Chapter 11

Chapter 11
Introduction to Hypothesis Testing
Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.
11.1
Introduction
In addition to estimation, hypothesis testing is a procedure for making inferences about a population.
Population Sample
Inference
Statistic Parameter
Hypothesis testing allows us to determine whether enough statistical evidence exists to conclude that a belief (i.e. hypothesis) about a parameter is supported by the data.
11.2
Concepts of Hypothesis Testing (1)

There are two hypotheses. One is called the null hypothesis and the other the alternative or research hypothesis. The usual notation is:
pronounced H nought
H0: the null hypothesis H1: the alternative or research hypothesis The null hypothesis (H0) will always state that the parameter equals the value specified in the alternative hypothesis (H1)
11.3
Concepts of Hypothesis Testing

Consider example 10.1 (mean demand for computers during assembly lead time) again. Rather than estimate the mean demand, our operations manager wants to know whether the mean is different from 350 units. We can rephrase this request into a test of the hypothesis: H0: = 350 Thus, our research hypothesis becomes: This is what we are H1: 350
interested in determining
11.4

The testing procedure begins with the assumption that the null hypothesis is true. Thus, until we have further statistical evidence, we will assume: H0: = 350 (assumed to be TRUE)
11.5

The goal of the process is to determine whether there is enough evidence to infer that the alternative hypothesis is true. That is, is there sufficient statistical information to determine if this statement: H1: 350, is true? (based on our assumptions of H0)
This is what we are interested in determining
11.6

There are two possible decisions that can be made: Conclude that there is enough evidence to support the alternative hypothesis (also stated as: rejecting the null hypothesis in favor of the alternative) Conclude that there is not enough evidence to support the alternative hypothesis (also stated as: not rejecting the null hypothesis in favor of the alternative) NOTE: we do not say that we accept the null hypothesis
11.7
Concepts of Hypothesis Testing

Once the null and alternative hypotheses are stated, the next step is to randomly sample the population and calculate a test statistic (in this example, the sample mean). If the test statistics value is inconsistent with the null hypothesis we reject the null hypothesis and infer that the alternative hypothesis is true. For example, if were trying to decide whether the mean is not equal to 350, a large value of (say, 600) would provide enough evidence. If is close to 350 (say, 355) we could not say that this provides a great deal of evidence to infer that the population mean is different than 350.
11.8

Two possible errors can be made in any test: A Type I error occurs when we reject a true null hypothesis and A Type II error occurs when we dont reject a false null hypothesis. There are probabilities associated with each type of error: P(Type I error) = P(Type II error ) =
11.9
Types of Errors
A Type I error occurs when we reject a true null hypothesis (i.e. Reject H0 when it is TRUE)
H0
Reject Reject
T I
II
A Type II error occurs when we dont reject a false null hypothesis (i.e. Do NOT reject H0 when it is FALSE)
11.10
Types of Errors
Back to our example, we would commit a Type I error if: Reject H0 when it is TRUE We reject H0 ( = 350) in favor of H1 ( 350) when in fact the real value of is 350. We would commit a Type II error in the case where: Do NOT reject H0 when it is FALSE We believe H0 is correct ( = 350), when in fact the real value of is something other than 350.
11.11
Recap I
1) Two hypotheses: H0 & H1 2) ASSUME H0 is TRUE 3) GOAL: determine if there is enough evidence to infer that H1 is TRUE 4) Two possible decisions: Reject H0 in favor of H1 NOT Reject H0 in favor of H1 5) Two possible types of errors: Type I: reject a true H0 [P(Type I)= ] Type II: not reject a false H0 [P(Type II)= ]
11.12
Recap II
The null hypothesis must specify a single value of the parameter (e.g. =___) Assume the null hypothesis is TRUE. Sample from the population, and build a statistic related to the parameter hypothesized (e.g. the sample mean, ) Compare the statistic with the value specified in the first step
11.13
Example 11.1
A department store manager determines that a new billing system will be cost-effective only if the mean monthly account is more than $170. A random sample of 400 monthly accounts is drawn, for which the sample mean is $178. The accounts are approximately normally distributed with a standard deviation of $65. Can we conclude that the new system will be cost-effective?
11.14
Example 11.1
The system will be cost effective if the mean account balance for all customers is greater than $170. We express this belief as a our research hypothesis, that is: H1: > 170 (this is what we want to determine) Thus, our null hypothesis becomes: H0: = 170 (this specifies a single value for the parameter of interest)
11.15
Example 11.1
What we want to show: H1: > 170 H0: = 170 (well assume this is true) We know: n = 400, = 178, and = 65 Hmm. What to do next?!
11.16
Example 11.1
To test our hypotheses, we can use two different approaches: The rejection region approach (typically used when computing statistics manually), and The p-value approach (which is generally used with a computer and statistical software). We will explore both in turn
11.17
Example 11.1 Rejection Region

