corresponding probability of 0.9332. The probability to the right of z = 1.5 is thus 1 0.9332 = 0.0668. From the picture above you can see that this probability of 0.0668, indicates that the z-value is not in the tail which represents o probability of 0.5. A z-value not in the tail means again that the null hypothesis is accepted. Another way of looking at the meaning of the p-value is to note that the p-value of a test is that particular value of the level of significance for which accepting the null hypothesis turns into rejecting the null hypothesis. Thus, in the above example, the pvalue of 0.0668 tells you that for levels of significance greater than 0.0668 you will accept the null hypothesis and for values of significance less than 0.0668 you will reject the null hypothesis. The hypothesis test above can now be written as: Step 1 : Same as above Step 2 : We accept the null hypothesis if the p-value > than the level of significance. Step 3 : First as above. Then please add that the z-table for z = 1.50 gives a p-value of 1 0.9332 = 0.0668. Step 4 : Since the p-value of 0.0668 is greater than the level of significance of 0.05 we accept the null hypothesis. This means that at the 0.05 level of significance there does not seem to be sufficient evidence that the mean amount of cash people have on them is significantly higher that $50. It is just a matter of personal taste whether or not you want to work with critical values or p-values. For a 2-tailed test the procedure is similar. In calculating the p-value you just have to multiply the 0.0668 by 2 since there are now 2 tails so that the p-value becomes 0.1336. Since this p-value is greater than the level of significance we will accept the null hypothesis.

2008 UMUC European Division Ron Souverein and Nada Wray

Just one more note. In the past decades, with calculator and computer power going up rapidly, many if not most researchers will go about a hypothesis test as follows. They will formulate a null hypothesis, report a p-value and then leave the decision of accepting or rejecting the null hypothesis up to you. No level of significance will be given but "common sense" will be invoked to decide the outcome of the hypothesis testing. In the above example, with the p-value drastically different, researchers will say something like: "we used the null hypothesis that the population mean amount of cash is not significantly higher than the claimed $50. We then performed a z-test and found a p-value of, say, 0.001." This is all that will be written in a publication or report. It is now up to you to conclude that you accept or reject the null hypothesis. In this case that is easily done since a p-value of 0.001 means a level of significance of 0.001. This means that you can accept the null hypothesis with a confidence of up to 1 0.001 = 0.999 or 99.9%. That seems to be a sufficiently high confidence to be certain of accepting the null hypothesis no matter what.

2008 UMUC European Division Ron Souverein and Nada Wray