Fundamentals of Hypothesis

Testing
 Learning Objectives

In this chapter, you learn:

◼ The basic principles of hypothesis testing
◼ How to use hypothesis testing to test a mean
or proportion
◼ The assumptions of each hypothesis-testing
procedure, how to evaluate them, and the
consequences if they are seriously violated
 What is a Hypothesis?
◼ A hypothesis is a claim
(assumption statement) about one or more
populations parameter:

◼ population mean
Example: The mean monthly family
medication bill in Amman is μ = 42 Jd.
◼ population proportion
Example: The proportion of adults in this
city with asthma is π = 0.17
 What is a Hypothesis?

As is true with estimation, the purpose of hypothesis

testing is to aid the clinician, researcher, or
administrator in reaching a conclusion concerning a
population by examining a sample from that
population.
 Statistical Hypotheses:
1) The Null Hypothesis, H0
◼ States the claim or assertion to be tested
Example: The average number of TV sets in
U.S. Homes is equal to three ( H0 : μ = 3 )

◼ Is always about a population parameter,

not about a sample statistic

H0 : μ = 3 H0 : X = 3
 The Null Hypothesis, H0
(continued)

◼ Begin with the assumption that the null

hypothesis is true
◼ Similar to the notion of innocent until
proven guilty

◼ Refers to the status quo or historical value

◼ Always contains “=” , “≤” or “” sign
◼ May or may not be rejected
 Statistical Hypotheses:
2) The Alternative Hypothesis, H1
◼ Is the opposite of the null hypothesis
◼ e.g., The average number of TV sets in U.S.
homes is not equal to 3 ( H1: μ ≠ 3 )

◼ Challenges the status quo

◼ Never contains the “=” , “≤” or “” sign
◼ May or may not be proven
◼ Is generally the hypothesis that the
researcher is trying to prove (or expect to
be able to conclude as a result of the test)
 The Hypothesis Testing
Process
◼ Claim: The population mean age is 50.
◼ H0: μ = 50, H1: μ ≠ 50

◼ Sample the population and find sample mean.

Population

Sample
 The Hypothesis Testing
Process (continued)
◼ Suppose the sample mean age was X = 20.

◼ This is significantly lower than the claimed mean

population age of 50.

◼ If the null hypothesis (H0: μ = 50) were true, the

probability of getting such a different sample mean
would be very small, so you reject the null hypothesis .

◼ In other words, getting a sample mean of 20 is so

unlikely if the population mean was 50, you conclude
that the population mean must not be 50.
 The Hypothesis Testing
Process (continued)

Sampling
Distribution of X

X
20 μ = 50
If H0 is true ... then you reject
If it is unlikely that you
the null hypothesis
would get a sample
that μ = 50.
mean of this value ... ... When in fact this were
the population mean…
 The Test Statistic and
Critical Values
◼ If the sample mean (X) is close to the assumed
population mean, the null hypothesis is not
rejected.
◼ If the sample mean is far from the assumed
population mean, the null hypothesis is rejected.
◼ How far is “far enough” to reject H0?
◼ The critical value of a test statistic creates a “line in
the sand” for decision making -- it answers the
question of how far is far enough.
 The Test Statistic and
Critical Values
◼ The General formula for Test Statistic:

relevant statistic – hypothesized parameter

test statistic =
standard error of the relevant statistic

X−μ
e.g.: Z test for the mean Z STAT =
σ
n
 The Test Statistic and
Critical Values
Sampling Distribution of the test statistic

Region of Region of
Rejection Rejection
Region of
Non-Rejection

Critical Values

“Too Far Away” From Mean of Sampling Distribution

 Possible Errors in Hypothesis Test
Decision Making
◼ Type I Error (Probability α: level of significance):
◼ Reject a true null hypothesis.
◼ Considered a serious type of error
◼ The probability of a Type I Error is 
◼ Called level of significance of the test
◼ Set by researcher in advance

◼ Type II Error (Probability β):

◼ Failure to reject false null hypothesis
◼ The probability of a Type II Error is β
Possible Errors in Hypothesis Test
Decision Making
(continued)

Possible Hypothesis Test Outcomes

Actual Situation

Decision H0 True H0 False

Do Not No Error Type II Error

Reject H0 Probability 1 - α Probability β
Reject H0 Type I Error No Error
Probability α Probability 1 - β
 Possible Errors in Hypothesis Test
Decision Making
(continued)

◼ The confidence coefficient (1-α) is the

probability of not rejecting H0 when it is true.

