HYPOTHESIS TESTING

One Sample Tests of

Hypothesis
A hypothesis is a statement about
a population parameter.
Data are then used to check the
reasonableness of the statement.
Definition: A statement about a
population parameter developed for the
purpose of testing.
Hypothesis Testing: A procedure based
on sample evidence and probability theory
to determine whether the hypothesis is a
reasonable statement.

Hypothesis Testing
9-5
Do not reject null Reject null and accept alternate
Step 5: Take a sample, arrive at a decision
Step 4: Formulate a decision rule
Step 3: Identify the test statistic
Step 2: Select a level of significance
Step 1: State null and alternate hypotheses

Step 5: Take a sample, arrive at decision
Decision:Do not reject H
0
Or,
Reject H
0
and accept H
1
.
Step1: State the Null Hypothesis (H
0
) and the
Alternate Hypothesis (H
1
)
NULL HYPOTHESIS: A statement about the
value of a population parameter.
The Alternate hypothesis describes what you
will conclude if you reject the null
hypothesis.
ALTERNATE HYPOTHESIS: A statement that
is accepted if the sample data provide enough
evidence that the null hypothesis is false.
Example: A recent article indicated that the
mean age of a Biman commercial aircraft is 20
years. To conduct a statistical test regarding this
statement, the first step is to determine the null
and alternate hypothesis. The null hypothesis
represents the current or reported condition.
It is written:



The Alternate hypothesis
is that the statement is
not true, that is,


. 20 :
0
= H
20 :
1
= H
It is important to remember that no matter how
the problem is stated; the null hypothesis will
always contain the equal sign. The equality will
never appear in the alternative hypothesis.
Step 2: Select a level of significance (or
Risk):
LEVEL OF SIGNIFICANCE: The probability of
rejecting the null hypothesis when it is true.
The level of significance is designated by o, the
Greek letter alpha. A decision is made to use the
.05 level (often stated as 5% level), the .01 level,
and the .10 level. Traditionally, the .05 level is
selected for consumer research projects; the .01
level is for quality assurance and .10 for political
polling.

There are two types of errors in rejecting or
accepting the null hypothesis:
TYPE I ERROR: Rejecting the null hypothesis,
H
0
, when it is true.
The probability of committing another type of error,
called a type II error, is designated by the Greek
letter |.
TYPE II ERROR: Accepting the null hypothesis
when it is false.

The following table summarizes the
decisions the researcher could make and
the possible consequences:


Null Hypothesis
Researcher
Accepts H
0
Rejects H
0
Ho is true Correct
decision
Type I error
Ho is false Type II error Correct decision
Step 3: Select the Test Statistic
There are many test statistics. Here we will
use z and t as the test statistic. In future we
will also use test statistics as F and _2 ,
called chi-square.


TEST STATISTIC: A value, determined from
sample information, used to determine whether
to reject the null hypothesis.


In hypothesis testing for the mean () when
is known or the sample size is large,
the test statistic z is computed by

n
X
z
/ o

=
The z value is based on the sampling
distribution of

which is normally distributed when the
sample is reasonably large.
. X
Step 4: Formulate the decision Rule
A decision rule is a statement of the specific
condition under which the null hypothesis is
rejected and the conditions under which it is not
rejected. The region or area of rejection defines
the location of all those values that are so large
or so small that the probability of their
occurrence under a true null hypothesis is rather
remote.
CHART 10.1 (Text Book)

