CHATER TREE

HYPOTHESIS TESTING
Most statistical inference revolves around the parameters of a population. In hypothesis testing
we start with an assumed value of a population parameter. Then sample evidence is used to
decide whether the assumed value is unreasonable and should be rejected, or whether it should
be accepted; hence the statistical inferences made are referred to as hypothesis testing.
3.1 Hypothesis and Hypothesis Testing Defined
Hypothesis is a statement or an assumption about the value of a population parameter or
parameters.

Examples
- The mean monthly income of all employees of a company is br. 2000.
- The average age of students in a college is 22 years
- 5% of the products of a firm are defective
All these hypothesis have one thing in common:
The populations of interest are so large that for various reasons it would not be feasible to study
all the items, or persons, in the population
Hypothesis testing is a procedure based on sample evidence and probability distribution used to
determine whether the hypothesis is a reasonable statement and should not be rejected, or is
unreasonable and should be rejected.
It is simply selecting a sample from the populations, calculate sample statistic and based on
certain decision rules accept or reject the hypothesis.

Test statistic is a sample statistic computed from the sample data. The value of the test statistic is
used in determining whether or not we may reject the hypothesis.

Decision rule of a statistical hypothesis is rule that specifies the conditions under which the
hypothesis may be rejected. We decide whether or not to reject the hypothesis by following the
decision rule.
3.2 STEPS FOR TESTING HYPOTHESIS
There are five-step procedures that systematize hypothesis testing.

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Hypothesis testing as used by the statisticians does not provide proof that something is true, in
the manner in which a mathematician “proves” a statement. It does provide a kind of “proof
beyond a reasonable doubt” in the manner of an attorney.
Step I. Identity the null hypothesis and the alternate hypothesis
Identity the null hypothesis-the
he first step is to state the hypothesis to be tested. It is called the
Null Hypothesis,
Hypothesis, designated by Ho and read “H sub-zero”. The capital letter H stands for
hypothesis and the subscript zero implies “no difference or no change. There is usually a ‘not’ or
a ‘no’ term in the null hypothesis meaning no change”. The null hypothesis is set up for the
purpose of either to rejecting or not to rejecting it. The null hypothesis is a statement that will be
rejected it our sample information provide us with convincing evidence that it false. And it will
not be rejected if our sample data fail to provide ample evidence that it is false.

If the null hypothesis is not rejected based on sample data, in effect we are saying that the
evidence does not allow us to reject it. We cannot state, however, that the null hypothesis is true.
This is the same as the situation in the courts.

In courts we heard judges saying, “Found not guilty” when they release a suspect free. They
never say “he is innocent”. The suspect is released may be because the prosecutor or the police
fail to provide the court with convincing evidence beyond reasonable doubt that the suspect has
committed the crime. The null hypothesis is a tentative assumption made about the value of a
population parameter. Usually it is a statement that the population parameter has a specific value.

Failure to reject the null hypothesis does not prove that Ho is true. To prove with out any doubt
that the null hypothesis is true, the population parameter would have to be known. This is usually
not feasible.

The sample statistic is usually different from the hypothesized population parameter. For this
reason we have to make a judgment about the difference.

If a hypothesized mean is 70 and the sample mean is 69.5 we musts make a judgment about the
difference 0.5. Is it a true difference, i.e a significant difference, or is it due to chance / sampling.
To answer this question we conduct a test of significance, commonly referred to as a test of
hypothesis.

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Identify the Alternative hypothesis (H1): Alliterate hypothesis is a statement describes what we
will believe if we reject the null hypothesis. It is designated H 1 (H sub – one) the alternate
hypothesis will be accepted if the sample data provide us with evidence that the null hypothesis
is false.

It is a statement that will be accepted if our sample data provide us with ample evidence that the
null hypothesis is false.

Step II: Determine the level of significance

After setting up the null hypothesis and alternate hypothesis, the next step is to state the level of
significance. It is the probability of rejecting the null hypothesis when it is actually true.

Level of significance is the risk we assume of rejecting the null hypothesis when it is a actually
true.
The level of significance is designated by the Greek letter alpha, , it is also referred to as the
level of risk.
Traditionally three levels of significance are known
0.05. level is selected for consumer research
0.01. for quality assurance
0.10. for political polling
The level of significance reflects the risk we want to assume A0.01 level of significance will
yield smaller risk than 0.05 or 0.1.