◼ The confidence level of a hypothesis test is

(1-α)*100%.

◼ The power of a statistical test (1-β) is the

probability of rejecting H0 when it is false.
 Type I & II Error Relationship

▪ Type I and Type II errors cannot happen at

the same time
▪ A Type I error can only occur if H0 is true
▪ A Type II error can only occur if H0 is false

If Type I error probability (  ) , then

Type II error probability ( β )
 Factors Affecting Type II Error
◼ All else equal,
◼ β when the difference between
hypothesized parameter and its true value

◼ β when 
◼ β when σ
◼ β when n
 Level of Significance
and the Rejection Region
H0: μ = 3 Level of significance = 
H1: μ ≠ 3
 /2  /2

Critical values

Rejection Region

This is a two-tail test because there is a rejection

region in both tails
Hypothesis Tests for the Mean

Hypothesis
Tests for 

(Z test) (t test)
assumptions assumptions
 Z Test of Hypothesis for the
Mean (σ Known)
◼ Convert sample statistic ( X ) to a ZSTAT test statistic
Hypothesis
Tests for 

σ
(ZKnown
test) σ(tUnknown
test)

The test statistic is:

X−μ
Z STAT =
σ
n
 Critical Value (CV)
Approach to Testing
◼ For a two-tail test for the mean, σ known:
◼ Convert sample statistic ( X ) to test statistic
(ZSTAT)
◼ Determine the critical Z values for a specified
level of significance  from a table or computer
◼ Decision Rule: If the test statistic falls in the
rejection region, reject H0 ; otherwise do not
reject H0
 Two-Tail Tests
H0: μ = 3
◼ There are two
H1: μ  3
cutoff values
(critical values),
defining the
regions of /2 /2
rejection
3 X
Reject H0 Do not reject H0 Reject H0

-Zα/2 0 +Zα/2 Z

Lower Upper
critical critical
value value
 6 Steps in CV
Hypothesis Testing
1. State the null hypothesis, H0 and the alternative
hypothesis, H1 (one tail or two tails test)
2. Choose the level of significance, , and the
sample size, n
3. Determine the appropriate test statistic and
sampling distribution
4. Determine the critical values that divide the
rejection and non-rejection regions
 6 Steps in CV
Hypothesis Testing
(continued)

5. Collect data and compute the value of the test

statistic
6. Make the statistical decision and state the
conclusion. If the test statistic falls into the non-
rejection region, do not reject the null hypothesis
H0. If the test statistic falls into the rejection
region, reject the null hypothesis. Express the
conclusion in the context of the problem
 CV Hypothesis Testing Example
Test the claim that the true mean # of TV sets
in US homes is equal to 3.
(Assume σ = 0.8)
1. State the appropriate null and alternative hypotheses
◼ H0: μ = 3 H1: μ ≠ 3 (This is a two-tail test)

2. Specify the desired level of significance and the sample

size
◼ Suppose that  = 0.05 and n = 100 are chosen for this

test
 CV Hypothesis Testing Example
(continued)

3. Determine the appropriate technique

◼ σ is assumed known so this is a Z test.

4. Determine the critical values

◼ For  = 0.05 the critical Z values are ±1.96

5. Collect the data and compute the test statistic

◼ Suppose the sample results are

n = 100, X = 2.84 (σ = 0.8 is assumed known)

So the test statistic is:
X − μ 2.84 − 3 − .16
Z STAT = = = = − 2.0
σ 0.8 .08
n 100
 CV Hypothesis Testing Example
(continued)
◼ 6. Is the test statistic in the rejection region?

