Project Report

On

TESTS OF HYPOTHESIS

Submitted To:
Submitted By:
Simi Mam
Sumeet Singh

MBA (Gen)
Roll. No.= 89

Sec = B

Contents

Sr.No. Subject Covered Page No.

1 Introduction 3

2 Decision Errors: 5

3 Decision Rules: 5

4 One-Tailed and Two-Tailed 7

Tests:

5 A General Procedure for 8-10

Conducting Hypothesis Tests:

6 Common test statistics 11-13

2
 7 Importance: 14

8 Criticism: 14

Introduction:

A statistical hypothesis test is a method of making statistical

decisions using experimental data. In statistics, a result is called
statistically significant if it is unlikely to have occurred by
chance. The phrase "test of significance" was coined by Ronald
Fisher: "Critical tests of this kind may be called tests of
significance, and when such tests are available we may
discover whether a second sample is or is not significantly
different from the first.

Hypothesis testing is sometimes called confirmatory data

analysis, in contrast to exploratory data analysis. In frequency
probability, these decisions are almost always made using null-
hypothesis tests; that is, ones that answer the question
Assuming that the null hypothesis is true, what is the
probability of observing a value for the test statistic that is at
least as extreme as the value that was actually observed? One
use of hypothesis testing is deciding whether experimental
results contain enough information to cast doubt on
conventional wisdom.

3
Statistical hypothesis testing is a key technique of frequentist
statistical inference, and is widely used, but also much
criticized. The main alternative to statistical hypothesis testing
is Bayesian inference.

The critical region of a hypothesis test is the set of all outcomes

which, if they occur, will lead us to decide that there is a
difference. That is, cause the null hypothesis to be rejected in
favour of the alternative hypothesis. The critical region is
usually denoted by C.

A statistical hypothesis is an assumption about a population

parameter. This assumption may or may not be true. The best
way to determine whether a statistical hypothesis is true would
be to examine the entire population. Since that is often
impractical, researchers typically examine a random sample
from the population. If sample data are consistent with the
statistical hypothesis, the hypothesis is accepted; if not, it is
rejected.

There are two types of statistical hypotheses.

1. Null hypothesis. The null hypothesis, denoted by H0, is
usually the hypothesis that sample observations result
purely from chance.
2. Alternative hypothesis. The alternative hypothesis,
denoted by H1 or Ha, is the hypothesis that sample
observations are influenced by some non-random cause.

4
For example, suppose we wanted to determine whether a coin
was fair and balanced. A null hypothesis might be that half the
flips would result in Heads and half, in Tails. The alternative
hypothesis might be that the number of Heads and Tails would
be very different. Symbolically, these hypotheses would be
expressed as
H0: P = 0.5
Ha: P ≠ 0.5

Suppose we flipped the coin 50 times, resulting in 40 Heads and

10 Tails. Given this result, we would be inclined to reject the
null hypothesis and accept the alternative hypothesis.

Decision Errors:

Two types of errors can result from a hypothesis test.

1. Type I error. A Type I error occurs when the researcher

rejects a null hypothesis when it is true. The probability of
committing a Type I error is called the significance level.
This probability is also called alpha, and is often denoted
by α.

2. Type II error. A Type II error occurs when the researcher

accepts a null hypothesis that is false. The probability of
committing a Type II error is called Beta, and is often
denoted by β. The probability of not committing a Type II
error is called the Power of the test.

5
Decision Rules:

The analysis plan includes decision rules for accepting or

rejecting the null hypothesis. In practice, statisticians describe
these decision rules in two ways - with reference to a P-value or
with reference to a region of acceptance.

1. P-value. The strength of evidence in support of a null

hypothesis is measured by the P-value. Suppose the test
statistic is equal to S. The P-value is the probability of
observing a test statistic as extreme as S, assuming the
null hypothesis is true. If the P-value is less than the
significance level, we reject the null hypothesis.

