Introduction to Sampling: Concepts of Population, Sample, Sampling Frame, Sampling

Error, Sample Size, Characteristics of a good sample, Types of Sampling - Probability

and Non-Probability, Determining Size of the Sample, Sample v/s Census, Introduction
to Hypothesis: Meaning, Concepts & Types. Type I and Type II Errors, Level of
Significance, Testing of Hypotheses: Concepts, Steps in Testing of Hypothesis, P – Value
Approach
Introduction to Sampling and Concepts of Population
In statistics, sampling is the process of selecting a subset of individuals or elements from a
larger population for the purpose of collecting data. The subset that is selected is known as the
sample, and the larger group of individuals or elements that the sample is drawn from is known
as the population.
Population
A population is a group of individuals or elements that share a common characteristic or set of
characteristics. The population can be finite or infinite. For example, a population can be all
the people living in a country, all the students enrolled in a university, all the customers who
have purchased a particular product, or all the trees in a forest.
To make inferences about a population, it is often impractical or impossible to collect data from
every individual or element in the population. Instead, a subset of the population is selected
through the process of sampling.
A population element is the individual participant or object on which the measurement is taken.
It is the unit of study. Although an element may be a person, it can just as easily be something
else. For example, each staff member questioned about an optimal promotional strategy is a
population element, each advertising account analyzed is an element of an account population,
and each ad is an element of a population of advertisements. A population is the total collection
of elements about which we wish to make some inferences
Sample
A sample is a subset of the population that is selected for the purpose of collecting data. The
sample should be representative of the population to ensure that any findings from the sample
can be generalized to the population. In other words, the sample should have the same
characteristics as the population from which it was drawn. For example, if a researcher is
interested in understanding the attitudes of all adults in a particular country about a new
government policy, it might be too time-consuming and expensive to survey every adult in the
country. Instead, the researcher might select a sample of, say, 1000 adults, that is representative
of the entire population in terms of age, gender, income level, and other important
characteristics.
Sampling Frame
A sampling frame is a list of individuals or elements from which the sample will be drawn. The
sampling frame should include all individuals or elements that make up the population of
interest. It is important to ensure that the sampling frame is comprehensive and accurate, so
that the sample is representative of the population. For example, if a researcher is interested in
understanding the voting patterns of all registered voters in a particular district, the sampling
frame might be a list of all registered voters in that district.