Note in the chart that :
The area where the null hypothesis is not
rejected is to the left of 1.65
The area of rejection is to the right of 1.65
A one-tailed test is being applied.
The .05 level of significance was chosen.
The sampling distribution of the statistic z is
normally distributed.
The value of 1.65 separates the regions where
the null hypothesis is rejected and where it is not
rejected.
The value 1.65 is the critical value.
CRITICAL VALUE: The dividing point between
the region where the null hypothesis is rejected
and the region where it is not rejected.
Step 5: Make a Decision
The fifth and final step in hypothesis testing is
computing the test statistic, comparing it to the
critical value, and making a decision to reject
or not to reject the null hypothesis.
ONE-TAILED AND TWO-TAILED TESTS OF
SIGNIFICANCE
Chart 10.2 (Text Book)
One way to determine the location of the
rejection region is to look at the direction in
which the inequality sign in the alternate
hypothesis is pointing
( either < or > ). For example, test is one-tailed if
H
1
states > or < .
In summary, a test is one-tailed when the
alternate hypothesis H
1
states a direction, such
as :
H
0
: The mean income of Managers of Computer
Companies is $50,000 per year
H
1
: The mean income of Managers of Computer
Companies is greater than $50,000 per year
That is,
H
0
: =50000
H
1
: >50000
If no direction is specified in the alternate
hypothesis, we use a two-tailed test. Changing
the previous example,
H
0
: The mean income of Managers of Computer
Companies is $50,000 per year
H
1
: The mean income of Managers of Computer
Companies is not equal to $50,000 per year.
That is,

H
0
: = 50000
H
1
: = 50000
If the null hypothesis is rejected and H1
accepted in the two-tailed test, the mean income
could be significantly greater than $50,000 per
year or it could be significantly less than $50,000
per year. To accommodate these two
possibilities, the 5 percent area of rejection is
divided into the two tails of the sampling
distribution
(2.5 percent each).
Chart 10.3 (Text Book)
Note that the total area in the
normal distribution is 1.0000,
found by .9500+.0250+.0250.




TESTING FOR POPULATION MEAN WITH A
KNOWN POPULATION STANDARD
DEVIATION [A Two - Tailed Test]
Example: The weekly production of steel desks
of a Company is normally distributed, with a
mean of 200 and a standard deviation of 16.
Recently, due to market expansion, new
production methods have been introduced and
new employees hired. The vice president of
manufacturing would like to investigate whether
there has been a change in the weekly
production of the desk. To put it another way, is
the mean number of desks produced at the
Company different from 200 at the .01
significance level? A sample of 50 was taken
and mean was found to be 203.5.
TESTING FOR A POPULATION MEAN:
SMALL SAMPLE
POPULATION STANDARD DEVIATION
UNKNOWN
When the sample size is less than 30 (n<30)
and the population standard deviation is not
known, we replace the standard normal
distribution with the t distribution.
To conduct a test of hypothesis using the t
distribution, we use the following formula:

n s
X
t
/

=
With n 1 degrees of freedom, where:
is the mean of the sample
is the hypothesized population mean
s is the standard deviation of the
sample
n is the number of observation in the
sample
X
EXAMPLE:
An Insurance Company reports that the mean
cost to process a claim is $60. A comparison
showed this amount to be larger than most
other insurance companies, so they instituted
cost-cutting measures.The Insurance
Company selected a random sample of 26
recent claims. The mean cost per claim was
$57 and the standard deviation was $10. Can
they conclude that the cost-cutting measures
were effective? Or should they conclude that
the difference between the sample mean
($57) and the population mean ($60) is due to
chance? Use the .01 significance level. P-
value?
SOLUTION: done on the board.
[Self - Review 10.3 Page: 354 and
example at page 355].
[Self Review 10.4 Page 358]
Exercise 15, 17.

