Running head: Hypothesis Testing

An assignment on

Hypothesis Testing

Nabeena Khatri

LC00016000035

Third semester

Nepal Business College

Biratnagar-15, Nepal

Author Note

This assignment was prepared for Quantitative method, BBA-2523 department of

Quantitative method taught by Mr. Ram Babu Kafle

1 | Page
Running head: Hypothesis Testing

Abstract

Testing of hypothesis is an important aspect of theory of decision making. One of the

most important considerations when beginning your research work and formulating the research
problem is constructing the hypothesis. Generally, hypothesis provides clarity so that you can
focus on a research problem. However, this is not essential for a study or research work. A
researcher can conduct a valid investigation without constructing a hypothesis. However, it is
always good to construct a hypothesis as it will help to narrow down your focus of research. The
significance of a hypothesis lies in its ability to bring direction and specificity to your research
work.

2 | Page
Running head: Hypothesis Testing

Acknowledgement

This assignment is a wonderful experience for me because it gives us knowledge of different

conceptual and practicable curriculum of our study. There is very vast in saying and doing. Every
study has curiosity about their conceptual studies.

I would like to express my special thanks to my subject teacher Mr. Ramesh Babu
Kafley who gave me such a golden opportunity to do this wonderful assignment on the topic of
Measure of location which also helps me in doing lots of research and I come to know about so
many things. I am really thanks to them from my inner heart that helps in this assignment. Im
making this assignment not only for the marks but also for increasing my knowledge.

I also apologies for weakness, spelling, grammatical error or any kind of mistake in this
assignment

3 | Page
Running head: Hypothesis Testing

Introduction

What is 'Hypothesis Testing'

Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a
population parameter. The methodology employed by the analyst depends on the nature of the
data used and the reason for the analysis. Hypothesis testing is used to infer the result of a
hypothesis performed on sample data from a larger population. For e.g. Students who receive
counseling will show a greater increase in creativity than students not receiving counseling

BREAKING DOWN 'Hypothesis Testing'

In hypothesis testing, an analyst tests a statistical sample, with the goal of accepting or rejecting
a null hypothesis. The test tells the analyst whether or not his primary hypothesis is true. If it isn't
true, the analyst formulates a new hypothesis to be tested, repeating the process until data reveals
a true hypothesis..
Characterticts of Hypothesis

Clear and precise.

Capable of being tested.

Stated relationship between variables.

Limited in scope and must be specific.

Stated as far as possible in most simple terms so that the same is easily understand by all
concerned. But one must remember that simplicity of hypothesis has nothing to do with its
significance.

Consistent with most known facts.

Responsive to testing within a reasonable time. One cant spend a life time collecting data
to test it.

Explain what it claims to explain; it should have empirical reference.

Types of Hypothesis
I. Null hypothesis
II. Alternative hypothesis

4 | Page
Running head: Hypothesis Testing

Null hypothesis

What is a 'Null Hypothesis'

A null hypothesis is a type of hypothesis used in statistics that proposes that no statistical
significance exists in a set of given observations. The null hypothesis attempts to show that no
variation exists between variables or that a single variable is no different than its mean. It is
presumed to be true until statistical evidence nullifies it for an alternative hypothesis.

BREAKING DOWN 'Null Hypothesis'

The null hypothesis, also known as the conjecture, assumes that any kind of difference or
significance you see in a set of data is due to chance. The opposite of the null hypothesis is
known as the alternative hypothesis.
Hypothesis is denoted by 0.If a population mean is equal to hypothesized mean then Null
Hypothesis can be written as

H0: = 0

Alternative hypothesis
The alternative hypothesis is the hypothesis used in hypothesis testing that is contrary to
the null hypothesis. It is usually taken to be that the observations are the result of a real effect
(with some amount of chance variation superposed).