The researcher must decide on the level of significance before formulating a decision rule and
collecting sample data. This is very important to reduce bias. The level of significance can be
any level between 0 and 1.

To illustrate how it is possible to reject a true hypothesis, suppose that a computer manufacturer
purchase a component form a supplier. Suppose the contract specifies that the manufacture’s
quality assurance department will sample all incoming shipment of component. If more than 6%
of the components sampled are substandard the shipment will be rejected.

The null hypothesis is:

Ho= the incoming shipment of components contains 6% or less substandard components.

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The alternative hypothesis is:
H1: More than 6% of the components are defective.
A sample of 50 components just received revealed that 4 components or 8% were substandard.

The shipment was rejected because it exceeded maximum of 6%. If the shipment was actually
substandard then the decision to return the component to the supplier was correct.

However suppose the 4 components selected in the sample were the only substandard
components in the shipment of 4000 components. Only 1% were defective. In that case less than
6% of the entire shipment was substandard and rejecting the shipment was an error.

In terms of hypothesis testing we rejected the null hypothesis that the shipment was not
substandard when we should not have rejected it.

By rejecting a true hypothesis we committed a type I error.

A type I error is designated by  (alpha).

Type I error is rejecting the null hypothesis, Ho, when it is actually true.

The probability of committing another type of error, Type II error, is designated , beta, failure
to reject Ho when it is actually false.

The above firm would commit a type II error if, unknown to it, an incoming shipment contained
600 substandard components yet the shipment was accepted. Suppose 2 of the 50 component in
the sample (4%) tested were substandard and 48 were good. Because the sample contains less
than 6% substandard components, the shipment was accepted. But of all task the entire shipment
15% of the components we defective.

We often refer to those two possible errors as the alpha error , and the beta error ,
 error – the probability of making a type I error
 error – the probability of making type II error
The following table shows the decision the researcher could make and the possible
consequences.

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Null Hypothesis The researcher The Researcher
does not reject Ho rejects Ho
If Ho is true Correct decision Type I error
If Ho is false Type II error Correct decision

Step III: Find the Test statistic

Test statistic – a value determined from sample information, used to reject or not to reject the
null hypothesis.

There are many test statistics, Z (the normal distribution), the student t test, F, and X 2 or the chi –
square.

The standard normal deviate, Z distribution is used as test statistic when the sample size is large,
n  30. Based on the sample size and the parameter to be tested the statistician will select the
appropriate test statistic.
Step IV: Determine the decision rule
A decision rule is a statement of the conditions under which the null hypothesis is rejected and
the conditions under which it is not rejected.
The region or area of rejection defines the location of all those values that are so large or so
small that the probability of their occurrence under a true null hypothesis is rather remote.
Sampling distribution for the statistic Z, 0.05 level of significance.

Non-rejection
Region or do not reject H0 Rejection region

Scale of Z
0 1.6 45
0.95 Probability 0.05 Probability

Initial Value

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The above chart portrays the rejection region for a test of significance. The level of significance
selected is 0.05.
1. The area where the null hypothesis is not rejected includes the area to the left of 1.645
2. The area of rejection is to the right of 1.645
3. A one – tailed test is being applied /will be discussed latter on/
4. The 0.05 level of significant was chosen
5. The sampling distribution is for the test statistic Z , the standard normal deviate.
6. The value 1.645 separates the regions where the null hypothesis is rejected and where it is
not rejected
7. The value 1.645 is called the critical value. It is the corresponding value of the test
statistic for the selected level of significance i.e. Z value at the 0.05 level of significance
is 1.645.

Critical value: The dividing point between the region where the null hypothesis is rejected and
the region where it is not rejected.

Steps V: Take a sample and made a decision

At this step a decision is made to reject or not to reject the null hypothesis. For the above chart, if
based on sample data or information, Z is computed be 2.34 the null hypothesis is rejected at the
0.05 level of significance.

The decision to reject Ho is made because 2.34 lies in the region of rejection that is beyond
1.645. We would reject the null hypothesis reasoning that it is highly improbable that a
computed Z value this large is due to sampling variation or chance. Had the computed value
been 1.645 or less say 0.71 then Ho would not be rejected. It would be reasoned that such a small
computed value could be attributed to chance that is sampling variation.