The rejection region is a range of values such that if the test statistic falls into that range, we decide to reject the null hypothesis in favor of the alternative hypothesis.
is the critical value of

to reject H0.
11.18
Example 11.1
It seems reasonable to reject the null hypothesis in favor of the alternative if the value of the sample mean is large relative to 170, that is if > .
= P( > ) is also = P(rejecting H0 given that H0 is true) = P(Type I error)
11.19
Example 11.1
All thats left to do is calculate and compare it to 170.
we can calculate this based on any level of significance ( ) we want

11.20
Example 11.1
At a 5% significance level (i.e. value of = 175.34 =0.05), we get a critical
Since our sample mean (178) is greater than the critical value we calculated (175.34), we reject the null hypothesis in favor of H1, i.e. that: > 170 and that it is cost effective to install the new billing system
11.21
Example 11.1 The Big Picture
H1: > 170 H0: = 170

Reject H0 in favor of
=175.34 =178
11.22
Standardized Test Statistic

An easier method is to use the standardized test statistic:
and compare its result to
: (rejection region: z > )
Since z = 2.46 > 1.645 (z.05), we reject H0 in favor of H1
11.23
p-Value
The p-value of a test is the probability of observing a test statistic at least as extreme as the one computed given that the null hypothesis is true. In the case of our department store example, what is the probability of observing a sample mean at least as extreme as the one already observed (i.e. = 178), given that the null hypothesis (H0: = 170) is true?
p-value
11.24
Interpreting the p-value

The smaller the p-value, the more statistical evidence exists to support the alternative hypothesis. If the p-value is less than 1%, there is overwhelming evidence that supports the alternative hypothesis. If the p-value is between 1% and 5%, there is a strong evidence that supports the alternative hypothesis. If the p-value is between 5% and 10% there is a weak evidence that supports the alternative hypothesis. If the p-value exceeds 10%, there is no evidence that supports the alternative hypothesis. We observe a p-value of .0069, hence there is overwhelming evidence to support H1: > 170.
11.25

Overwhelming Evidence (Highly Significant) Strong Evidence (Significant) Weak Evidence (Not Significant) No Evidence (Not Significant) 0 p=.0069
.01
.05
.10
11.26

Compare the p-value with the selected value of the significance level: If the p-value is less than , we judge the p-value to be small enough to reject the null hypothesis. If the p-value is greater than , we do not reject the null hypothesis. Since p-value = .0069 < = .05, we reject H0 in favor of H1
11.27
Calculating p-values with Excel

Consider the dataset for Example 11.1. Click: Tools > Data Analysis Plus > Z-Test: Mean
p-value
11.28
Calculating p-values with Excel

Alternatively, we can compare the standardized test statistic with the critical value of z:
test stat z .05
Again, z = 2.4605 > 1.6449 = z.05, so we reject H0

11.29
Conclusions of a Test of Hypothesis

If we reject the null hypothesis, we conclude that there is enough evidence to infer that the alternative hypothesis is true. If we do not reject the null hypothesis, we conclude that there is not enough statistical evidence to infer that the alternative hypothesis is true. Remember: The alternative hypothesis is the more important one. It represents what we are investigating.
11.30
One and TwoTail Testing

The department store example was a one tail test, because the rejection region is located in only one tail of the sampling distribution:
More correctly, this was an example of a right tail test.
11.31
Right-Tail Testing
Calculate the critical value of the mean ( ) and compare against the observed value of the sample mean ( )
11.32
Left-Tail Testing
Calculate the critical value of the mean ( ) and compare against the observed value of the sample mean ( )
11.33
TwoTail Testing
Two tail testing is used when we want to test a research hypothesis that a parameter is not equal () to some value
11.34
Example 11.2
AT&Ts argues that its rates are such that customers wont see a difference in their phone bills between them and their competitors. They calculate the mean and standard deviation for all their customers at $17.09 and $3.87 (respectively). They then sample 100 customers at random and recalculate a monthly phone bill based on competitors rates. What we want to show is whether or not: H1: 17.09. We do this by assuming that: H0: = 17.09
11.35
Example 11.2
The rejection region is set up so we can reject the null hypothesis when the test statistic is large or when it is small.
stat is small
stat is large
That is, we set up a two-tail rejection region. The total area in the rejection region must sum to , so we divide this probability by 2.
11.36
Example 11.2
At a 5% significance level (i.e. = .05), we have /2 = .025. Thus, z.025 = 1.96 and our rejection region is: z < 1.96 -orz > 1.96
-z.025
+z.025
11.37
Example 11.2
From the data, we calculate = 17.55
Using our standardized test statistic:
We find that: Since z = 1.19 is not greater than 1.96, nor less than 1.96 we cannot reject the null hypothesis in favor of H1. That is there is insufficient evidence to infer that there is a difference between the bills of AT&T and the competitor.
11.38
Two-Tail Test p-value

