Hypothesis testing

PRESENTED BY:
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 The Hypothesis Testing Approach
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Consequences (Hypotheses ) qu rm
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Evaluation
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Facts
Evaluate & Gather
What is a Hypothesis?

A hypothesis is an assumption about the



population parameter.
o A parameter is a characteristic of the
population, like its mean or variance.
o The parameter must be identified before
analysis.
•
Motivation for Hypothesis Testing

• The intent of hypothesis testing is formally examine two

opposing conjectures (hypotheses), H0 and HA.
• These two hypotheses are mutually exclusive and
exhaustive so that one is true to the exclusion of the
other.
• We accumulate evidence - collect and analyze sample
information - for the purpose of determining which of
the two hypotheses is true and which of the two
hypotheses is false.
• Beyond the issue of truth, addressed statistically, is the
issue of justice. Justice is beyond the scope of
statistical investigation.
•
Hypothesis Testing Process

Assume the
population
mean age is 50.
(Null Hypothesis)
Population

The Sample
Mean Is 20
No , not likely !

REJECT

Null Hypothesis Sample

Errors in Making Decisions

• Type I Error
• Reject True Null Hypothesis (“False Positive”)

• Has Serious Consequences

• Probability of Type I Error Is α

• Called Level of Significance
• Set by researcher

• Type II Error
• Do Not Reject False Null Hypothesis (“False
Negative”)
• Probability of Type II Error Is β (Beta)

•
Example-The Trial System
In Truth, the Defendant is:
H0: Innocent HA: Guilty

Innocent Correct Decision Incorrect Decision

Innocent Individual Guilty Individual
Verdict

Goes Free Goes Free

Incorrect Decision Correct Decision

Guilty Innocent Individual Guilty Individual
Is Disciplined Is Disciplined
Hypothesis Testing & Justice System

• State the Opposing Conjectures, H0 and

HA.
• Determine the amount of evidence
required, n, and the risk of
committing a “type I error”, 
• What sort of evaluation of the evidence
is required and what is the
justification for this? (type of test)
• What are the conditions which proclaim
guilt and those which proclaim
innocence? (Decision Rule)
• Gather & evaluate the evidence.
• What is the verdict? (H0 or HA?)
• Determine “Zone of Belief”: Confidence
Interval.
• What is appropriate justice? ---
Conclusions
•
 True, But Unknown State of the World
H0is True HA is True

Correct Decision Incorrect Decision

Ho is True Type II Error Probability = β

Decision
Incorrect Decision Correct Decision
Type I Error Probability = α
HA is True
α &β Have an Inverse Relationship
Hypothesis Testing Algorithm

1.State H0
2.State H1

3.Choose α

4.Choose n

5.Choose Test:

6. Set Up Critical Value(s)

7. Collect Data

8. Compute Test Statistic

9. Make Statistical Decision

10. Express Decision


 Rejection Region

H0: µ ≥ H0: µ
0 H1: H1: ≤ 0 H1:
µ < 0 µ > 0
Reject 0 Reject H0
H
α α

0 Z 0 Z
Must Be Significantly
Below µ =0
Z-test & C.I. for µ

Ø H 0: µ = < > µ 0 vs. HA: µ ≠ > < µ 0

Ø n = _______ α = _______
Ø Testing a Hypothesis About a Mean;
Ø Process Performance Measure is Approximately
Normally Distributed;
Ø We “Know” σ
Ø Therefore this is a “Z-test” - Use the Normal Distribution.
Ø Zcalc = (X - µ 0)/(σ / /n)
Ø The Confidence Interval for µ is Given by: X
+ Zα /2 (σ / n )
Ø Interpretation
Ø
t-test and Confidence Interval

■ H0: µ = < > µ 0 vs. H A: µ ><µ 0

■ n = _______ α = _______
• Testing a Hypothesis About a Mean;
• Process Performance Measure is Approximately Normally Distributed
or We Have a “Large” Sample;
• We Do Not Know σ Which Must be Estimated by S.
Ø Therefore this is a “t-test” - Use Student’s T Distribution.
Ø tcalc = (X - µ 0)/(s/ /n )
Ø The Confidence Interval for µ is Given by:

Ø X + tα /2 (s/ n)
Ø Interpretation
•
Z-test & C.I. for p

■ H 0: p = < > p0 vs. H A: p  > < p0

■ n = _______ α = _______
• Testing a Hypothesis About a Proportion;
• We have a “large” sample, that is, both np0 and n(1-p0)
> 5
• Therefore this is a “Z-test” - Use the Normal Distribution.
■ Zcalc = (p - p0)/(  p0(1-p0)/n )
■ _____ Reject H0 in Favor of HA. _______ FTR H0.
■ The Confidence Interval for pis Given by:
 p + Zα /2 (  p(1-p)/n )
■ Interpretation
•
Advance, Inc.
Integrated Circuit
Manufacturing
Methods & Materials
 Z-Test & Confidence Interval: “Training Effect
Example”

Interested in increasing productivity rating in the

integrated circuit division, Advance Inc. determined that
a methods review course would be of value to employees
in the IC division.
To determine the impact of this measure they reviewed
historical productivity records for the division and
determined that the average level was 100 with a
standard deviation of 10.
Fifty IC division employees participated in the course and
the post-course productivity of these employees was
measured, on average, to be 105.
Assume that productivity ratings are approximately
distributed. Did the course have a beneficial effect.
Test the appropriate hypothesis at the α = .05 level
of significance.
 Training Effect Example

•H0: µ < 100 HA: µ > 100

•n = 50 α = .05
•(i) testing a mean (ii) normal distribution (iii) σ = 10 is
known so that this is a Z-test
•Zcalc = (X - µ 0)/(σ /n) = (105 - 100)/ (10/ 50 ) = 5/1.414 =
3.536
•The 95% Confidence Interval is Given by: X + Zα /2 (σ /  n) which
is 105 +1.96(1.414) = 105 +2.77 or 102.23 < µ < 107.77
•Thus the course appears to have helped improve IC division employee
productivity from an average level of 100 to a level that is at
least 102.23 and at most 107.77.
•A follow-up question: “is this increase worth the investment?”
Loan Application Processing
First People’s Bank
First People’s Bank would like to improve their loan
application process. In particular currently the
amount of time required to process loan applications
is approximately normally distributed with a mean of
18 days.
Measures intended to simplify and speed the process
have been identified and implemented. Were they
effective? Test the appropriate hypothesis at the α
= .05 level of significance if a sample of 25
applications submitted after the measures were
implemented gave an average processing time of 15.2
days and a standard deviation of 2.0 days.
 First People’s Bank

■H0: µ > 18 HA: µ < 18

■n = 25 α = .05
■(i) testing a mean (ii) normal distribution (iii) σ is
unknown and must be estimated so that this is a t-test
■tcalc = (X - µ 0)/(s / √n) = (15.2 - 18)/ (2/ √25 ) = -2.8/.4 =
-7.00
■The 95% Confidence Interval is Given by: X + tα /2 (s/√n) which
is 15.2 +2.064(.4) = 15.2 +.83 or 14.37 < µ
< 16.03
■Thus the course appears to have helped decrease the average time
required to process a loan application from 18 days to a level
that is at least 14.37 days and at most 16.03 days.
 χ 2-test & C.I. for σ
H0: σ = < > σ 0 vs. HA: σ = > < σ 0
n = _______ α = _______
Testing a Hypothesis About a Standard Deviation (or Variance);
The Measured Trait (e.g. the PPM) is Approximately Normal;
Therefore this is a “χ 2-test” - Use the Chi-Square Distribution. χ 2calc = (n-1)s2/(σ 2
0 )
The Confidence Intervals for σ 2 and σ are Given by:
(n-1)s2/χ 2large, α /2 < σ 2 < (n-1)s2/χ 2small, α /2
 and