One – Tailed and Two – Tailed tests of significance

One Tailed Test

The region of rejection is only in one tail of the curve. The above example indicates that the
region of rejection is in the right (upper) tail of the curve.

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 Non-rejection
Rejection region Region or do not reject H0

0.95 Probability
Z
-1.6 45 0
0.05 Probability 0.95 Probability

Initial Value

Consider companies purchase larger quantities of tyre. Suppose they want the tires to an average
mileage of 40,000 Km of wear under normal usage. They will therefore reject a shipment of tires
if accelerated - life test reveal that the life of the tires is significantly below 40000 Km on the
average.

The purchasers gladly accept a shipment if the mean life is greater than 40000 Kms, they are not
concerned with this possibility.

They are only concerned if they have sample evidence to conclude that the tires will average less
than 40000 Kms of useful life.

Thus the test is set up to satisfy the concern of the companies that the mean life of the tires is less
than 40000Km.

The null and alternate hypotheses are written: -

Ho:  = 40,000 km and
H1:  < 40000 km

One way to determine the location of the rejection region is to look at the direction in which the
inequality sign in the alternate hypothesis is pointing.

Test is one – tailed, if H1 states  > or  < if 1 , states a direction, test is one - tailed.

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Two-tailed test
A test is two - tailed if H1 does not state a direction.
Consider the following example:
Ho: there is no difference between the mean income of males and the mean income of females.
H1: there is a difference in the mean income of males and the mean income of females.
If Ho is rejected and H1 accepted the mean income of males could be greater than that of females
or vis versa. To accommodate these two possibilities, the 5 level of significance representing the
area of rejection is divided equally in to two tails of the sampling distribution. If the level of
significant is 0.05 each rejection region will have 0.025 probability.

Note that the total area under the normal curve is one found by 0.95 + 0.025 + 0.025.

Non-rejection
Rejection region Region or do not reject H0 Rejection region

0.95 Probability
Z
-1. 96 0 + 1. 96
0.025 Probability 0.025 Probability

Initial Value Initial Value

3.3 HYPOTHESIS TESTING INVOLVING LARGE SAMPLE
Note that a sample of 30 or more is considered large.
3.3.1 Test for the Population Mean
Population Standard Deviation Known
Example. The efficiency ratings of a company have been normally distributed over a period of
many years. The arithmetic mean () of the distribution is 200 and the standard deviation is 19.
Recently, however, young employees have been hired and new training and production methods
introduced. Using the 0.01 level of significance, we want to test the hypothesis that the mean is
still 200.

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Solution:
Step 1.
1. The null hypothesis is " The population mean is still 200 " the alternative hypothesis is
“The mean is different from 200 " or "The mean is not 200"
the two hypotheses are written as:
Ho :  =200
H1:   200

This is a two - tailed test because the alternate hypothesis does not state the direction of the
difference.

That is, it does not state whether the mean is greater than or less than 200.
Step 2: - As noted the 0.01 level of significance is to be used. This is  the probability of
committing a type I error. That is the probability of rejecting a true hypothesis.
Step 3: - The test statistic for this type of problem is Z, the standard normal deviate /you will see
later on that the sample size is large/
X−μ
σ
Z = √n
Step 4:
4: The decision null is formulated by finding the critical values of Z from the table of
normal distribution.
Since this is a two - tailed test, half of 0.01 or 0.005 is in each tail. Each rejection region will
have a probability of 0.005.
The area where Ho is not rejected located between the two tails, is therefore, 0.99.
0.5000-0.005= 0.4950 so 0.4950 is the area between 0 and the critical value. The value nearest to
0.4950 is 0.495. The value for this probability is 2.58.

Non-rejection
Rejection region with Region or do not reject H0 Rejection region
probability 0.99 Probability with probability 0.01÷2=0.005
0.01÷2=0.005 0.4950=0.5-0.005 0.4950=0.5-0.005
Z

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 It is not rejected
The decision rule is therefore: Reject the null hypothesis and accept the alternate hypothesis if
the computed value of Z does not fall in the region between +2.58 and -2.58. Otherwise do not
reject the null hypothesis.

