Testing hypothesis

JOSEPH KAMPUMURE
Consultant-UMI
0782-863812
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After finishing this chapter you

should be able to:
Understand the purpose of hypothesis
testing
List the steps involved in hypothesis testing
Understand the errors involved and the use
of significance levels
Test hypotheses about population means
Use one- and two-tail tests
Extend these tests to deal with small
samples
Use the tests for a variety of problems.
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Introduction
Human survival and development is
a function of the extent to which
people know and understand their
physical and social environments.
It
is
this
knowledge
and
understanding which people use to
extract their livelihoods.

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Introduction
Ways of acquiring knowledge and
understanding of the physical and
social environments include the
following;
Authoritarian
way
i.e.
from
socially, economically and politically
defined persons.
Faith/Mystical
method
i.e.
knowledge comes from persons
claiming to have communication or
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Introduction
The Rationalistic method i.e. knowledge
comes from the strict conformity to reason and
thought. This method asserts that the mind can
understand the world without the empirical
experience.
The Empirical method i.e. knowledge comes
from real life experience.
The Scientific method i.e. suggests that true
knowledge comes from a combination of
thought and empirical experience which is
followed through a laid down procedure.
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Introduction
Human history since the 17th
Century, seems to suggest that the
Scientific method is superior to
other methods of knowing since it
has been successfully applied to the
social,
economic
and
political
problems of developed countries,
making them economically affluent,
socially advanced and politically
stable.
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Introduction
Indeed the only genuinely developed
parts of the World i.e. the West,
Japan, Austral-Asia and now SouthEast-Asia happen to be the only
societies which have mastered the
Scientific method and made it to
be the only fundamental basis for
their economic modes of production
and their institutional organization.
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What is this Scientific method all

about?
It is the acquisition of knowledge and
understanding of self, society and nature
by the following process;
1. Observation of social and physical reality/
problem
2. Suggesting explanations of the nature and
mechanism of the reality
3. The
formation
of
expectations
or
hypothesis of the reality based on the
suggested explanations.
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Scientific method
4. The gathering of empirical data or
information
about
the
reality/
phenomena
5.
Testing
whether
explanations
suggested agree with the empirical
data or information (Hypothesis
testing)

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What is a hypothesis?
A hypothesis is a statement of
the researchers prediction or
guess of the relation that exists
among the variables being
investigated.
They are the Tentative answers
to the research problem.
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What is a hypothesis?Contd
Usually drawn from theory
The first step in a research is the
identification of a research
problem then making verifiable
hypotheses.

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Hypothesis defined
Research starts out with the idea
that according to some theory or
practice certain results will be
expected. The research study is
carried in order to check on the
prediction.

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 This prediction about the expected

outcome is what is technically
called a hypothesis. A hypothesis is
a formal affirmative statement
predicting the research outcome.
Example; Lease financing improves
SME performance (hypothesis)

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Type of hypothesis

1.Null hypothesis (H0)

2. Alternative hypothesis
(HA)

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(a) Null hypothesis

This type of hypothesis states
that a parameter has some
precise value like The value that
occurred in the past, The value
claimed by someone or The
target value that is supposed to
occur.
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The Null Hypothesis- HO

The alternative of no difference
Usually not stated in the research
proposal
Talked about in the findings section
Based on HO , a decision is
made on whether the
relationship is significant or not
One either rejects or accepts HO
E.g. Lease financing does not improve SME
performance
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(b)The Research Hypothesis H 1

Also called the alternative hypothesis
Usually stated in the proposal
Only talked about in the findings if
the null hypotheses is rejected
May be directional or non-directional
Represents the investigator's belief.

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 The research or alternative hypothesis can take one of three

forms. An investigator might believe that the parameter has
increased, decreased or changed. For example, an
investigator might hypothesize:
H1: > 0 , where 0 is the comparator or null value (e.g.,
0 =191 in our example about weight in men in 2006) and
an increase is hypothesized - this type of test is called an
upper-tailed test;
H1: < 0 , where a decrease is hypothesized and this is
called a lower-tailed test; or
H1: 0, where a difference is hypothesized and this is
called a two-tailed test.
The exact form of the research hypothesis depends on the
investigator's belief about the parameter of interest and
whether it has possibly increased, decreased or is different
from the null value. The research hypothesis is set up by
the investigator before any data are collected.
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Hypotheses testing
Hypothesis testing starts by
making a statement describing
some aspect of the population
(E.g. SMEs in Uganda).
A sample is then taken from the
population to see if evidence can
support the hypothesis.
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Steps in hypothesis testing

1. State the null hypothesis and
alternative hypothesis
2. Specify the level of significance to
be used. (Level of significance is the
probability of incorrectly rejecting a given
null hypothesis in favor of a second
alternative hypothesis)

3. Calculate the acceptance range

for the variable tested
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4. Find the actual value for the

variable tested
5. Decide whether to accept or
reject the null hypothesis
6. State the conclusion reached

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Errors in hypothesis testing

i) We may reject a null hypothesis
that is true: this is a type 1 error.
The probability of making a
type 1 error also called the level
of significance of the test is
usually denoted by i.e. =
P(Ho is rejected/Ho is true)
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 The level of significance, , is

chosen by the researcher.
Such a choice is dependent on
the risk involved in rejecting a
null hypothesis, which is true.
An value of 0.05 is usually
accepted.
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ii) We may accept a null hypothesis

that is false: this is a type II error.
Type II error is committed when a
null hypothesis that is false in the
population is erroneously accepted
on the basis of the sample data.
The most common reason for a
Type II error is a small sample size.
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Elements of a hypothesis
test
1.