The Alternative hypothesis is negation of null hypothesis and is denoted by . If Null is given
as 0:=0
Then alternative Hypothesis can be written as
0:=0
:0
:>0
:<0

Confidence levels

5 | Page
Running head: Hypothesis Testing

In survey sampling, different samples can be randomly selected from the same population; and
each sample can often produce a different confidence interval. Some confidence intervals include
the true population parameter; others do not.
A confidence level refers to the percentage of all possible samples that can be expected to
include the true population parameter. For example, suppose all possible samples were selected
from the same population, and a confidence interval were computed for each sample. A 95%
confidence level implies that 95% of the confidence intervals would include the true population
parameter..The confidence level indicates how likely it is that the population parameter, such as
the mean, is contained in the confidence interval.
The confidence level represents the percentage of intervals that would include the population
parameter if you took samples from the same population again and again. Thus, if you collected
one hundred samples, and made one hundred 95% confidence intervals, you would expect
approximately 95 of the intervals to contain the population parameter, such as the mean of the
population, as shown in the following figure.

Here, the horizontal black line represents the fixed value of the unknown population mean, .
The vertical blue confidence intervals that overlap the horizontal line contain the value of the
population mean. The red confidence interval that is completely below the horizontal line does
not. A 95% confidence level indicates that 19 out of 20 samples (95%) from the same population
will produce confidence intervals that contain the population parameter.

Significance Level
The null hypothesis is rejected if the p-value is less than a predetermined level, . is called the
significance level, and is the probability of rejecting the null hypothesis given that it is true (a
type I error). It is usually set at or below 5%.The significance level is used in hypothesis testing

6 | Page
Running head: Hypothesis Testing

as follows: First, the difference between the results of the experiment and the null hypothesis is
determined. Then, assuming the null hypothesis is true, the probability of a difference that large
or larger is computed. Finally, this probability is compared to the significance level. If the
probability is less than or equal to the significance level, then the null hypothesis is rejected and
the outcome is said to be statistically significant. Traditionally, experimenters have used either
the 0.05 level (sometimes called the 5% level) or the 0.01 level (1% level), although the choice
of levels is largely subjective. The lower the significance level, the more the data must diverge
from the null hypothesis to be significant. Therefore, the 0.01 level is more conservative than the
0.05 level. The Greek letter alpha () is sometimes used to indicate the significance level.
Errors associated with decisions based on hypothesis testing
When you do a hypothesis test, two types of errors are possible: type I and type II. The risks of
these two errors are inversely related and determined by the level of significance and the power
for the test. Therefore, you should determine which error has more severe consequences for your
situation before you define their risks.

Type I error
When the null hypothesis is true and you reject it, you make a type I error. The probability of
making a type I error is , which is the level of significance you set for your hypothesis test. A
of 0.05 indicates that you are willing to accept a 5% chance that you are wrong when you reject
the null hypothesis. To lower this risk, you must use a lower value for . However, using a lower
value for alpha means that you will be less likely to detect a true difference if one really exists.
Type II error
When the null hypothesis is false and you fail to reject it, you make a type II error. The
probability of making a type II error is , which depends on the power of the test. You can
decrease your risk of committing a type II error by ensuring your test has enough power. You can
do this by ensuring your sample size is large enough to detect a practical difference when one
truly exists.
The probability of rejecting the null hypothesis when it is false is equal to 1. This value is the
power of the test
Decision True False

7 | Page
Running head: Hypothesis Testing

Fail to reject Correct Decision Type II Error - fail to

(probability = 1 - ) reject the null when it is
false (probability = )
Reject Type I Error - rejecting Correct Decision
the null when it is true (probability = 1 - )
(probability = )

Hypothesis testing is an important activity of empirical research and evidence-based medicine. A

well worked up hypothesis is half the answer to the research question. For this, both knowledge
of the subject derived from extensive review of the literature and working knowledge of basic
statistical concepts are desirable.
What is critical value and critical region?
In hypothesis testing, a critical value is a point on the test distribution that is compared to the test
statistic to determine whether to reject the null hypothesis. If the absolute value of your test
statistic is greater than the critical value, you can declare statistical significance and reject the
null hypothesis. Critical values correspond to , so their values become fixed when you choose
the test's

Figure A Figure B
critical values on the standard normal distribution for = 0.05
Figure A shows that results of a one-tailed Z-test are significant if the test statistic is equal to or
greater than 1.64, the critical value in this case. The shaded area is 5% () of the area under the
curve. Figure B shows that results of a two-tailed Z-test are significant if the absolute value of

8 | Page
Running head: Hypothesis Testing

the test statistic is equal to or greater than 1.96, the critical value in this case. The two shaded
areas sum to 5% () of the area under the curve
Critical region
The critical region of the sampling distribution of a statistic is also known as the region.
It is the area, or areas, of the sampling distribution of a statistic that will lead to the rejection of
the hypothesis tested when that hypothesis is true.

a) What is test statistic? What is its formula?

