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2013, Study Session # 3, Reading # 11

HYPOTHESIS TESTING
= Level of Significance SS = Sample Statistic
TS = Test Statistics CV = Critical Value
TV = Table Value SE = Standard Error

Hypothesis Hypothesis Testing One Tailed Test Two Tailed Test


Statement about Procedure Alternative hypothesis  Alternative hypothesis
parameter value  It is based on sample having one side. having two sides.
developed for statistics & probability  Upper Tail  H0: = 0 vs Ha 0.
testing. theory. H0: 0 vs Ha: > 0.  Reject H0 if
 It is used to determine  Decision rule || > 
whether a hypothesis is a Reject H0 if TS > TV
Null
reasonable statement or  Lower Tail
Hypothesis H0 Two
not. H0: 0 vs Ha: < 0.
 Tested for Types  Decision rule
possible Reject H0 if TS < - TV
rejection.
Alternative
 Always
Hypothesis
includes =
Ha
sign.
The one that
we want to
prove. (Source: Wayne W. Daniel and James C.
Terrell, Business Statistics, Basic Concepts
and Methodology, Houghton Mifflin,
Boston, 1997.)

Test Statistics Two Types of Significance


Hypothesis testing involves Errors Level ( )
two statistics:  Probability of
 TS calculated from Type I Error Type II Error making a type I
sample data. Rejecting a Failing to reject a error.
 critical values of TS. true null false null  Denoted by
hypothesis. hypothesis. Greek letter
TS is a random variable that alpha ( ).
follows some distribution.  Used to identify
Decision Rule
 It is based on distribution of TS. critical values.
 It is specific & quantitative.

Statistical Significance vs
Economical Significance
 Statistically significant results
may not necessarily be
economically significant.
 A very large sample size may
result in highly statistically
significant results that may be
quite small in absolute terms.

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2
2013, Study Session # 3, Reading # 11

2 = Population Variance n = Sample Size df = Degree of Freedom


N.Dist = Normally Distributed n 30 = Large Sample
N.N.Dist = Non Normally n< 30 = Small Sample
Distributed

Relationship b/w Confidence Intervals & p- value Power of a Test


Hypothesis Tests  Probability of obtaining a critical  P(type II error).
 Related because of critical value. value that would lead to a  Probability of correctly rejecting
C.I rejection of a true null a false null hypothesis.
 [(SS)- (CV)(SE)] parameter [(SS) + (CV)(SE)]. hypothesis.
 It gives the range within which parameter value  Reject H0 if p-value < .
is believed to lie given a level of confidence.
Hypothesis Test
 -C V TS + CV.
 range within which we fail to reject null
hypothesis of two tailed test given level of
significance.

Testing Conditions Test Statistics Decision Rule

2 known x 0

z= Ho: 0 vs Ha: >0
N. dist. n

Reject H0 if TS. > TV


or  = / 
x 0  
n 30 z=
 Ho: > 0 vs Ha: <0


n
Population Mean 2 unknown
*(more conservative) Reject H0 if TS. <TV
Ho: = 0 vs Ha: 0
2 unknown x 0
n<30 t n 1 = ; df = n-1 Reject H0 if | TS | > TV

N. dist.
n

( x1 x2 ) ( 1 2 )
t( +
=
n n 2
1 2
)
1 1
sP +
n1 n2 Ho:1 - 2 0 vs Ha: 1 -2 > 0
Unknown variances
where;
Equality of the assumed equal. Reject H0 if TS > TV
( n1 1) s1 + ( n2 1) s 2
2 2
Means of Two sP =
n1 + n2 2
Normally Ho:1 - 2 > 0 vs Ha: 1 -2 < 0
df = n1+n2 - 2
Distributed Reject H0 if TS < -TV
Populations based
on Independent Ho:1 - 2 = 0 vs Ha: 1 - 2 0
( x1 x 2 ) ( 1 2 )

Unequal unknown t=
Samples. Reject H0 if | TS | > TV
s12 s 22
variances. +
n1 n2

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3
2013, Study Session # 3, Reading # 11
2
s12 s22
+
n n
d . f = 12 2 2
s12 s22

n1 + n2
n1 n2

Paired Comparisons Testing Variance of a Testing Equality of Parametric Test


Test N.dist. Population Two Variances from  Specific to population
N.dist. Population parameter.
 Relies on assumptions
 TS
 1
TS t(n-1 )= TS regarding the distribution of
 
=


= ;
 >




 the population.


= .
1

Decision Rule Non-Parametric Test
Decision Rule  Dont consider a particular
Reject H0 if TS > TS
Reject H0 if TS > TV population parameter.
S
n
S = Chi-Square Or
Distribution F- Distribution  Have few assumptions

( )
 Right skewed. regarding population.
 = 
 Asymmetrical.

1
 Bounded from below  Bounded by zero.
by zero.
 Chi-Square values
can never be ve.

Decision Rule
 H0: d d0 vs Ha: d > d0
Reject H0 if TS > TV.
 H0: d d0 vs Ha:d < d0
Reject H0 if TS <-TV
 H0: d = d0 vs Ha: d d0
Reject H0 if TS > TV.

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