Sampling Methods
There are different methods for selecting a sample from a population, depending on the
research question, the population size, the available resources, and other factors. Some
common sampling methods include simple random sampling, stratified sampling, cluster
sampling, and systematic sampling. Each method has its own strengths and weaknesses, and
the choice of sampling method should be made carefully to ensure that the sample is
representative of the population and that any findings from the sample can be generalized to
the population.
In summary, sampling is the process of selecting a subset of individuals or elements from a
larger population for the purpose of collecting data. The population is the larger group of
individuals or elements that the sample is drawn from. The sample should be representative of
the population, and the sampling frame should include all individuals or elements that make up
the population of interest. There are different methods for selecting a sample from a population,
and the choice of sampling method should be made carefully to ensure that the sample is
representative of the population and that any findings from the sample can be generalized to
the population.
Sampling Error
Sampling error refers to the difference between the characteristics of the sample and the
characteristics of the population. Sampling error occurs because samples are only a subset of
the population, so there is always some degree of uncertainty in the findings from the sample.
For example, if a sample of 500 adults is surveyed to estimate the percentage of adults in a city
who support a new public policy, the sample proportion may be slightly different from the true
population proportion due to sampling error. The degree of sampling error depends on several
factors, including the sample size, the sampling method, and the variability of the population.
Sample Size
Sample size refers to the number of individuals or elements in the sample. The sample size
should be large enough to accurately represent the population while also being feasible in terms
of time and resources. A larger sample size generally reduces sampling error and increases the
precision of estimates from the sample. For example, if a researcher wants to estimate the
proportion of all customers who are satisfied with a product, they might need a larger sample
size to get a more precise estimate than if they were estimating the proportion of all customers
who have returned a product. However, a larger sample size also means higher costs and longer
processing times. Therefore, sample size should be chosen based on the research question, the
population size, and the available resources.
In probability sampling, how large a sample should be is a function of the variation in the
population parameters under study and the estimating precision needed by the researcher. Some
principles that influence sample size include:
• The greater the dispersion or variance within the population, the larger the sample must be to
provide estimation precision.
• The greater the desired precision of the estimate, the larger the sample must be.
• The narrower or smaller the error range, the larger the sample must be.
• The higher the confidence level in the estimate, the larger the sample must be.
• The greater the number of subgroups of interest within a sample, the greater the sample size
must be, as each subgroup must meet minimum sample size requirements.
Characteristics of a good sample
In business research, selecting a good sample is crucial to obtain reliable and valid results that
can inform decision-making. A good sample should possess certain characteristics that ensure
both precision and accuracy of the research findings. Two of the most important characteristics
of a good sample are precision and accuracy.
1. Precision refers to the degree to which the sample accurately reflects the population
from which it was drawn. A precise sample will produce research findings that are
representative of the population and can be confidently generalized to the larger
population. In other words, a precise sample minimizes sampling error, which is the
difference between the characteristics of the sample and the characteristics of the
population. For example, let us say a business wants to conduct market research on
consumer attitudes towards a new product. The population of interest is all consumers
in a particular region. A precise sample would include consumers from all
demographic groups, income levels, and geographic locations within that region to
ensure that the research findings accurately represent the attitudes of the entire
population.
2. Accuracy, on the other hand, refers to the degree to which the sample is free from
bias. A sample is unbiased if all members of the population have an equal chance of
being selected. An accurate sample is important because it ensures that the research
findings are not skewed in favor of one group or another, which could lead to
incorrect conclusions and poor decision-making. For example, let us say a business
wants to conduct research on employee satisfaction with their work environment. An
accurate sample would ensure that all employees in the company have an equal
chance of being selected, regardless of their job title, department, or tenure with the
company. This would help ensure that the research findings accurately reflect the
views of all employees, not just those in a particular department or at a certain level
of seniority. A good sample is one that accurately reflects the population of interest
and provides unbiased information. This is essential for making accurate conclusions
and informed decisions in business research. In addition to precision and accuracy,
there are several other characteristics that contribute to a good sample.
3. Representativeness: A good sample is representative of the population from which
it was drawn. This means that the sample should include individuals or elements from
all demographic groups, regions, and other relevant characteristics that are present in
the population. For example, if a business is conducting market research on a new
product, the sample should include individuals from all income levels, education
levels, and geographic locations within the target market.
 4. Randomness: A good sample is selected using a random process. This means that all
individuals or elements in the population have an equal chance of being selected for
the sample. Random sampling ensures that the sample is free from bias and produces
unbiased results. For example, if a business is conducting employee satisfaction
research, a random sample of employees should be selected to ensure that all
employees have an equal chance of being included in the sample.
5. Size: The size of the sample is an important characteristic that affects the precision
of the results. A larger sample size generally produces more precise results because
it reduces the sampling error. However, a larger sample size can also be more
expensive and time-consuming to collect. The appropriate sample size depends on
the research question, the population size, and the available resources.
6. Sampling method: There are several different methods for selecting a sample, each
with its own strengths and weaknesses. The choice of sampling method depends on
the research question, the population size, and the available resources. Some common
sampling methods include simple random sampling, stratified sampling, cluster
sampling, and systematic sampling.
7. Data quality: A good sample produces high-quality data that is accurate, reliable,
and valid. This means that the data should be collected using valid and reliable
measures, and that the data collection process should be standardized to ensure
consistency across all individuals or elements in the sample.
Sampling Design within the Research Process
Types of Sampling Designs
Representation