Step 5: Take a sample and make a decision

Take a sample from the population (efficiently ratings) compute Z and based on the decision
rule, arrive at a decision to reject Ho or not reject Ho.

The efficenty ratings of 100 employees were analyzed. The mean of the sample was computed to
be 203.5.
Compute Z
X−μ 203 .5−200 203. 5−200
=
σ 16 1. 6
Z= √ = √
n 100 203.5-200= 2.19

Since 2.19 does not fall in the rejection region, Ho is not rejected. So we conclude that the
difference between 203.5, the sample mean, and 200 can be attributed to chance variation.

Note: Selecting the level of significance before setting up the decision rule and sampling the
population is important not to be biased.

Ho is not rejected at the 1% level. We would have biased the later decision by not initially
selecting the 0.01 level. Instead we could have waited until after the sampling and selected a
level of significance that would cause the null hypothesis to be rejected. We could have chosen,
for example , the 0.05 level. The critical value for that level are + 1.96.

Since the computed value of Z (2.19) lies beyond 1.96 the null hypothesis would be rejected and
we could concluded that the mean efficiency rating is not 200.
Example 2: The mean annual turnover rate of a brand of chemical is 6.0 (this indicates that the
stock of the chemical turns over an average of six times a years) . The standard deviation is 0.5.
It is suspected that the average turnover is not 6.0. The 0.05 level of significance is to be used to
test this hypothesis.
1. State Ho, ad H1
2. What is the value of ?

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 3. Give the formula for the test statistic
4. State the decision rule
5. A random sample of 64 bottles of a brand was selected. The mean turnover rate
computed to be 5.84. Shall we reject the null hypothesis at the 0.05 levels? Interpret.
Solution:
1. Ho:  = 6.00
H1:   6.00
2. 0.05
X−μ
σ
3. Z = √n
4. Do not reject the null hypothesis if the computed Z value fales between – 1.96 and +
1.96
5 . 84−6 . 00
0.5
5. Z= √ 64 = 2.56
6. Reject Ho at the 0.05 level. Accept H1 the mean turnover is not equal to 6.00.
A one Tailed Test

If the alternate hypothesis states a direction (either greater than “ or “ less than”) the test is one
tailed. The hypothesis – testing procedure is generally the same as for a two – tailed test, except
that the critical value is different.
Let us change the alternate hypothesis in the previous problem, involving efficing racting of
worker
H1:   200 (tow – tailed test) to
H1:  > 200 ( a one – tailed test )

The critical values for the two – tailed test were -2.58 and +2.58. The region of rejection for a
one – tailed test is in the right tail of the curve
For a one-tailed test the critical value is found by
a. 0.5000 – 0.01 = 0.4900
b. The Z value for 0.4900 = probability is  2.33

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Check Your Progress –1

The management of chain of restaurants claims that the mean waiting time of customers for
service is normally distributed with a mean of 3 minutes and a standard deviation of one minute.
The quality assurance department found a sample of 50 customers at a restaurant and that the
mean waiting time was 2.75 minutes. At the 0.05 significance level is the mean waiting time less
than 3 minutes? (Note that this test is one tailed)
P – Value Hypothesis Testing Method
Additional value is often reported on the strength of the rejection, or how confident we are in
rejecting the null hypothesis. This method reports the probability (assuming that the null
hypothesis is true) of getting a value of the test statistic at least as extreme as that obtained.

This procedure compares the probability, called P – Value, with the significance level.
If the P- value is smaller than the significance level, Ho is rejected. If it is larger than the
significant level Ho is not rejected. This procedure not only results in decision regarding Ho but
it gives us insight into the strength of the decision.
A very small P- values say 0.001, means that there is a very little likelihood that Ho is true. On
the other hand, a p- value of 0.4 means that Ho is not rejected, and we did not come very close to
rejecting it.
Recall that for the efficiency ratings the computed value of Z was 2.19. The decision was not to
reject Ho because the Z of 2.19 fall in the non-rejection area between 2.58 and + 2.58. The
probability of obtaining a Z values of 2.19 or more is 0.0143 found by 0.5000 – 0.4857. To
compute the P – value, we need to be concerned with values less than -2.19 and values greater

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than + 2.19. The p- value is 0.0286 found by 2(0.0143). The P – value of 0.0286 is greater than
the significance level (0.01) decided upon initially, so Ho is not rejected.