/2 = 0.025 /2 = 0.025

Reject H0 if Reject H0 Do not reject H0 Reject H0

ZSTAT < -1.96 or -Zα/2 = -1.96 0 +Zα/2 = +1.96
ZSTAT > 1.96;
otherwise do
not reject H0 Here, ZSTAT = -2.0 < -1.96, so the
test statistic is in the rejection
region
 CV Hypothesis Testing Example
(continued)
6 (continued). Reach a decision and interpret the result

 = 0.05/2  = 0.05/2

Reject H0 Do not reject H0 Reject H0

-Zα/2 = -1.96 0 +Zα/2= +1.96

-2.0
Since ZSTAT = -2.0 < -1.96, reject the null hypothesis
and conclude there is sufficient evidence that the
mean number of TVs in US homes is not equal to 3
 p-Value Approach to Testing

◼ p-value: Probability of obtaining a test

statistic equal to or more extreme than the
observed sample value given H0 is true
◼ The p-value is also called the observed level of
significance

◼ It is the smallest value of  for which H0 can be

rejected
 p-Value Approach to Testing:
Interpreting the p-value

◼ Compare the p-value with 

◼ If p-value <  , reject H0
◼ If p-value   , do not reject H0

◼ Remember
◼ If the p-value is low then H0 must go
 The 5 Step p-value approach to
Hypothesis Testing
1. State the null hypothesis, H0 and the alternative
hypothesis, H1
2. Choose the level of significance, , and the sample size, n

3. Determine the appropriate test statistic and sampling

distribution

4. Collect data and compute the value of the test statistic and
the p-value

5. Make the statistical decision and state the conclusion. If

the p-value is < α then reject H0, otherwise do not reject H0.
State the managerial conclusion in the context of the
problem
 p-value Hypothesis Testing
Example
Test the claim that the true mean # of TV sets
in US homes is equal to 3.
(Assume σ = 0.8)
1. State the appropriate null and alternative
hypotheses
◼ H0: μ = 3 H1: μ ≠ 3 (This is a two-tail test)
2. Specify the desired level of significance and the
sample size
◼ Suppose that  = 0.05 and n = 100 are chosen

for this test

 p-value Hypothesis Testing
Example
(continued)

3. Determine the appropriate technique

◼ σ is assumed known so this is a Z test.

4. Collect the data, compute the test statistic and the

p-value
◼ Suppose the sample results are

n = 100, X = 2.84 (σ = 0.8 is assumed known)

So the test statistic is:

X − μ 2.84 − 3 − .16
Z STAT = = = = − 2.0
σ 0.8 .08
n 100
 p-Value Hypothesis Testing Example:
Calculating the p-value
4. (continued) Calculate the p-value.
◼ How likely is it to get a ZSTAT of -2 (or something further from the
mean (0), in either direction) if H0 is true?

P(Z < -2.0) = 0.0228 P(Z > 2.0) = 0.0228

0 Z

-2.0 2.0
p-value = 0.0228 + 0.0228 = 0.0456
 p-value Hypothesis Testing
Example
(continued)

◼ 5. Is the p-value < α?

◼ Since p-value = 0.0456 < α = 0.05 Reject H0
◼ 5. (continued) State the conclusion in the
context of the situation.
◼ There is sufficient evidence to conclude the average number of
TVs in US homes is not equal to 3.
 Connection Between Two Tail Tests
and Confidence Intervals
◼ For X = 2.84, σ = 0.8 and n = 100, the 95%
confidence interval is:
0.8 0.8
2.84 - (1.96) to 2.84 + (1.96)
100 100

2.6832 ≤ μ ≤ 2.9968

◼ Since this interval does not contain the hypothesized

mean (3.0), we reject the null hypothesis at  = 0.05
 Do You Ever Truly Know σ?

◼ Probably not!

◼ In virtually all real world business situations, σ is not

known.

◼ If there is a situation where σ is known then µ is also

known (since to calculate σ you need to know µ.)

◼ If you truly know µ there would be no need to gather a

sample to estimate it.
 Hypothesis Testing:
σ Unknown
◼ If the population standard deviation is unknown, you
instead use the sample standard deviation S.

◼ Because of this change, you use the t distribution instead

of the Z distribution to test the null hypothesis about the
mean.

◼ When using the t distribution you must assume the

population you are sampling from follows a normal
distribution.