Types of Sampling - Probability and Non-Probability

In business research, there are two main types of sampling: probability sampling and non-
probability sampling. Each type of sampling has its own strengths and weaknesses and is
appropriate for different research questions and contexts.
Probability Sampling:
Simple Random Sampling: This is the most basic form of probability sampling, in which each
individual or element in the population has an equal chance of being selected for the sample.
Simple random sampling is often used when the population is relatively small and
homogeneous. For example, a business may use simple random sampling to select a sample of
customers to survey about their satisfaction with a product.
Systematic Sampling: This type of probability sampling involves selecting every nth individual
or element from a list or population. Systematic sampling is often used when the population is
large and homogeneous. For example, a business may use systematic sampling to select a
sample of employees to survey about their job satisfaction.
Stratified Sampling: In stratified sampling, the population is divided into subgroups or strata
based on relevant characteristics, and a sample is selected from each subgroup. Stratified
sampling is often used when the population is diverse and there are important subgroups that
need to be represented in the sample. For example, a business may use stratified sampling to
select a sample of customers to survey based on demographic variables such as age, gender,
and income.
Cluster Sampling: Cluster sampling involves dividing the population into clusters or groups
and selecting a sample of clusters to survey. Cluster sampling is often used when the population
is large and geographically dispersed. For example, a business may use cluster sampling to
select a sample of retail stores to survey about their sales and marketing strategies.
Double Sampling: Double sampling involves selecting a small sample from the population and
then selecting a second sample from the first sample. Double sampling is often used when the
population is very large, and it is not feasible to survey the entire population. For example, a
business may use double sampling to select a sample of customers for an initial survey, and
then select a second sample of customers for a more detailed follow-up survey.
Non-Probability Sampling:
Convenience Sampling: Convenience sampling involves selecting individuals or elements
from the population who are readily available or easy to access. Convenience sampling is often
used when time and resources are limited. For example, a business may use convenience
sampling to survey customers who happen to be in a particular store at a particular time.
Purposive Sampling: Purposive sampling involves selecting individuals or elements from the
population based on specific criteria or purposes. Purposive sampling is often used when the
research question requires a specific type of participant. For example, a business may use
purposive sampling to select a sample of experts in a particular field to provide feedback on a
new product.
Snowball Sampling: Snowball sampling involves selecting individuals or elements from the
population based on referrals from existing participants. Snowball sampling is often used when
the population is hard to access and there is no sampling frame. For example, a business may
use snowball sampling to identify potential customers for a new product by asking existing
customers to refer their friends and family.
Determining Size of the Sample
In In sampling analysis the most ticklish question is: What should be the size of the sample or
how large or small should be ‘n’? If the sample size (‘n’) is too small, it may not serve to
achieve the objectives and if it is too large, we may incur huge cost and waste resources.
Technically, the sample size should be large enough to give a confidence interval of desired
width and as such the size of the sample must be chosen by some logical process before sample
is taken from the universe.
Size of the sample should be determined by a researcher keeping in view the following points:
1. Nature of universe: Universe may be either homogenous or heterogenous in nature. If
the items of the universe are homogenous, a small sample can serve the purpose. But if
the items are heterogenous, a large sample would be required. Technically, this can be
termed as the dispersion factor.
2. Number of classes proposed: If many class-groups (groups and sub-groups) are to be
formed, a large sample would be required because a small sample might not be able to
give a reasonable number of items in each class-group.
3. Nature of study: If items are to be intensively and continuously studied, the sample
should be small. For a general survey the size of the sample should be large, but a small
sample is considered appropriate in technical surveys.
4. Type of sampling: Sampling technique plays an important part in determining the size
of the sample. A small random sample is apt to be much superior to a larger but badly
selected sample.
 5. Standard of accuracy and acceptable confidence level: If the standard of accuracy or
the level of precision is to be kept high, we shall require relatively larger sample. For
doubling the accuracy for a fixed significance level, the sample size has to be increased
fourfold.
6. Availability of finance: In practice, size of the sample depends upon the amount of
money available for the study purposes. This factor should be kept in view while
determining the size of sample for large samples result in increasing the cost of
sampling estimates.
7. Other considerations: Nature of units, size of the population, size of questionnaire,
availability of trained investigators, the conditions under which the sample is being
conducted, the time available for completion of the study are a few other considerations
to which a researcher must pay attention while selecting the size of the sample.

Five steps to finding your sample size.