2.

3.

4.

Hypothesis a simple statement

about a population
Test result - actual result from the
sample
Test statistic a calculation about a
sample assuming that the
hypothesis is true.
Conclusion either reject the
hypothesis or not

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Meaning of the Z-Table

reading
A Z table uses statistical information taken from
a sampling of datato make predictions about the
overallpopulation from which the sample was
taken.
Specifically, the Z table estimates how much
data (expressed as a probability or percentage)
will fall above or below a given value of interest
in the population.
Z table predictions assume that the population
data is normally distributed, and that the sample
data is in fact representative of the population.
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Meaning of the Z-Table

reading
Calculate the Z value using the
formulaZ= (x-)/, where x is the
point of interest, us the average,
and is the standard deviation.
5. Look up the value on the Z table
to find the appropriate area. For
example, a Z value of -1.94
(highlighted in yellow) has an area of
0.026, or 2.6% of all data, to the left
of Z.
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Z- test
This test is used to determine whether two
means differ from each other. It can also be
used to determine whether a single mean
differs significantly from a population mean.
Z= x-

Where is the standard deviation

is the population mean
x is a value taken from the population

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Example:Testing a mean based

on a sample value

A value is taken at random from a

population and found to be 172.
Test, at the 5% level, whether the
population mean could be 150.
Standard deviation =10

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Solution
State HO and H1
HO : = 150
H1 : 150 (two tailed test)*
*The two-tailed test is a statistical test used in
inference, in which a given statistical hypothesis,
H0 (the null hypothesis), will be rejected when the
value of the test statistic is either sufficiently
small or sufficiently large.
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Decide on the level of the test, decide on

rejection criteria
we will test at 5% level, and considering the
test statistic Z = x -

we will reject HO if |z|> 1.96

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Calculate the value of the test

statistic
Z=x-

= 172 150
10
= 2.2
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 Make conclusion
since |z| > 1.96, we reject H O
and conclude that there is
significant evidence, at the
5% level, to suggest that the
population mean is not 150.
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Example: Hypothesis
testing
based on a sample mean

2. The average income per capita in an

area is claimed to be 15,000. A
sample of 45 people found their mean
income to be 14,300 with a standard
deviation of 2,000. Use a 5%
significance level to check the original
claim.
What would be the effect of using a
1% significance level?
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Example
State the null and alternative hypotheses
HO: = 15000
H1: 15000
Specify the level of significance to be used
this is given at 5%
Calculate the acceptance range for the
variable tested

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Example
With a 5% significance level we
reject the null hypothesis when
an observation falls outside the
95% acceptance.
The standard deviation of the
distribution of x is /n and is
called the standard error of the
mean.

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The standard error = /n

= 2000/45
= 298.14

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Find the standard value of either Z, from

statistical tables at a given level of
confidence or significance.
The value of Z at 5% level of
significance is 1.96( got from tables)
15000 1.96x298.14 to 15000 + 1.96 x
298.14
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Or
14416 to 15584
Find the actual value for the
variable tested
14,300

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 Decide whether to accept or

reject the null hypothesis
The actual value is outside
the acceptance range, so the
null hypothesis must be
rejected
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 State the conclusion reached

the evidence from the sample
does not support the original
claim that the average income
per capita in the area is
15000

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 With a 1% significance level, the

acceptance range would be within 2.58
standard deviation of the mean
The value z at 1% level of significance is 2.58
(got from tables)
15000 2.58x298.14 to 15000 + 2.58 x
298.14

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14231 to 15769
The actual observation is
14,300, which is within the
range. We accept the null
hypothesis.
Assignment ;
Attempt the questions in the
exercise.
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 Kampala City Council Authority takes

a survey of the monthly costs of food
and housing for a particular type of
family. They think that the mean cost
is $1,600 with a standard deviation
of $489. A sample of 100 families has
an average expenditure of
$1,712.50. Does this support their
initial views?
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Exercise 1
John Lo thinks that the mean value of
orders received by his firm is $260.
He checks a sample of 36 accounts
and finds a mean of $240 and
standard deviation of $45. Does this
evidence support his belief?( Use 5%
sig level where Z= 1.96)

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Exercise 2
Elizabeth Horst is a management consultant
who has recently introduced new procedures
to a reception office. The receptionist should
do at least 10 minutes of paperwork each
hour. Elizabeth made a check on 40 random
hours of work and found that the mean time
spent on paperwork is 8.95 minutes with a
standard deviation of 3 minutes. Can she
reject the hypothesis that the new procedures
meet specifications at 1% level of
significance?
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The End

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