Statistical Inference: Hypothesis Testing
Statistical Hypothesis and Testing:
It is a procedure which enables us to decide on the basis of information obtained from sample data
whether to accept or reject a statement or an assumption about the value of a population parameter.
Such a statement or assumption which may or may not be true, called a statistical hypothesis. We
accept the hypothesis as being true, when it is supported by the sample data. We reject the hypothesis
when the sample data fail to support it.
Null and Alternate Hypothesis:
A null hypothesis, generally denoted by the symbol Ho, is any hypothesis which is to be tested for
possible rejection under the assumption that it is true. An alternative hypothesis is any other hypothesis
which we accept when the null hypothesis Ho is rejected. It is customarily denoted by H 1 or HA. A null
hypothesis Ho is thus tested against an alternative hypothesis.
Simple and Composite Hypotheses
A simple hypothesis is one in which all parameters of the distribution are specified. For example, if the
heights of college students are normally distributed with variance = 4, the hypothesis that its mean It is,
say, 62", that is H: u = 62; we have stated a simple hypothesis.
A hypothesis which is not. simple (i.e., in which not all of the parameters are specified) is called a
composite hypothesis, for instance, if we hypothesize that I: u > 62.
Exact and Inexact Hypothesis:
A hypothesis is said to be an exact hypothesis if it selects a unique value for the parameter such as H: u =
62 or p = 0.5. A hypothesis is called an inexact hypothesis when it indicates more than one possible
value for the parameter such as I: H ≠ 62 or I: p > 0.5.
Test-statistic
A sample statistic which provides a basis for testing a null hypothesis, is called a test-statistic.
Type I and Type II Errors:
There is a possibility that the sample evidence may lead us to make a wrong decision. We may reject a
null hypothesis Ho, when it is, in fact, true or we may accept a null hypothesis, when it is actually false.
The risk of committing this error is the significance level (alpha or α) you choose. The former type is
called an error of the-first kind or a Type I- error, while the latter, an error of the second kind or a Type
Il-error.
True Decisions Decision Decision
Accept Ho Reject Ho, or Accept H1
Ho is True No Error Correct Decision Wrong Decision, Type I Error
Ho is false Wrong Decisions, Type II Error Correct Decision, No Error
α = P (Type I Error) = P (Reject Ho / Ho is true)
β = P (Type II Error) = P (Accept Ho / Ho is false)
Power of a Test:
The Power of a Test with respect to a specified alternative hypothesis, is the probability of rejecting a
null hypothesis when it is actually false. The power is the complement of B, the probability of
committing a Type II error. It is therefore numerically equivalent to one minus. Symbolically,
Power of a test = 1- β
The Significance Level:
The Significance Level of a test is the probability used as a standard for rejecting a null hypothesis Ho
when H, is assumed to be true. This probability is equal to some small pre-assigned value, conventionally
denoted by α. The value a is also known as the size of the critical region. It is note-worthy that the
significance level and the probability of Type I error are equivalent. To put it in another way, if we say
that α=5%, we say that we are 95% confident in making the correct decision.
General Procedure for Hypothesis Testing:
The procedure for testing a hypothesis about a population parameter involves the following six steps:
I. State your problem and formulate an appropriate null hypothesis Ho with an alternative
hypothesis H1, which is to be accepted when Ho is rejected.
II. Decide upon a significance level, a of the test, which is the probability of rejecting the null
Hypothesis if it is true.
III. Chose an appropriate test-statistic, determine and sketch the sampling distribution of the test-
statistic, assuming Ho is true.
IV. Determine the rejection or critical region in such a way that the probability of rejecting the null
hypothesis Ho, if it is true, is equal to the significance level, α. The location of the critical region
depends upon the form of H1. The significance level will separate the acceptance region from
the rejection region.
V. Compute the value of the test-statistic from the sample data in order to decide whether to
accept or reject the null hypothesis Ho.
VI. Formulate the decision rule as below:
a. Reject the null hypothesis Ho, if the computed value of the test-statistic falls in the
rejection region and conclude that H1, is true.
b. Accept the null hypothesis Ho, otherwise.