1. Define population size or number of people: The first step you will need to take is to
find out exactly the number of people that comprises your population.
2. Designate the margin of error: The margin of error in statistics is the degree of error in
results received from random sampling surveys. A higher margin of error in statistics
indicates less likelihood of relying on the results of a survey or poll. i.e. the confidence
on the results will be lower to represent a population. It is a very vital tool in market
research as it depicts the confidence level the researchers should have in the data
obtained from surveys. The margin of error is basically measuring this: “How far does
the survey result deviate from the actual population?" A good margin of error for market
research is around 1-10%. The higher the percentage, the more the sample’s response
does not resemble the population.
3. Determine the confidence level: A confidence interval displays the probability that a
parameter will fall between a pair of values around the mean. Confidence intervals
measure the degree of uncertainty or certainty in a sampling method. The confidence
level reveals how certain one can be that the true proportion of the total population
would pick an answer within a particular range. The most common confidence levels
are 90%, 95%, and 99%. They are also used in hypothesis testing and regression
analysis.
Your confidence level corresponds to a Z-score. This is a constant value needed for this
equation. Here are the z-scores for the most common confidence levels:
90% – Z Score = 1.645
95% – Z Score = 1.96
99% – Z Score = 2.576
4. Predict expected variance: Standard deviation is the measure of the dispersion of a data
set from its mean. It measures the absolute variability of a distribution. The higher the
 dispersion or variability, the greater the standard deviation and the greater the
magnitude of the deviation.
5. Finalize the sample size

Sample v/s Census

In research, a census is a complete enumeration of all individuals or elements in a population,
while a sample is a smaller group of individuals or elements selected from the population for
study. Both censuses and samples are used to gather information about a population, but they
differ in several important ways.
A census aims to include all individuals or elements in a population, while a sample includes
only a subset of the population. For example, a census might involve counting the number of
households in a city, while a sample might involve selecting a group of households from a
particular neighbourhood for a survey.
One advantage of a census is that it provides a complete picture of the population, which can
be useful for understanding patterns and trends across different subgroups. However,
conducting a census can be time-consuming and expensive, especially for large populations.
A sample, on the other hand, can be more efficient and cost-effective than a census, as it allows
researchers to gather data on a smaller group of individuals or elements that are representative
of the larger population. The process of selecting a sample involves using a sampling method,
such as probability or non-probability sampling, to ensure that the sample is representative of
the population.
For example, if a business wants to understand the opinions of its customers about a new
product, it could conduct a census of all its customers, but this would be time-consuming and
expensive. Alternatively, the business could select a sample of customers using a probability
sampling method, such as simple random sampling or stratified sampling, to ensure that the
sample is representative of the population. This would be a more efficient and cost-effective
approach to gather the necessary information.
In summary, a census involves collecting data on all individuals or elements in a population,
while a sample involves collecting data on a smaller subset of the population. The choice
between a census and a sample depends on the research question, the size of the population,
and the available resources. While a census provides a complete picture of the population, a
sample can be more efficient and cost-effective, if it is selected using an appropriate sampling
method to ensure representativeness.

Introduction to Hypothesis
A hypothesis may be defined as a proposition, or a set of propositions set forth as an explanation
for the occurrence of some specified group of phenomena either asserted merely as a
provisional conjecture to guide some investigation or accepted as highly probable in the light
of established facts. Quite often a research hypothesis is a predictive statement, capable of
being tested by scientific methods, that relates an independent variable to some dependent
variable.
For example, consider statements like the following ones:
“Students who receive counselling will show a greater increase in creativity than students not
receiving counselling” Or “the automobile A is performing as well as automobile B.”
These are hypotheses capable of being objectively verified and tested. Thus, we may conclude
that a hypothesis states what we are looking for and it is a proposition which can be put to a
test to determine its validity.