2. Region of acceptance. The region of acceptance is a

range of values. If the test statistic falls within the region
of acceptance, the null hypothesis is accepted. The region
of acceptance is defined so that the chance of making a
Type I error is equal to the significance level.

The set of values outside the region of acceptance is called the

region of rejection. If the test statistic falls within the region
of rejection, the null hypothesis is rejected. In such cases, we
say that the hypothesis has been rejected at the α level of
significance.

6
These approaches are equivalent. Some statistics texts use the
P-value approach; others use the region of acceptance
approach. In subsequent lessons .

One-Tailed and Two-Tailed Tests:

1. One-Tailed Test : A test of a statistical hypothesis, where

the region of rejection is on only one side of the sampling

distribution, is called a one-tailed test.

For example, suppose the null hypothesis states that the

mean is less than or equal to 10. The alternative hypothesis
would be that the mean is greater than 10. The region of
rejection would consist of a range of numbers located located
on the right side of sampling distribution; that is, a set of
numbers greater than 10.

7
 2. Two-Tailed Test: A test of a statistical hypothesis, where

the region of rejection is on both sides of the sampling

distribution, is called a two-tailed test.

For example, suppose the null hypothesis states that the

mean is equal to 10. The alternative hypothesis would be
that the mean is less than 10 or greater than 10. The region
of rejection would consist of a range of numbers located
located on both sides of sampling distribution; that is, the
region of rejection would consist partly of numbers that were
less than 10 and partly of numbers that were greater than 10

A General Procedure for Conducting

Hypothesis Tests:

All hypothesis tests are conducted the same way. The

researcher states a hypothesis to be tested, formulates an
analysis plan, analyzes sample data according to the plan, and
accepts or rejects the null hypothesis, based on results of the
analysis.

1. State the hypotheses. Every hypothesis test requires

the analyst to state a null hypothesis and an alternative

hypothesis. The hypotheses are stated in such a way that

8
 they are mutually exclusive. That is, if one is true, the
other must be false; and vice versa.

2. Formulate an analysis plan. The analysis plan describes

how to use sample data to accept or reject the null

hypothesis. It should specify the following elements.
a. Significance level. Often, researchers choose
significance levels equal to 0.01, 0.05, or 0.10; but
any value between 0 and 1 can be used.
b. Test method. Typically, the test method involves a

test statistic and a sampling distribution. Computed

from sample data, the test statistic might be a mean
score, proportion, difference between means,
difference between proportions, z-score, t-score, chi-
square, etc. Given a test statistic and its sampling
distribution, a researcher can assess probabilities
associated with the test statistic. If the test statistic
probability is less than the significance level, the null
hypothesis is rejected.

3. Analyze sample data. Using sample data, perform

computations called for in the analysis plan.
a. Test statistic. When the null hypothesis involves a

mean or proportion, use either of the following

equations to compute the test statistic.

Test statistic = (Statistic - Parameter) / (Standard deviation of statistic)

Test statistic = (Statistic - Parameter) / (Standard error of statistic)

9
where Parameter is the value appearing in the null
hypothesis, and Statistic is the point estimate of Parameter.
As part of the analysis, you may need to compute the
standard deviation or standard error of the statistic.
Previously, we presented common formulas for the standard
deviation and standard error.

When the parameter in the null hypothesis involves

categorical data, you may use a chi-square statistic as the
test statistic. Instructions for computing a chi-square test
statistic are presented in the lesson on the chi-square
goodness of fit test.
b. P-value. The P-value is the probability of observing a

sample statistic as extreme as the test statistic,

assuming the null hypothesis is true.

4. Interpret the results. If the sample findings are unlikely,

given the null hypothesis, the researcher rejects the null

hypothesis. Typically, this involves comparing the P-value
to the significance level, and rejecting the null hypothesis
when the P-value is less than the significance level.

10
Common test statistics
In the table below, the symbols used are defined at the bottom
of the table. Many other tests can be found in other articles.

Name Formula Assumptions or notes

(Normal population or n > 30)

and σ known.

