Lecture notes on stat for mgt (BUMA331) Chapter 6 Hypothesis testing

CHAPTER 3
3. Hypothesis Testing
• Inference is the process of making interpretations or conclusions from sample data for the
totality of the population.
• It is only the sample data that is ready for inference.
• In statistics there are two ways though which inference can be made.
a. Statistical estimation
b. Statistical hypothesis testing.

Inference Analyzed
Population
Data

Numerical
Sample
data

Data analysis is the process of extracting relevant information from the summarized data.

Hypothesis Testing

- This is also one way of making inference about population parameter, where the investigator
has prior notion about the value of the parameter.
Definitions:
- Statistical hypothesis: is an assertion or statement about the population whose plausibility is
to be evaluated on the basis of the sample data.
- Test statistic: is a statistics whose value serves to determine whether to reject or accept the
hypothesis to be tested. It is a random variable.
- Statistic test: is a test or procedure used to evaluate a statistical hypothesis and its value
depends on sample data.
There are two types of hypothesis:
Null hypothesis:
- It is the hypothesis to be tested.
- It is the hypothesis of equality or the hypothesis of no difference.
- Usually denoted by H0.
Alternative hypothesis:
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Lecture notes on stat for mgt (BUMA331) Chapter 6 Hypothesis testing

- It is the hypothesis available when the null hypothesis has to be rejected.

- It is the hypothesis of difference.
- Usually denoted by H1 or Ha.
Types and size of errors:
- Testing hypothesis is based on sample data which may involve sampling and non sampling
errors.
- The following table gives a summary of possible results of any hypothesis test:
Decision
Reject H0 Don't reject H0
H0 Type I Error Right Decision
Truth
H1 Right Decision Type II Error

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

- Type II error: Failing to reject the null hypothesis when it is false.
NOTE:
1. There are errors that are prevalent in any two choice decision making problems.
2. There is always a possibility of committing one or the other errors.
3. Type I error ( α ) and type II error ( β ) have inverse relationship and therefore, cannot be
minimized at the same time.
• In practice we set α at some value and design a test that minimize β . This is because a type I
error is often considered to be more serious, and therefore more important to avoid, than a type II
error.
General steps in hypothesis testing:

1.The first step in hypothesis testing is to specify the null hypothesis (H0) and the alternative
hypothesis (H1).
2.The next step is to select a significance level, α
3.Identify the sampling distribution of the estimator.
4.The fourth step is to calculate a statistic analogous to the parameter specified by the null
hypothesis.
5.Identify the critical region.
6.Making decision.
7.Summarization of the result.

Hypothesis testing about the population mean, µ:

Suppose the assumed or hypothesized value of µ is denoted by µ 0 , then one can formulate two sided
(1) and one sided (2 and 3) hypothesis as follows:

1. H 0 : µ = µ0 vs H1 : µ ≠ µ0

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Lecture notes on stat for mgt (BUMA331) Chapter 6 Hypothesis testing

2. H 0 : µ = µ0 vs H1 : µ > µ0
3. H 0 : µ = µ0 vs H1 : µ < µ 0

CASES:
2
Case 1: When sampling is from a normal distribution with σ known
- The relevant test statistic is
X −µ
Z=
σ n
- After specifying α we have the following regions (critical and acceptance) on the standard
normal distribution corresponding to the above three hypothesis.
Summary table for decision rule:
H0 Reject H0 if Accept H0 if Inconclusive if
µ ≠ µ0 Z cal > Zα 2 Z cal < Zα 2 Z cal = Zα 2 or Z cal = − Zα 2

µ < µ0 Z cal < − Zα Z cal > − Zα Z cal = − Zα

µ > µ0 Z cal > Zα Z cal < Zα Z cal = Zα
Where: Z X − µ0
cal =
σ n

2
Case 2: When sampling is from a normal distribution with σ unknown and small sample size

- The relevant test statistic is

X −µ
t= ~ t with n − 1 deg rees of freedom.
S n

- After specifying α we have the following regions on the student t-distribution corresponding
to the above three hypothesis.