Characteristics of hypothesis: Hypothesis must possess the following characteristics:

(i) Hypothesis should be clear and precise. If the hypothesis is not clear and precise, the
inferences drawn on its basis cannot be taken as reliable.
(ii) Hypothesis should be capable of being tested. In a swamp of untestable hypotheses, many
a time the research programmes have bogged down. Some prior study may be done by
researcher in order to make hypothesis a testable one. A hypothesis “is testable if other
deductions can be made from it which, in turn, can be confirmed or disproved by observation.”1
(iii) Hypothesis should state relationship between variables if it happens to be relational
hypothesis.
(iv) Hypothesis should be limited in scope and must be specific. A researcher must remember
that narrower hypotheses are generally more testable and he should develop such hypotheses.
(v) Hypothesis should be stated as far as possible in most simple terms so that the same is
easily understandable by all concerned. But one must remember that simplicity of hypothesis
has nothing to do with its significance.
(vi) Hypothesis should be consistent with most known facts i.e., it must be consistent with a
substantial body of established facts. In other words, it should be one which judges accept
as being the most likely.
(vii) Hypothesis should be amenable to testing within a reasonable time. One should not use
even an excellent hypothesis, if the same cannot be tested in reasonable time for one
cannot spend a lifetime collecting data to test it.
(viii) Hypothesis must explain the facts that gave rise to the need for explanation. This means
that by using the hypothesis plus other known and accepted generalizations, one should be
able to deduce the original problem condition. Thus, hypothesis must explain what
it claims to explain; it should have empirical reference.
Alternative Hypothesis and Null Hypothesis
In hypothesis testing, the hypothesis that is being tested is known as the alternative hypothesis
(Ha). Often, it is expressed as a correlation or statistical relationship between variables.
The null hypothesis, (H0) is a statement that is meant to show there is no statistical relationship
between variables being tested.

Difference between null and alternative hypothesis

Type I and Type II error

A type I error appears when the null hypothesis (H0) of an experiment is true, but still, it is
rejected. A Type I error means rejecting the null hypothesis when it is true. It means concluding
that results are statistically significant when they came about purely by chance or because of
unrelated factors. A type I error is often called a false positive (an event that shows that a given
condition is present when it is absent). The probability of making a Type I error is the
significance level, or alpha (α). A type II error appears when the null hypothesis is false but
mistakenly fails to be refused. A Type II error means not rejecting the null hypothesis when it
is actually false. A type II error is also known as false negative. The probability of making a
Type II error is beta (β)
Example: Type I vs Type II error
You decide to get tested for COVID-19 based on mild symptoms. There are two errors that
could potentially occur:
Type I error (false positive): the test result says you have coronavirus, but you do not.
Type II error (false negative): the test result says you do not have coronavirus, but you actually
do.

Type I error rate

The null hypothesis distribution curve below shows the probabilities of obtaining all possible
results if the study were repeated with new samples and the null hypothesis were true in
the population.
At the tail end, the shaded area represents alpha. It’s also called a critical region.
The alternative hypothesis distribution curve below shows the probabilities of obtaining all
possible results if the study were repeated with new samples and the alternative hypothesis
were true in the population.
The Type II error rate is beta (β), represented by the shaded area on the left side. The remaining
area under the curve represents statistical power, which is 1 – β.
Increasing the statistical power of your test directly decreases the risk of making a Type II
error.

Testing of Hypotheses: Concepts

Basic concepts in the context of testing of hypotheses are:

(a) Null hypothesis and alternative hypothesis:
In hypothesis testing, the hypothesis that is being tested is known as the alternative
hypothesis. Often, it is expressed as a correlation or statistical relationship between
variables. The null hypothesis, on the other hand, is a statement that is meant to show there
is no statistical relationship between variables being tested.
In the choice of null hypothesis, the following considerations are usually kept in view:
(a) Alternative hypothesis is usually the one which one wishes to prove, and the null hypothesis
is the one which one wishes to disprove. Thus, a null hypothesis represents the hypothesis we
are trying to reject, and alternative hypothesis represents all other possibilities.
(b) If the rejection of a certain hypothesis when it is true involves great risk, it is taken as null
hypothesis because then the probability of rejecting it when it is true is a (the level of
significance) which is chosen very small.
(c) Null hypothesis should always be specific hypothesis i.e.; it should not state about or
approximately a certain value.
(d) Power of the Hypothesis Test: The power of a hypothesis test is the probability of making
the correct decision if the alternative hypothesis is true. That is, the power of a hypothesis test
is the probability of rejecting the null hypothesis when the alternative hypothesis is the
hypothesis that is true.
(e) The level of significance: This is a very important concept in the context of hypothesis
testing. It is always some percentage (usually 5%) which should be chosen with great care,
thought and reason. In case we take the significance level at 5 per cent, then this implies that
H0 will be rejected when the sampling result (i.e., observed evidence) has a less than 0.05
probability of occurring if H0 is true. In other words, the 5 per cent level of significance means
that researcher is willing to take as much as a 5 per cent risk of rejecting the null hypothesis
when it (H0) happens to be true. Thus, the significance level is the maximum value of the
probability of rejecting H0 when it is true and is usually determined in advance before testing
the hypothesis.
(f) Decision rule or test of hypothesis: Given a hypothesis H0 and an alternative hypothesis
Ha, we make a rule which is known as decision rule according to which we accept H0 (i.e.,
reject Ha) or reject H0 (i.e., accept Ha).
For instance, if (H0 is that a certain lot is good (there are very few defective items in it) against
Ha) that the lot is not good (there are too many defective items in it), then we must decide the
number of items to be tested and the criterion for accepting or rejecting the hypothesis.
We might test 10 items in the lot and plan our decision saying that if there are none or only 1
defective item among the 10, we will accept H0 otherwise we will reject H0 (or accept Ha).
This sort of basis is known as decision rule.
(g) Type I and Type II errors: In the context of testing of hypotheses, there are basically two
types of errors we can make. We may reject H0 when H0 is true and we may accept H0 when
in fact H0 is not true. The former is known as Type I error and the latter as Type II error. In
other words, Type I error means rejection of hypothesis which should have been accepted and
Type II error means accepting the hypothesis which should have been rejected. Type I error is
denoted by a (alpha) known as a error, also called the level of significance of test; and Type II
error is denoted by b (beta) known as b error.
(h) Two-tailed and One-tailed tests: A one-tailed test results from an alternative hypothesis
which specifies a direction. i.e., when the alternative hypothesis states that the parameter is in
fact either bigger or smaller than the value specified in the null hypothesis. A two-tailed test
results from an alternative hypothesis which does not specify a direction. i.e. when the
alternative hypothesis states that the null hypothesis is wrong.
One-tailed Tests
A one-tailed test may be either left-tailed or right-tailed.
A left-tailed test is used when the alternative hypothesis states that the true value of the
parameter specified in the null hypothesis is less than the null hypothesis claims.
A right-tailed test is used when the alternative hypothesis states that the true value of the
parameter specified in the null hypothesis is greater than the null hypothesis claims
Two-tailed Tests
The main difference between one-tailed and two-tailed tests is that one-tailed tests will only
have one critical region whereas two-tailed tests will have two critical regions.
Thus, in a two-tailed test, there are two rejection regions, one on each tail of the curve which
can be illustrated as under

Example of two-tailed test

A light bulb manufacturer claims that its' energy saving light bulbs last an average of 60 days.
Set up a hypothesis test to check this claim and comment on what sort of test we need to use.
H0: The mean lifetime of an energy-saving light bulb is 6060 days.
H1: The mean lifetime of an energy-saving light bulb is not 60 days.
Because of the “is not” in the alternative hypothesis, we have to consider both the
possibility that the lifetime of the energy-saving light bulb is greater than 60 and less
than 60. This means we must use a two-tailed test.
Example of one-tailed test
The manufacturer now decides that it is only interested whether the mean lifetime of an energy-
saving light bulb is less than 60 days
H0: The mean lifetime of an energy-saving light bulb is 6060 days.
H1: The mean lifetime of an energy-saving light bulb is less than 60 days.

Now we have a “less than” in the alternative hypothesis. This means that instead of performing
a two-tailed test, we will perform a left-sided one-tailed test.

i) Level of Significance: The level of significance is denoted by the Greek symbol α (alpha).
Therefore, the level of significance is defined as follows:
Significance Level = p (type I error) = α. It is the probability of rejecting the null hypothesis
when it is true. For example, a significance level of 0.05 indicates a 5% risk of concluding that
a difference exists when there is no actual difference. Lower significance levels indicate that
you require stronger evidence before you will reject the null hypothesis.

