Chapter Summary Hypothesis Testing and t-tests

Group 2
C MANJUNATH(P16011), AMIT DHALIA(P16015), NITESH REDDY(P16031), M V VAMSI(P16032), VIKRAM
KHANNA(P16027), SANDEEP S KUMAR(P16029)
Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a
population parameter. The following 8 steps are involved in hypothesis testing.
1) Formulate null hypothesis Ho and alternate hypothesis Ha. Null Hypothesis is a statement in
which no difference or effect is expected. If null hypothesis is not rejected, no changes will be
made. Alternate hypothesis is a statement that some difference or effect is expected.
Accepting the alternative hypothesis will lead to changes in opinions or actions. Test of the
null hypothesis can be done through a one tailed or a two tailed test. One tailed test is used
more often as there is some preferred direction for the conclusion.
2) Select the Appropriate Test: Below table gives summary of appropriate statistical technique
and the corresponding test statistic.
Level of
Sample Application Test/Comments
Scaling
K-S and Chi square for goodness of fit
Runs test for randomness
One sample Distributions Nonmetric
Binomial test for goodness of fit for dichotomous
variables
t test, if variance is unknown
One sample Means Metric
z test if variance is known
t test, if variance is unknown
One sample Proportion Metric
z test if variance is known
K-S two sample test for examining the
Two independent samples Distributions Nonmetric
equivalence of two distribution
Two group t test
Two independent samples Means Metric
F test for equality of variances
Metric z test
Two independent samples Proportion
Nonmetric Chi square test
Mann-whitney U test is more powerful than the
Two independent samples Rankngs/Medians Nonmetric
median test
Paired samples Means Metric Paired t test
McNemar test for binary variables
Paired samples Proportion Nonmetric
Chi square test
Wilcoxon matched-pairs ranked-signs test is more
Paired samples Rankngs/Medians Nonmetric
powerful than the sign test
3) Choose level of Significance,: Selection of depends on Type I error, Type II error and
power of the test. Type I error, also known as error, occurs when the sample results lead to
rejection of Ho that is in fact true. This error is controlled by establishing the tolerance level
of risk of rejecting a true Ho. The selection of a particular risk should depend on the cost of
making a Type I error. Type II error () occurs when the sample results lead to the non-
rejection of a null hypothesis that is in fact false. This depends on actual value of the
population parameter. The power of a test is the probability (1-) of rejecting the null
 hypothesis when it is false and should be rejected. Extreme low value of leads to intolerably
high errors. The risk of and can be controlled by increasing the sample size. For a given
level of , increasing the sample size will decrease , thereby increasing the power of the test.
4) Collect Data and Calculate Test statistic: Sample size is determined after taking into account
the desired and errors and other qualitative considerations, such as budget considerations.
After collecting the required data test statistic is calculated.
5) Determine the probability (or critical value): Determine p value. P- Value is the probability
of observing a value of the test statistic as extreme as, or more extreme than the value actually
observed, assuming null hypothesis is true. Alternatively find critical value at the level of
significance .
6& 7 Compare the probability and Make a decision: If the test statistic falls in rejection region,
reject Ho otherwise do not reject Ho. For p- value less than , reject Ho otherwise do not reject Ho.

8) Market Research Conclusion: The conclusion reached by hypothesis testing must be

expressed in terms of marketing research problem.

t- test: A univariate hypothesis test using the t distribution, which is used when the standard
deviation is unknown and the sample size is small.
Independent Sample: Two samples that are not experimentally related. The measure of one
sample has no effect on the values of the second sample.
Paired sample: In hypothesis testing, the observations are paired so that the two sets of
observations relate to the same respondents.
KS one sample test: A one sample non parametric goodness of fit test that compares the
cumulative distribution function for a variable with a specified distribution.
Mann-Whitney U test: A statistical test for a variable measured on an ordinal scale, comparing
the difference in the location of two populations based on observations from two independent
samples.