A test statistic is a standardized value that is calculated from sample data during a hypothesis
test. You can use test statistics to determine whether to reject the null hypothesis. The test
statistic compares your data with what is expected under the null hypothesis.
A test statistic measures the degree of agreement between a sample of data and the null
hypothesis. Its observed value changes randomly from one random sample to a different sample.
A test statistic contains information about the data that is relevant for deciding whether to reject
the null hypothesis. The sampling distribution of the test statistic under the null hypothesis is
called the null distribution. When the data show strong evidence against the assumptions in the
null hypothesis, the magnitude of the test statistic becomes too large or too small depending on
the alternative hypothesis. This causes the test's p-value to become small enough to reject the
null hypothesis.
For example, the test statistic for a Z-test is the Z-statistic, which has the standard normal
distribution under the null hypothesis. Suppose you perform a two-tailed Z-test with an of 0.05,
and obtain a Z-statistic (also called a Z-value) based on your data of 2.5. This Z-value
corresponds to a p-value of 0.0124. Because this p-value is less than , you declare statistical
significance and reject the null hypothesis.

b) How decisions are made on the basis of statistical calculations?

Statistical decisions are decisions made on the basis of observations of a phenomenon that obeys
probabilistic laws that are not completely known.
As an example, let us consider the disinfection of water by chlorination. The amount of chlorine
to be added should depend on the average number of bacteria per unit volume. The value of ,
however, is not known and is estimated from the results X1, X2,....Xn of a computation of the

9 | Page
Running head: Hypothesis Testing

number of bacteria in n independently selected unit volumes of water. In the simplest model it is
assumed that Xi, for i = 1,...,n, has a Poisson distribution with the unknown mean (mathematical
expectation) . The statistical decision as to the amount of chlorine to be added will therefore be
a function of a statistical estimator * of the parameter . In selecting * there must be taken into
account the undesirable consequences of both an underestimate of (insufficient disinfection of
the water) and an overestimate of (worsening of the taste of the water owing to excessive
chlorination).
Statistical decision theory provides a precise mathematical formulation of the concepts
pertaining to statistical decisions and to methods of comparing statistical decisions.

c) What is the importance of hypothesis testing in business?

Business owners like to know how their decisions will affect their business. Before making
decisions, managers may explore the benefits of hypothesis testing, the experimentation of
decisions in a "laboratory" setting. Importance of hypothesis in business are:
Data Collection
As hypothesis testing is purely a statistical exercise, data is almost always needed before
performing a test. Data may be obtained from economic research agencies or management
consultancy firms, who may even carry out the hypothesis testing on behalf of the business. Data
are compiled for a given hypothesis. So if a business wishes to explore how economic growth
affects a firm's profits, the management consultancy will likely collect data concerning gross
domestic product growth and the profit margins of the company over the past 10 or 20 years.
The Process
Hypothesis testing is performed with specialized statistical software that examines the
relationship between variables of very large samples. Data are fed into the system and the
program does the rest. It is up to the statistician to interpret the results. There are two main
variables the statistician is looking for. The first is that of "a" itself. The larger the value of "a,"
the greater the impact of "x" on "y." The other is that of the critical values. Critical values differ
depending on the type of statistical test carried out, but often values represent significance levels
of 1, 5 or 10 percent. Rejecting the null at 1 percent implies absolute confidence that "x" has no
effect on "y." On the flip side, if the statistician is unable to reject the null even at the 10 percent

10 | P a g e
Running head: Hypothesis Testing

level, then he could say with a reasonable level that "x" does have an impact on "y," and at a
magnitude of "a."

11 | P a g e
Running head: Hypothesis Testing

Conclusion

A hypothesis is generally a speculative statement that needs to be verified in

a research work. During hypothesis formulation, it is important to keep the statement simple,
Precise and clear, and derive it from an existing body of knowledge. Two types of hypothesis
categories are research and alternate. Research hypothesis can be classified as null hypothesis,
hypothesis of difference, hypothesis of association and hypothesis of point-prevalence. The main
function of an alternate hypothesis is to explicitly specify the relationship that will be considered
.

12 | P a g e