Steps in Testing of Hypothesis

Procedure for hypothesis testing

To test a hypothesis means to tell (based on the data the researcher has collected) whether the
hypothesis seems to be valid. In hypothesis testing the main question is: whether to accept the
null hypothesis or not to accept the null hypothesis? Procedure for hypothesis testing refers to
all those steps that we undertake for making a choice between the two actions i.e., rejection
and acceptance of a null hypothesis. The various steps involved in hypothesis testing are stated
below:

Statistical Testing Procedures

Testing for statistical significance follows a relatively well-defi ned pattern, although authors
differ in the number and sequence of steps. One six-stage sequence is as follows:
1. State the null hypothesis. Although the researcher is usually interested in testing a hypothesis
of change or differences, the null hypothesis is always used for statistical testing purposes.
2. Choose the statistical test. To test a hypothesis, one must choose an appropriate statistical
test. There are many tests from which to choose, and there are at least four criteria that can be
used in choosing a test. One is the power efficiency of the test. A more powerful test provides
the same level of significance with a smaller sample than a less powerful test. In addition, in
choosing a test, one can consider how the sample is drawn, the nature of the population, and
(importantly) the type of measurement scale used. For instance, some tests are useful only when
the sequence of scores is known or when observations are paired; other tests are appropriate
only if the population has certain characteristics; still other tests are useful only if the
measurement scale is interval or ratio.
3. Select the desired level of significance. The choice of the level of significance should be
made before we collect the data. The most common level is .05, although .01 is also widely
used. Other levels such as .10, .025, or .001 are sometimes chosen. The exact level to choose
is largely determined by how much risk one is willing to accept and the effect that this choice
has on b risk. The larger the a, the lower is the b.
4. Compute the calculated difference value. After the data are collected, use the formula for the
appropriate significance test to obtain the calculated value. Although the computation typically
results from a software program, we illustrate the procedures in this chapter to help you
visualize what is being done.
5. Obtain the critical test value. After we compute the calculated t , we must look up the critical
value in the appropriate table for that distribution. The critical value is the criterion that defines
the region of rejection from the region of acceptance of the null hypothesis.
6. Interpret the test. For most tests if the calculated value is larger than the critical value, we
reject the null hypothesis and conclude that the alternative hypothesis is supported. If the
critical value is larger, we conclude we have failed to reject the null.
Flow diagram for hypothesis testing

P – Value Approach
What is P-Value?
The P-value refers to a continuous measure of the evidence against a model to determine the
tendency of occurrence of an event or not. It is also a method of examining the level of marginal
significance within a statistical hypothesis representing the tendency of the occurrence of a
given event. The p-value is an alternative to rejection points, it provides a level of significance
in which the null hypothesis should be rejected or ignored. A smaller p-value is an indicator of
strong evidence supporting the alternative hypothesis.
P-value is a statistical measure, that helps to determine whether the hypothesis is correct or not.
P-value is a number that lies between 0 and 1. The level of significance(α) is a predefined
threshold that should be set by the researcher. It is generally fixed as 0.05.
Real World Example of P-Value
For example, an investor affirms that their investment performance equals that of the Standard
& Poor's (S & P) 500 Index. To determine this, a two-tailed test is conducted. The null
hypothesis declares that over a period or time frame, the portfolio's returns will be equivalent
to the S&P 500's returns. The alternative hypothesis, on the other hand, states that the portfolio's
returns did not equal the S&P 500's returns. If a one-tailed test had been conducted, the
portfolio's returns in an alternative hypothesis would have been either less or greater than the
S&P 500's returns. The commonly used p-value is 0.05, if the investor drives at a conclusion
that the p-value is less than 0.05, there is cogent evidence against the null hypothesis. With
this, the investor would ignore the null hypothesis and accept the alternative hypothesis. If the
p-value is greater than 0.05, there is an indication of weak evidence against the conjecture or
assumption. Then, the null hypothesis will be accepted by the investor. In the scenario where
the p-value is 0.001, there is strong evidence against the null hypothesis, and the portfolio's
returns did not equal the S&P 500's returns.