Testing for the population mean: standard deviation unknown

In the preceding problems, we knew population standard deviation, . In most cases, however, it
is unlikely that  would be known. Thus it must be estimated using the sample standard
X−μ
S
deviation, S. Then the test statistic Z = √ n
Example:
A department store issues its own credit card. The credit manger wants to find out if the mean
monthly unpaid balance is more than Br. 400. The level of significance is set at 0.05. A random
check of 172 unpaid balances revealed the sample mean to be 407 and the standard deviation of
the sample 38. Should the credit manager conclude that the population mean is greater than 400,
or is it reasonable to assume that the difference of 407- 400=7 is due to chance:

Solution
Ho:  =400
Hi:  > 400
Because Hl states a direction, a one tailed test is applied. The critical value of Z is 1.645 for 0.05
level
X−μ 407−400
S 380
Z = √n = √ 172 = 2.42
A value of this large (2.42) will occur less than 5% of the time. So the credit manager would
reject the null hypothesis, Ho. that the mean unpaid balance is greater than 400, in favor of H 1,
which states that the mean is greater than 400.

The P – value, in this one – tailed test is the probability that Z is greater than 2.42. Found by
0.5000-0.4922. 0.4922 is the probability that Z can assume a value of 2.420.

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Check Your Progress –2
At the time a server was hired at a restaurant was told by the manager that she can average more
than 20 birr a day in tips. Over the first 35 days she was employed at the restaurant, the mean
daily amount of her tips was 24.85 birr with a standard deviation of 3.24 br. At the 0.01
significance level, can the manager conclude that she is earning more than 20 birr per day in
tips?

3.3.2 Testing for the Difference between two Population means

Assumption for two-sample test

1. The population should be normally distributed
2. The population standard deviations for both population should be known. If they are not
known, then both samples should contain at least 30 observations so that the sample
standard deviation can be used to approximate the population standard deviation
3. The samples should be drawn from independent population.

If we select random samples from two normal populations the distribution of the differences
between the two means is also normal or if a large number of independent random samples are
selected from two population, the difference between the two means will be normally distributed.
If these differences are divided by the standard error of the difference, the result is the standard
normal distribution.
The formula for the test statistic Z is
x 1−x 2 The difference between two

√
S S sample means
12 22
+ Standard error of the difference
Z= n1 n2
between two sample means

Example: Each patient at a hospital is asked to evaluate the service at the time of discharge.
Recently there have been several complaints that resident physicians and nurses on the surgical
wing respond too slowly to the emergency calls of senior citizens. The administrator of the
hospital asked the quality assurance department to investigate. After studying the problem, the
quality assurance department collected the following sample information. At the 0.01
significance level, is the response time longer for the senior citizens, emergencies?
Patient type Smaple mean
mean Sample standard Sample Size

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 deviation
Senior Citizens 5.5 Minutes 0.40 minuets 50
Other 5.3 Minutes 0.30 minutes 100
Solution:-
The testing procedure is the same as for one sample test except the formula for the test statistic,
Z:
Step 1: Ho: there is no difference in the mean response time between the two groups of patients.
i: e The difference of 0.2 minute, in the arithmetic mean response time is due to chances.
H1: the mean response time is greater for the senior citizens
Because the quality assurance department is concerned that the response time is greater for
senior citizens, he wants to conduct a one – tailed test. Therefore the null and alternate
hypotheses are stated as follows.
Ho: 1 = 2
H1: 1 > 2
Step 2: The 0.01 significance level is selected.
x 1−x 2

√
S S
12 22
+
Step 3: the test statistics is Z, the standard normal distribution, Z = n1 n2

Step 4: The decision rule is:

Reject the null hypothesis if the computed value of Z is greater than 2.33.
The critical value for 0.01 cruel, one-tailed test is 2.33

Step 5: Calculate the test statistic and make a decision.

x 1−x 2

√
S S
12 22
+
The test statistic is Z = n1 n2

5. 5−5. 3

Z= √ (0 . 40 )2 (0. 30 )2
50
+
100 = 3.13
The computed value of 3.13 is beyond the critical value of 2:33. Therefore, the null hypothesis is
rejected and the alternate hypothesis is accepted at the 0.01 significant level.