H0 Reject H0 if Accept H0 if Inconclusive if

µ ≠ µ0 tcal > tα 2 t cal < tα 2 tcal = tα 2 or tcal = −tα 2

µ < µ0 t cal < −tα t cal > −tα t cal = −tα

µ > µ0 tcal > tα tcal < tα tcal = tα
X − µ0
Where: tcal =
S n
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 Lecture notes on stat for mgt (BUMA331) Chapter 6 Hypothesis testing

Case3: When sampling is from a non- normally distributed population or a population

whose functional form is unknown.
- If a sample size is large one can perform a test hypothesis about the mean by using:

X − µ0
Z cal = , if σ 2 is known.
σ n
X − µ0
= , if σ 2 is unknown.
S n
- The decision rule is the same as case I.
Examples:
1. Test the hypotheses that the average height content of containers of certain lubricant is 10 liters if the
contents of a random sample of 10 containers are 10.2, 9.7, 10.1, 10.3, 10.1, 9.8, 9.9, 10.4, 10.3, and
9.8 liters. Use the 0.01 level of significance and assume that the distribution of contents is normal.
Solution:
Let µ = Population mean. , µ 0 = 10
Step 1: Identify the appropriate hypothesis
H 0 : µ = 10 vs H 1 : µ ≠ 10
Step 2: select the level of significance, α = 0.01 ( given)
Step 3: Select an appropriate test statistics
t- Statistic is appropriate because population variance is not known and the sample size is also
small.
Step 4: identify the critical region.
Here we have two critical regions since we have two tailed hypothesis
The critical region is tcal > t0.005 (9) = 3.2498
⇒ (−3.2498, 3.2498) is accep tan ce region.
Step 5: Computations:
X = 10.06, S = 0.25
X − µ 0 10.06 − 10
⇒ t cal = = = 0.76
S n 0.25 10
Step 6: Decision
Accept H0 , since tcal is in the acceptance region.
Step 7: Conclusion
At 1% level of significance, we have no evidence to say that the average height content of containers
of the given lubricant is different from 10 litters, based on the given sample data.
2. The mean life time of a sample of 16 fluorescent light bulbs produced by a company is computed to be
1570 hours. The population standard deviation is 120 hours. Suppose the hypothesized value for the
population mean is 1600 hours. Can we conclude that the life time of light bulbs is decreasing?

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Lecture notes on stat for mgt (BUMA331) Chapter 6 Hypothesis testing

(Use α = 0.05 and assume the normality of the population)

Solution:
Let µ = Population mean. , µ 0 = 1600
Step 1: Identify the appropriate hypothesis
H 0 : µ = 1600 vs H 1 : µ < 1600
Step 2: select the level of significance, α = 0.05 ( given)
Step 3: Select an appropriate test statistics
Z- Statistic is appropriate because population variance is known.
Step 4: identify the critical region.
The critical region is Z cal < − Z 0.05 = −1.645
⇒ (−1.645, ∞) is accep tan ce region.
Step 5: Computations:
X − µ 0 1570 − 1600
Z cal = = = −1.0
σ n 120 16
Step 6: Decision
Accept H0 , since Zcal is in the acceptance region.
Step 7: Conclusion
At 5% level of significance, we have no evidence to say that that the life time of light bulbs is
decreasing, based on the given sample data.
3. It is known in a pharmacological experiment that rats fed with a particular diet over a certain period
gain an average of 40 gms in weight. A new diet was tried on a sample of 20 rats yielding a weight
gain of 43 gms with variance 7 gms2 . Test the hypothesis that the new diet is an improvement
assuming normality.
a) State the appropriate hypothesis
b) What is the appropriate test statistic? Why?
c) Identify the critical region(s)
d) On the basis of the given information test the hypothesis and make
conclusion.
Solution (exercise)

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