(z is the distance from the

mean in relation to the standard
One-sample
deviation of the mean). For
z-test
non-normal distributions it is
possible to calculate a
minimum proportion of a
population that falls within k
standard deviations for any k
(see: Chebyshev's inequality).

11
 Normal population and
Two-sample
independent observations and
z-test
σ1 and σ2 are known

One-sample (Normal population or n > 30)

t-test and σ unknown

(Normal population of
Paired t-test differences or n > 30) and σ
unknown

Two-sample (Normal populations or

pooled t-test, n1 + n2 > 40) and independent
equal observations and σ1 = σ2 and
variances* σ1 and σ2 unknown
[5]

Two-sample (Normal populations or

unpooled t- n1 + n2 > 40) and independent
test, unequal observations and σ1 ≠ σ2 and
variances* σ1 and σ2 unknown

[6]

One- n .p0 > 10 and n (1 − p0) > 10

proportion z- and it is a SRS (Simple
test Random Sample).

n1 p1 > 5 and n1(1 − p1) > 5

Two-
and n2 p2 > 5 and n2(1 − p2) >
proportion z-
5 and independent
test, pooled
observations

Two- n1 p1 > 5 and n1(1 − p1) > 5

proportion z- and n2 p2 > 5 and n2(1 − p2) >
test, 5 and independent
unpooled observations

12
 One of the following

• All expected counts are at

One-sample
least 5
chi-square
test
• All expected counts are > 1
and no more that 20% of
expected counts are less than 5
*Two-
Arrange so > and reject
sample F test
for equality H0 for F > F(α / 2,n1 −
of variances 1,n2 − 1) [7]

• α, the probability of • s = sample • = x/n = sample

Type I error (rejecting standard proportion, unless
a null hypothesis when deviation specified otherwise
it is in fact true) • s2 = sample • p0 = hypothesized
• n = sample size variance population proportion
• n1 = sample 1 size • s1 = sample 1 • p1 = proportion 1
• n2 = sample 2 size standard • p2 = proportion 2
• = sample mean deviation • min{n1,n2} =
• μ0 = hypothesized • s2 = sample 2 minimum of n1 and n2
population mean standard • x1 = n1p1
deviation
• μ1 = population 1 • x2 = n2p2
mean • t = t statistic
• χ2 = Chi-squared
• μ2 = population 2 • df = degrees of statistic
mean freedom
σ = population • = sample
•
mean of
• F = F statistic
standard deviation
differences
• σ2 = population • d0 =
variance hypothesized
population
mean
difference

• sd = standard
deviation of
differences

In general, the subscript 0 indicates a value taken from the null hypothesis, H0, which
should be used as much as possible in constructing its test statistic.

13
Importance:

Statistical hypothesis testing plays an important role in the

whole of statistics and in statistical inference. For example,
Lehmann (1992) in a review of the fundamental paper by
Neyman and Pearson (1933) says: "Nevertheless, despite
their shortcomings, the new paradigm formulated in the 1933
paper, and the many developments carried out within its
framework continue to play a central role in both the theory
and practice of statistics and can be expected to do so in the
foreseeable future".

Criticism:

Some statisticians have commented that pure "significance

testing" has what is actually a rather strange goal of
detecting the existence of a "real" difference between two
populations. In practice a difference can almost always be
found given a large enough sample, the typically more
relevant goal of science is a determination of causal effect
size. The amount and nature of the difference, in other

14
words, is what should be studied. Many researchers also feel
that hypothesis testing is something of a misnomer. In
practice a single statistical test in a single study never
"proves" anything.

Rejection of the null hypothesis at some effect size has no

bearing on the practical significance at the observed effect
size. A statistically significantly not be relevant in practice
due to other, larger effects of more concern, whilst a true
effect of practical significance may not appear statistically
significant if the test lacks the power to detect it. Appropriate
specification of both the hypothesis and the test of said
hypothesis is therefore important to provide inference of
practical utility.

15