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The quality assurance department will report to the administrator that the mean response time of
the nurses and resident physicians is longer for senior citizens than for other patients.

What is the P-value in this problem?

P- Value is the probability of computing a Z value this large or larger when Ho is true.
What is the likelihood of a Z value greater than 3.13
P(Z=3.13)= 0.4991
So, P(Z)>31.13 ) =0.5000-0.44991=0.0009
Ho is very likely false and there is little likelihood of a type I error.

Check Your Progress –3

A real Estate Association is preparing a pamphlet that they feel might be of interest to
prospective home buyers in the eastern and western areas of the city. One item of interest is the
length of time the seller occupied the home. A sample of 40 home sold recently in the eastern
areas revealed that the mean length of ownership was 7.6 years with standard deviation of 2.3
years.

A sample of 55 homes in the western areas revealed that the mean length of ownership was 8.1
years with a standard deviation of 2.9 years. At the 0.05 significance level can we conclude that
the Eastern residents owned the homes for a shorter period of time?

3.3.3 Testing for Population Proportion

In testing hypothesis for the population proportion the assumptions of the binomial distribution
should be met. To test for the proportion np and n(1-p) both should be greater than 5.

Example: suppose prior elections in a region indicated that it is necessary for

for a candidate for
governor to receive at least 80% of the majority vote. The incumbent governor is interested in
assessing his chance of returning to office and plans to have a survey conducted consisting of
2000 registered voters.

Using the five – step hypothesis testing procedure, asses the governor’s chances of reflection
np = 2000(0.8) = 1600 which is greater than 5
nq = n(1-p) = 2000(1-0.8) = 400 which is greater than 5

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 both 1600 and 400 are greater than 5

Step 1: The null hypothesis Ho is that the population proportions is 0.80

The alternate hypothesis, H1 is that the proportion is less than 0.80.
The incumbent governor is concerned only when the sample proportion is less than 0.8. If it is
equal to or greater than 0.8 he will have no problem; that is the sample data would indicate he
will be probably be reelected.

Ho: P = 0.80
H1: P<0.80
Step 2: The level of significance is 0.05
Step 3: Z is the appropriate statistic
P−P
Z=
σ p where P – is the population proportion and

P is the sample proportion, p is the standard error of the proportion

σP = √ p(1− p)
n so the formula for Z becomes :
p− p

Z= √
P(1−P)
n
Step 4:
The area between 0 and the critical value is, 1.645 obtained for the Z table 0.45000 = 0.5000 –
0.05 Z value for probability 0.450 is 1.645.

The decision rule is therefore reject the null hypothesis and accept the alternate hypothesis if the
computed value of Z falls to the left of -1.645 otherwise do not reject Ho.

Step 5. Take Sample and make a decision with respect to Ho.

The sample survey of 2000 potential voters revealed that 1550 planned to vote for the incumbent
governor. Is the proportion of 0.775 (found by 1550/2000) close enough to 0.80 to conclude that
the difference if due to chance?
n =2000

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 1550
P=
2000 = 0.775
p = 0.80, the hypothesized population proportion
P−P 0 . 775−0 . 80
=

Z= 2000 √
√ P(1−P )/n 0 . 8(1−0 . 801
= -2.80
The computed value of Z (-2.80) is in the rejection region. So the null hypothesis is rejected at
the 0.05 level of significance. The difference of 2.5 percentage points between the sample (77.5)
and the hypothesized population percentage (80.0) is statistically significance. It is probably not
due to sampling variation.

To put it another way the evidence at this point does not support the claim that the incumbent
governor will return to the office.

The p- Value is 0.0026 found by 0.5000-0.4974. 0.4974 is the probability of Z to assume

–2.80 value. It is less than the significance level of 0.05. So Ho should be rejected. This further
indicates that the likelihood that Ho is ture is small.

Check Your Progress –4

This Claim is to be investigated at the 0.02 level “Forty percent of those persons who retired
from an industrial job before the age of 60 would return to work if a suitable job were available”
74 persons out of the 200 sampled said they would return to work.
Can we conclude that the fraction returning to work is different from 0.40?
1) Can the Z test be used? Why or why not?
2) State the null hypothesis and the alternate hypothesis
3) Compute Z, and arrive at a decision
3.3.4 Testing for the Difference between two Population Proportions

Example: - a company has developed a new perfume

One of the questions is whether the perfume is preferred by a larger proportion of younger
women or a larger proportions of older women. A standard smell test is used.
Women selected at random are asked to sniff several perfumes in succession, including the new.
Each woman selects the perfume she likes best.