√(n-1)s2/χ 2large, α /2 < σ < √(n-1)s2/χ 2

small, α /2

Interpretation
v
Fast Facts Financial, Inc.
Fast Facts Financial (FFF), Inc. provides credit reports to
lending institutions that evaluate applicants for home
mortgages, vehicle, home equity, and other loans.
A pressure faced by FFF Inc. is that several competing
credit reporting companies provide reports in about the same
average amount of time, but are able to promise a lower time
than FFF Inc- the reason being that the variation in time
required to compile and summarize credit data is smaller
than the time required by FFF.
FFF has identified & implemented procedures which they
believe will reduce this variation. If the historic standard
deviation is 2.3 days, and the standard deviation for a
sample of 25 credit reports under the new procedures is 1.8
days, then test the appropriate hypothesis at the  = .05
level of significance. Assume that the time factor is
approximately normally distributed.
 FFF Example
•H 0 : σ = < > σ 0 vs. HA:σ  > < σ 0 where σ 0 = 2.3
•n = 25 α = .05 .
•Testing a Hypothesis About a Standard Deviation (or Variance);
•The Measured Trait (e.g. the PPM) is Approximately Normal;
•Therefore this is a “χ 2-test” - Use the Chi-Square Distribution.
•χ 2
calc = (n-1)s2/σ 2
0 = (24)( 1.82 )/ (2.32) = 77.76/5.29 = 14.70
•77.76/39.3641 < σ 2 < 77.76/12.4011 or 1.975 < σ 2 < 6.27
•so that 1.405 days < σ < 2.50 days
•Evidence is inconclusive. Work should continue on this.
Two Sample Tests
and

Confidence Intervals
Tests and Intervals for Two
Means
H0: μ1 – μ2 = ≥ ≤ μd
HA: μ1 – μ2  < > μd

n1= _____ n2= _____ α = 0

Comparison of Means from Two Processes

Normality Can Be Reasonably Assumed
Are the two variances known or unknown?
(a) Known  Z-test
(b) Unknown but Similar in Value  t-test with n1+n2 – 2 df
(c) Unknown and Unequal  t-test with “complicated df”

Critical Values and Decision Rules are the same as for any Z-test
or t-test.
C.I. for μ1 – μ2
X1 – X2  ZσX1-X 2
or
X1 – X2  tSX1-X 2
Decisions – Same as any other Z or T test.
Implications – Context Specific
(a)Z = [(X1 – X2) – μd]
σ√(1/n1 + 1/n2)

Z = [(X1 – X2) – μd]

√(σ21/n1 + σ22/n2)

(b) t = [(X1 – X2) – μd] (assume equal variances)

Sp√(1/n1 + 1/n2) where df = n1+n2 – 2
and Sp2 = (n1-1)S12 + (n2-1)S22

(c ) t = [(X1 – X2) – μd] (do not assume equal variances)

2
√(S12/n1 + S22/n2) where df = [(s12 /n1) + (s22/n2)]
2 2
(s12 /n1) + (s22/n2)

n1– 1 n2 – 1
Equality of Variances: The F-Test
H0: σ 1 =≥≤σ 2 vs. H A: σ 1 <>σ 2

n1= _____ n2= _____ α = _____

Test of equality of variances  F-test

Fcalc = S12/S22

Make a decision.

Fcalc / Fn1-1,n 2-1, α /2 large ≤ σ 12/σ 22 ≤ Fcalc /Fn1-1,n 2-

1, α /2 small

C.I. for σ1/σ2 is obtained by taking square

roots of the endpoints of the above C.I. for
σ12/σ22

Conclusions / Implications – Context Specific.

Tests & Intervals for Two
Proportions
H :p –p =≥≤p
0 1 2 d
HA: p1 – p2  < > pd

n1= _____ n2= _____ α=0

Comparison of Proportions from Two Processes

n1p1, n2p2, n1(1-p1) and n2(1-p2) all ≥ 5
 Z-test

Critical Values and Decision Rules are the same as for

any Z-test.
 ^ ^
Z= [(p1 – p2)] IF pd = 0
√ p(1-p)(1/n1 + 1/n2) where p = (X1+X2)/(n1 + n2)

^ ^
Z= [(p1 – p2) – pd] IF pd  0

^ ^ ^ ^
√ (p1(1--p1)/n1 + p2(1-p2)/n2

^ ^ ^ ^ ^ ^
C.I. for p1-p2is (p1 – p2)  Z/2 √ (p1(1--p1)/n1 + p2(1-p2)/n2
THANK YOU!