TESTS CONCERNING PROPORTIONS
A proportion is the ratio of the number of
successes to the number of observations.
We let X refer to the number of successes
and n the number of observations, so the
proportion of success in a fixed number of
trials is X/n. Thus, the formula for
computing a sample proportion, p, is p =
X/n.
Some assumptions must be met and
conditions met before testing a population
proportion. To test a hypothesis about a
population proportion, a random sample is
chosen from the population.
It is assumed that the binomial assumptions
are met.
both nt and n(1 - t) are at least 5. n is the
sample size, and t is the population
proportion. It takes advantage of the fact that
a binomial distribution can be approximated
by the normal distribution.
EXAMPLE
Tina Dennis is the comptroller for Meek
Industries. She believes that the current cash-
flow problem at Meek is due to the slow
collection of accounts receivable. She
believes that more than 60 percent of the
accounts are in arrears more than three
months. A random sample of 200 accounts
showed that 140 were more than three
months old. At the .01 significance level, can
she conclude that more than 60 percent of
the accounts are in arrears for more than
three months?
Example:
Suppose prior elections in a state indicated it is
necessary for a candidate for governor to
receive at least 80 percent of the vote in the
northern section of the state to be elected. The
incumbent governor is interested in assessing
his chances of returning to office and plans to
conduct a survey of 2,000 registered voters in
the northern section of the state. It was found
that 1,550 planned to vote for him.
Using the hypothesis-testing procedure, assess
the governor's chances of reelection.
Solution: Done on the board.
p- value in hypothesis testing
The p-value provides additional insight into the
decision. It gives additional information on the
strength of the rejection. That is, how confident
are we in rejecting the null hypothesis? The p-
value compares with the significance level. If the
p-value is smaller than the significance level, H
0

is rejected. If it is larger than the significance
level, H
0
is not rejected.
Determining the p-value not only results in a
decision regarding H
0
but it gives us additional
insight into the strength of the decision. A very
small p-value, such as .0001, indicates that
there is little likelihood the H
0
is true. On the
other hand a p-value of .2033 means that H
0
is
not rejected, and there is little likelihood that it is
false.
How do we compute the p-value? [BOARD].
Two - Sample Tests of Hypothesis
HYPOTHESIS TESTING: POPULATION MEANS
[Till now we have conducted tests of hypothesis in which we
compared the results of a single sample to a population value. That
is, we selected a single random sample from a population and
conducted a test of whether the proposed population value was
reasonable. We compared the results of a single sample statistic to
a population parameter. In this chapter, we expand the idea of
hypothesis testing to two samples. That is we select two random
samples to determine whether the samples are from the same or
equal populations.
For example, we may want to test: Is there an increase in the
production rate if music is piped into the production area?]
EXAMPLE
Customers at FoodTown super Markets have a
choice when paying for their groceries. They may
check out and pay using the standard cashier
assisted checkout, or they may use the new U-Scan
procedure. In the standard procedure a FoodTown
employee scans each item, puts it on a short
conveyor where another employee puts it in a bag
and then into the grocery cart. In the U-Scan
procedure the customer scans each item, bags it,
and places in the cart themselves.The U-Scan
procedure is designed to reduce the time a customer
spends in the checkout time.

The U-Scan facility was recently installed at
the Tom Road town location. The store
manager would like to know if the mean
checkout time using the standard checkout
method is longer than the U-Scan. She
gathered the following sample information.
The time is measured from when the
customer enters the line until their bags are in
the cart. Hence the time include both waiting
in line and checking out. What is the p-value?
Example:
There have been complaints that resident
physicians and nurses on the surgical wing
respond too slowly to calls of senior citizens. In
fact it is claimed that the other patients receive
faster services. Quality assurance department
wanted to investigate the allegation. After
studying the problem, the department collected
the following sample information. At the .01
significance level, is it reasonable to conclude
the mean response time is longer for the senior
citizen cases? What is the p-value in this case?
Customer
Type
Sample
Mean
Sample
Standard
Deviation
Sample
Size
Standard 5.50
minutes
0.40 minutes 50
U-scan 5.30
minutes
0.30 minutes 100
Solution: Done on the board.
[ Self Review 11-1, page: 383. Exercise
1]


Go to slide 44 for small samples.
Two sample Tests about proportions
Assumptions are the same as one sample test.
Example: Keya Cosmetics recently developed a
new fragrance that they plan to market under the
name Heavenly . A number of market studies
indicate that Heavenly has very good market
potential. The sales department is particularly
interested in whether there is a difference in
the proportions of younger and older women
who would purchase Heavenly if it were
marketed. There are two independent
populations, a population consisting of the
younger women and a population consisting of
the older women.Each sampled woman will be
asked to smell Heavenly and indicate whether
she likes the fragrance well enough to purchase
a bottle.