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Step 1
Ho “ There is no difference between the proportion of younger women who prefer the perfume
and the proportion of older women who prefer it” If the proportion of younger women in the
population is designated as P1 and the proportion of older women is P2 then;
Ho: P1= P2
The alternate hypothesis is that the two proportions are not equal or:
Hi: P1  P2

Step 2: It was decided to use the 0.05 level.

Step 3: The test statistic is Z and the formula is: -

P−P2 where: n1 , is the number of young women selected in

√
the sample n2 is the number of older women selected
P c(1−P c) P c(1−P c )
+
Z= n1 n2 in the sample, Pc = is the weighted mean of the two
sample proportion computed by
Total number of successe x 1+ x 2
Pc = Total number of samples = n1 + n2
where x1 is the number of younger women
(sample 1) who prefer the perfume, x2 is the number
of older women (sample 2) who prefer the perfume.

Pc is generally referred to as the pooled estimate of the population proportion or it is a

combined estimate, combined proportion.

Step 4: Formulate Decision Rule:
The critical values for the 0.05 level two-tailed tests are -1.96 and +1.96. If the computed Z value
is in the region between +1.96 and -1.96, the null hypothesis will not be rejected. If it does occur
it is assumed that any difference between the two proportions is due to chance variation.
Two – tailed test, Areas of rejection and Non-rejection 0.05 level of significance.

Step 5: The decision

A total of 100 young women selected at random, and each was given the standard smell test.
Forty of the 100 young women chose the perfume, as they liked best

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x1 = 40
n1= 100 and

200 older women were selected at random and each was given the same standard smell test of
the 200 women 100 preferred the perfume.
x2 = 100 x 1 40
P1 = = =0 . 40
n2=200 n1 100
x 2 100
The pooled or weighted proportion Pc is P2 = = =0 . 50
n2 200
x 1+ x 2
40+100
Pc = n1 + n2 = 100+200 = 140 / 300 = 0.4667

P1 −P2 40−0. 50
= =−1 . 64

Z= √ Pc (1−P c ) P c (1−Pc )
n1
+
n2 √ 0 . 4667 (0 .5333 ) 0 . 4667+0 . 5333
100
+
200

The computed value of Z (-1.64) falls in the non-rejection region. Therefore we concluded that
there is no difference in the proportion of younger and older women who prefer the perfume. In
this case we expect the P- value to be greater than the significance level of 0.05, and it is.

for Z = -1.64 probability is 0.4495

P value = 0.5000 – 0.4495 = 0.0505 for one tail only
However the test was two tailed, so we must account for the area beyond 1.64 as well as the area
less than -1.64. Then
The P – value is 2(0.0505) = 0.1010

Check Your Progress –5

Of 150 girls who tried a new candy 87 rated it excellent of 200 boys sampled 123 rated it
excellent using the 0.10 level of significance, can we conclude that there is a difference in the
proportion of girls versus boys who rate the candy excellent?
1. State the null and alternate hypotheses
2. What is the decision rule
3. Compute the value of the test statistics
4. State your decision granting Ho

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 5. Compute the P – value

3.4 Student’s t test/ Small sample/

When the population is normal and the standard deviation is known the Z distribution is
employed as a test statistic for a test. If the population standard deviation is not know the sample
standard deviation is substituted for . If the sample size is at least 30, the results are deemed
satisfactory.

If the sample size is less than 30 observations and  is unknown the Z distribution is not
appropriate. The student’s t or the t distribution is used as the test statistic.

Test for the Population Mean

Example:
Example: Experience in investigating accident claims by an insurance company revealed that it
cost 60 on the average to handle the paper work, pay the investigator, and make a decision. The
cost compared with that of other insurance firms was deemed exorbitant, and cost cutting
measures were instituted. In order to evaluate the impact of these new measures, a sample of 26
recent claims was selected at random and cost studies were made. It was found that the sample

mean, x , and the sample standard deviations, s, were 57 and 10 respectively.