In general, the p-value in a two-tail test is determined by p-value = 2P(Z > |z|) where z is the actual value of the test statistic and |z| is its absolute value. When using Excel, we are interested in the bottom rows of the Data Analysis Plus output:
or compare these #s
use this p-value

11.39
Summary of One- and Two-Tail Tests
One-Tail Test (left tail)
Two-Tail Test
One-Tail Test (right tail)
11.40
Probability of a Type II Error

It is important that that we understand the relationship between Type I and Type II errors; that is, how the probability of a Type II error is calculated and its interpretation. Recall example 11.1 H0: = 170 H1: > 170 At a significance level of 5% we rejected H0 in favor of H1 since our sample mean (178) was greater than the critical value of (175.34)
11.41
Probability of a Type II Error

A Type II error occurs when a false null hypothesis is not rejected. In example 11.1, this means that if is less than 175.34 (our critical value) we will not reject our null hypothesis, which means that we will not install the new billing system. Thus, we can see that: = P( < 175.34 given that the null hypothesis is false)
11.42
Example 11.1 (revisited)

= P( < 175.34 given that the null hypothesis is false) The condition only tells us that the mean 170. We need to compute for some new value of . For example, suppose the mean account balance needs to be $180 in order to cost justify the new billing system = P( < 175.34, given that = 180), thus
11.43
Example 11.1 (revisited)

Our original hypothesis
our new assumption
11.44
Effects on
of Changing
Decreasing the significance level , increases the value of and vice versa. Consider this diagram again. Shifting the critical value line to the right (to decrease ) will mean a larger area under the lower curve for (and vice versa)
11.45
Judging the Test

A statistical test of hypothesis is effectively defined by the significance level ( ) and the sample size (n), both of which are selected by the statistics practitioner. Therefore, if the probability of a Type II error ( ) is judged to be too large, we can reduce it by increasing , and/or increasing the sample size, n.
11.46
Judging the Test

For example, suppose we increased n from a sample size of 400 account balances to 1,000
The probability of a Type II error ( ) goes to a negligible level while remains at 5%
11.47
Judging the Test

The power of a test is defined as 1 . It represents the probability of rejecting the null hypothesis when it is false. I.e. when more than one test can be performed in a given situation, its is preferable to use the test that is correct more often. If one test has a higher power than a second test, the first test is said to be more powerful and the preferred test.
11.48
Beta-mean.xls
The Beta-mean workbook is a handy tool for calculating for any test of hypothesis. For example, comparing n=400 to n=1,000 for our department store example
the power of the test has increased by increasing the same size
11.49

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Chapter 11

Introduction to Hypothesis Testing

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Concepts of Hypothesis Testing (1)

Concepts of Hypothesis Testing

Concepts of Hypothesis Testing (2)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Concepts of Hypothesis Testing (3)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Concepts of Hypothesis Testing (4)

Concepts of Hypothesis Testing

Concepts of Hypothesis Testing (5)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Example 11.1 Rejection Region

is the critical value of

= P( > ) is also = P(rejecting H0 given that H0 is true) = P(Type I error)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

we can calculate this based on any level of significance ( ) we want

Example 11.1 The Big Picture

H1: > 170 H0: = 170

Standardized Test Statistic

and compare its result to

: (rejection region: z > )

Since z = 2.46 > 1.645 (z.05), we reject H0 in favor of H1

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Interpreting the p-value

Interpreting the p-value

Interpreting the p-value

Calculating p-values with Excel

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Calculating p-values with Excel

test stat z .05

Again, z = 2.4605 > 1.6449 = z.05, so we reject H0

Conclusions of a Test of Hypothesis

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

One and TwoTail Testing

More correctly, this was an example of a right tail test.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Using our standardized test statistic:

Two-Tail Test p-value

use this p-value

Summary of One- and Two-Tail Tests

One-Tail Test (left tail)

One-Tail Test (right tail)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Probability of a Type II Error

Probability of a Type II Error

Example 11.1 (revisited)

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Example 11.1 (revisited)

our new assumption

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Judging the Test

Copyright 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Judging the Test