A random sample of 100 young women
revealed 20 liked the Heavenly fragrance
well enough to purchase it. Similarly, a
sample of 200 older women revealed 100
liked the fragrance well enough to make
purchase.

DEPENDENT SAMPLES
In our previous example, we tested the
difference between the means from two
independent samples. This means, for
example,
that the sample response time for the senior
citizens is unrelated to the response time for
the other patients. If Mr. Rahman is a senior
citizen and his response time is sampled, that
does not affect the response time for any
other patient.
There are situations, in which the samples are
not independent. To put it another way, the
samples are dependent or related.
The test statistic follows the t distribution
and we calculate its value from the
following formula:
PAIRED t TEST


n s
d
t
d
/
=
There are n-1 degrees of freedom and

d
is the mean of the difference between the paired
or related observations

d
s
is the standard deviation of the differences
between the paired or related
observations.
n is the number of paired observations.

Example:
A loan giving organization wishes to
compare the two companies they use to
appraise the value of residential homes.
The Organization selected a sample of 10
residential properties and scheduled both
firms for an appraisal. The results,
reported in $000, are:

Home

1

2

3

4

5

6

7

8

9

10
Co. A 135 110 131 142 105 130 131 110 125 149
Co. B 128 105 119 140 98 123 127 115 122 145
Home Co. A Co. B Difference, d d
2

1 135 128 7 49
2 110 105 5 25
3 131 119 12 144
4 142 140 2 4
5 105 98 7 49
6 130 123 7 49
7 131 127 4 16
8 110 115 -5 25
9 125 122 3 9
10 149 145 4 16
Total 46 386
At the .05 significance level, can we conclude
there is a difference in the mean appraised
values of the homes?
SOLUTION: Done on the board.
To find the p-value, we use Appendix F and the
section for a two-tailed test. Move along the row
with 9 degrees of freedom and find the values of
t that are closest to our calculated value. For a
.01 significance level, the value of t is 3.250. The
computed value is larger than this value, but
smaller than the value of 4.781 corresponding to
the .001 significance level. Hence, the p-value is
less than .01.
Comparing Populations with Small
Samples
In this section we consider the case in which the
population standard deviations are unknown and the
number of observations in at least one of the samples is
less than 30. We often refer to this as a "small sample
test of means
The three required assumptions are:
The sampled populations follow the normal
distribution.
The two samples are from independent
population.
The standard deviation of the two populations
are equal.

The test statistic is the t distribution.
The following formula is used to pool the sample
variances. Notice that two factors are involved:
the number of observations in each sample and
the sample standard deviations themselves.
Pooled Variance :
S
2
p
=
2
) 1 ( ) 1 (
2 1
2
2 2
2
1 1
+
+
n n
s n s n
Where:
s
1
2
is the variance (standard deviation
squared) of the first sample.
s
2
2
is the variance of the second sample.
The value of t is computed from the following
equation:

)
1 1
(
2 1
2
2 1
n n
s
X X
t
p
+

=
Where:
is the mean of the first sample.
is the mean of the second sample.
is the number of observations in first
sample.
is the number of observations in
second sample.
is the pooled estimate of the
population variance.

1 X
2 X
1
n
2
n
2
p
s
2
p
s
The number of degrees of freedom in the test is
the total number of items sampled minus the
total number of samples. Because there are two
samples, there are n
1
+ n
2
- 2 degrees of
freedom.

Example:
The production manager, at a manufacturer of
wheelchairs, wants to compare the number of
defective wheelchairs produced on the day shift
with the number on the afternoon shift. A
sample of the production from 6 day shifts and
8 afternoon shifts revealed the following
number of defects.
Day 5 8 7 6 9 7
Afternoon 8 10 7 11 9 12 14 9
At the .05 significant level, is there a
difference in the mean number of defects
per shift?
What is the p-value?
Interpret the result.
Solution: Done on the board.

TEST CONCERING PROPORTION