At the 0.01 level is there a reduction in the average cost, or can the difference of 3 = (60-57) be
attributed to chance?

The usual five-step hypothesis testing procedure is used

Step 1: - the null hypothesis, Ho: the population mean is 60
The alternate hypothesis, H1 the population mean is less than 60. i.e.
Ho:  = 60
H1:-  < 60
Step 2: The 0.01 level is to be used
Step: 3 the test statistic is student’s t distribution. Because the population standard deviation is
unknown and the sample size is small (26 under 30)
X−μ
t = S/√n
Step 4: The critical value of t are given in table 4

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There are n -1 degrees of freedom for the test df (26-1= 25)
The critical value for df = 25, a one tailed test and 0.01 level is 2.485
The decision rule for this one tailed test is reject Ho if the computed value of t falls in any part of
the tails to the left of –2.485 otherwise do not reject Ho.
Ho: N= 60
Ho;  = 60
H1:  < 60
df = 26 – 1 = 25

Step 5: Compute t, and arrive at a decision

X−μ
t = S/√n
X = 57
 = 67
57−60
S = 10
t = 10/ √ 26 = -1.530
n = 26

Because -1.530 lies in the region to the right of the critical value –2.485 Ho is not rejected at the
0.01 level.

This indicates that the cost cutting measures have not reduced the mean cost per claim to less
than 60 based on sample results.

Check Your Progress –6

From past records it is known that the arithmetic mean life of a battery used in a digital clock is
305 days. The life of the batteries is normally distributed. The battery was recently modified to
last longer. Samples of 20 modified batteries were tested. It was discovered that the man life was
311 days and the sample standard deviation was 12 days. At the 0.05 level of significance, did
the modification increases the mean life of the battery?
1. State the null and alternate hypotheses
2. State the decision

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 3. Compute t and make a decision

3.5 GLOSSARY

Hypothesis:
Hypothesis: - A statement about the value of population parameter.

Hypothesis testing:
testing: - A procedure based on sample evidence and probability theory used
to determine whether the hypothesis stated is a reasonable
statement and cannot be rejected or is unreasonable and should be
rejected.

Null hypothesis:
hypothesis: - Is a pre assumed statement about the population, which may be
accepted or rejected on the basis of a sampled data.

Alternative hypothesis:
hypothesis: - Is a hypothesis which we are inclined to accept in the event the
null hypothesis is rejected on the basis of a prescribed test.

Level of significance:
significance: - The probability of rejecting the null hypothesis when it is
actually true or the probability of committing type I error.

Type I error:
error: - Rejecting the null hypothesis, HO, when it is actually true.

Type II error:
error: - Accepting the null hypothesis when it is actually false.

Test statistic:
statistic: - A value, determined from sample information, used to determine whether
or not to reject the null hypothesis

Critical value:
value: - The dividing point between the region where the null hypothesis is
rejected and the region where it is not rejected.
One-tailed-test:
One-tailed-test: - Is used when the rejection region is only in one tail or when the
alternative hypothesis states a direction.
Ex. H1:  > 40 or H1 :  < 40
Two-tailed-test:
Two-tailed-test: - Used when the rejection region is in each tail (both tails) or used when
the alternative hypothesis does not state a direction.
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 Ex. H1 :   40
ANSWERS TO CHECK YOUR PROGRESS
1. Reject Ho Z = 1.767 > 1.645
2. Reject Ho; Z = 8.86 > 2.33
3. Do not reject Ho; Z = 0.936 > 1.645
4. 1) Yes, because Np and n(1 – p) or nq exceeds
2) Ho: p = 0.40
p  0.40
3) Do not reject Ho Z = -0.866 > -2.58
5. 1) Ho: P1 = P2 H: P1  P2
2) Reject Ho if Z < -1.645 or > 1.645
87+123
P c=
3) 150+20 = 0.6
0 . 55−0. 615

Z= √ 0.6( 0 . 4) 0.6( 0 . 4)
150
+ 200

4) Do not reject Ho
5) P-value = 2(0.5000 – 0.2454) = 0.5092
6. 1) Ho:  = 305 H1:  > 305
2) Reject Ho if t > 1.729
3) t = 2.236
reject Ho, the mean is greater than 305 age

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