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Hypothesis Testing

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Hypothesis

Hypothesis, that we make about a population parameter.

Then we collect sample data, produce sample statistics,

and use this information to decide how likely it is that our

hypothesized population parameter is correct.

Suppose a manger of a large shopping mall tells us that

the average work efficiency of her employees is at least 90

percent.

How can we test the validity of her Hypothesis?

If we drop the price of this car model by $1,500, we will

sell 50,00 cars this year, is a hypothesis.

Hypothesis testing is about making inferences about a

population from only a small sample.

Testing of Hypothesis

In hypothesis testing, we must state the assumed or

hypothesized value of the population parameter before we

begin sampling

The assumption we wish to test is called the null hypothesis

and is symbolized H0

equal to 500.

H0 =500

The null hypothesis is that the population mean is equal to 500.

Why it is called Null Hypothesis?

The term null hypothesis arises from earlier agricultural and

medical applications of statistics. In order to test effectiveness

of a new fertiliser or a new drug, the tested hypothesis ( the

null hypothesis ) was that it had no effect, that is, there was no

difference between treated and untreated samples.

Alternative Hypothesis

If our sample results fail to support the null hypothesis, we

must conclude that something else is true.

Whenever we reject the hypothesis, the conclusion we do

accept is called the alternative hypothesis and is Symbolized H 1

Example: For H0 =500 ( the null Hypothesis is that the population mean is

equal to 500)

We will consider three possible alternative hypothesis

H1 500 ( The alternative hypothesis is that the population mean is not equal

to 500)

H1 > 500 (The alternative hypothesis is that the population mean is greater

than 500

H1 <500 (The alternative hypothesis is that the population mean is less than

500

Significance Level

The purpose of hypothesis testing is not to question the computed value

of the sample statistics but to make a judgment about the difference

between the sample statistics and a hypothesized population parameter.

The next step after stating the null and alternative hypothesis, then, is to

decide what criterion to use for deciding whether to accept or reject the

null hypothesis

indicate the percentage of sample means that is outside certain limits.

It means in 95 percent of the area, there is no significant difference

between the observed value of the sample statistics and the hypothesized

value of the population parameter.

In the remaining 5 percent, a significant differences does exist.

Accepting a null hypothesis do not prove that our Null Hypothesis is

true, it simply does not provide statistical evidence to reject it. Why

Because the only way in which the hypothesis can be accepted with

certainty is for us to know the population parameter.

It means simply that when sample data do not cause us to reject a null

hypothesis, we behave as if that hypothesis is true.

Selecting

Significance

Level/Confidence

Limits

should lie with specified probabilities are called the

confidence limits.

. If sample values lie between the confidence

limits, the hypothesis is accepted. If it does not,

the hypothesis is rejected at the specified level of

significance.

Type I Error

Rejecting a null Hypothesis when it is true is

called a Type I error

Type I error is denoted by a (alpha) where

a = Probability of type I error

= Probability (rejecting Ho | Ho is true ).

use, or next task in hypothesis testing is to

determine the appropriate probability distribution

Conditions for Using the Normal and t Distributions in Testing Hypotheses about

means

When the population

is

Standard Deviation is Standard Deviation

about means

When the

When thenot

population

Know

Know

population

Standard Deviation is

Standard

not Know

Deviation is

Know

Normal Distribution

Sample size n Sample

is larger

than 30

Normal

Distribution,

Normal Distribution

Distribution, Z

Z table

table

Sample size n is 30 or less and Normal

t-distribution

assume the population is

Distribution,

t-table

Z tableDistribution,

n normal

is 30 ororapproximately

less and so Normal

t-distribution

Sample size

assume the population is normal Z table

or approximately so

t-table

Hypotheses

A

two-tailed test of a hypothesis will reject the null

hypothesis if the sample mean is significantly higher than or

lower than the hypothesized populations mean

Thus, in a two-tailed test, there are two rejection regions.

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