◼ All other steps, concepts, and conclusions are the same.

 t Test of Hypothesis for the Mean (σ
Unknown) meeting all assumptions
◼ Convert sample statistic ( X ) to a tSTAT test statistic
Hypothesis
Tests for 

σKnown
Known σUnknown
Unknown
(Z test) (t test)
The test statistic is:

X−μ
t STAT =
S
n
 Example: Two-Tail Test
( Unknown)
The average wage of a
pharmacist in New York is
said to be $168 per week.
To determine if this is true, a
random sample of 25
pharmacists is taken and
resulted in an X of $172.50 H0: μ = 168
and an S of $15.40. Test the H1: μ  168
appropriate hypotheses at 
= 0.05.
(Assume the population distribution is normal)
 CV Example Solution:
Two-Tail t Test

H0: μ = 168 /2=.025 /2=.025

H1: μ  168

◼  = 0.05 Reject H0 Do not reject H0 Reject H0

t 24,0.025
-t 24,0.025 0
◼ n = 25, df = 25-1=24 -2.0639 1.46
2.0639
◼  is unknown, so X−μ 172.50 − 168
t STAT = = = 1.46
use a t statistic S 15.40
n 25
◼ Critical Value:
±t24,0.025 = ± 2.0639 Do not reject H0: insufficient evidence that true
mean wage is different than $168
 Example Two-Tail t Test Using A
p-value from Excel

◼ Since this is a t-test we cannot calculate the p-value

without some calculation aid.
◼ The Excel output below does this:
t Test for the Hypothesis of the Mean

Data
Null Hypothesis µ= $ 168.00
Level of Significance 0.05
Sample Size 25
Sample Mean $ 172.50
Sample Standard Deviation $ 15.40

Intermediate Calculations
Standard Error of the Mean $ 3.08 =B8/SQRT(B6)
Degrees of Freedom 24 =B6-1
t test statistic 1.46 =(B7-B4)/B11

Two-Tail Test
p-value > α Lower Critical Value
Upper Critical Value
-2.0639 =-TINV(B5,B12)
2.0639 =TINV(B5,B12)
So do not reject H0 p-value 0.157 =TDIST(ABS(B13),B12,2)
Do Not Reject Null Hypothesis =IF(B18<B5, "Reject null hypothesis",
"Do not reject null hypothesis")
 Connection of Two Tail Tests to
Confidence Intervals
◼ For X = 172.5, S = 15.40 and n = 25, the 95%
confidence interval for µ is:

172.5 - (2.0639) 15.4/ 25 to 172.5 + (2.0639) 15.4/ 25

166.14 ≤ μ ≤ 178.86

◼ Since this interval contains the Hypothesized mean (168),

we do not reject the null hypothesis at  = 0.05
 One-Tail Tests

◼ In many cases, the alternative hypothesis

focuses on a particular direction

This is a lower-tail test since the

H0: μ ≥ 3
alternative hypothesis is focused on
H1: μ < 3 the lower tail below the mean of 3

H0: μ ≤ 3 This is an upper-tail test since the

alternative hypothesis is focused on
H1: μ > 3
the upper tail above the mean of 3
 Lower-Tail Tests
H0: μ ≥ 3
◼ There is only one H1: μ < 3
critical value, since
the rejection area is
in only one tail 

Reject H0 Do not reject H0

Z or t
-Zα or -tα 0

μ X

Critical value
 Upper-Tail Tests

H0: μ ≤ 3
◼ There is only one
critical value, since H1: μ > 3
the rejection area is
in only one tail 

Do not reject H0 Reject H0

Z or t Zα or tα
0
_
X μ

Critical value
 Example: Upper-Tail t Test
for Mean ( unknown)
A phone industry manager thinks that
customer monthly cell phone bills have
increased, and now average over $52 per
month. The company wishes to test this
claim. (Assume a normal population)

Form hypothesis test:

H0: μ ≤ 52 the average is not over $52 per month
H1: μ > 52 the average is greater than $52 per month
(i.e., sufficient evidence exists to support the
manager’s claim)
 Example: Find Rejection Region
(continued)
◼ Suppose that  = 0.10 is chosen for this test and
n = 25.
Find the rejection region: Reject H0

 = 0.10

Do not reject H0 Reject H0

0 1.318

Reject H0 if tSTAT > 1.318

 Example: Test Statistic
(continued)

Obtain sample and compute the test statistic

Suppose a sample is taken with the following

results: n = 25, X = 53.1, and S = 10
◼ Then the test statistic is:

X−μ 53.1 − 52
t STAT = = = 0.55
S 10
n 25
 Example: Decision
(continued)
Reach a decision and interpret the result:
Reject H0

 = 0.10

Do not reject H0 Reject H0

1.318
0
tSTAT = 0.55

Do not reject H0 since tSTAT = 0.55 ≤ 1.318

there is not sufficient evidence that the
mean bill is over $52