Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

CHAPTER 8
8. ESTIMATION AND 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.
 Statistical estimation
 Statistical hypothesis testing.

Inference Analyzed
Population
Data

Numerical
Sample
data

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

Statistical Estimation
This is one way of making inference about the population parameter where the investigator
does not have any prior notion about values or characteristics of the population parameter.
There are two ways estimation.
1) Point Estimation
It is a procedure that results in a single value as an estimate for a parameter.
2) Interval estimation
It is the procedure that results in the interval of values as an estimate for a parameter,
which is interval that contains the likely values of a parameter. It deals with identifying
the upper and lower limits of a parameter. The limits by themselves are random variable.
Definitions
Confidence Interval: An interval estimate with a specific level of confidence
Confidence Level: The percent of the time that the true value will lie in the interval
estimate given.
Consistent Estimator: An estimator which gets closer to the value of the parameter as the
sample size increases.

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

Degrees of Freedom: The number of data values which are allowed to vary once a
statistic has been determined.
Estimator: A sample statistic which is used to estimate a population parameter. It must be
unbiased, consistent, and relatively efficient.
Estimate: Is the different possible values which an estimator can assumes.
Interval Estimate: A range of values used to estimate a parameter.
Point Estimate: A single value used to estimate a parameter.
Relatively Efficient Estimator: The estimator for a parameter with the smallest variance.
Unbiased Estimator: An estimator whose expected value is the value of the parameter
being estimated.
Properties of best estimator
The following are some qualities of an estimator
 It should be unbiased.
 It should be consistent.
 It should be relatively efficient.
 Sufficiency

To explain these properties let  be an estimator of θ
1. Unbiased Estimator: An estimator whose expected value is the value of the parameter

being estimated. i.e. E(  ) = θ.
2. Consistent Estimator: An estimator which gets closer to the value of the parameter as the

sample size increases. i.e.  gets closer to θ as the sample size increases.
3. Relatively Efficient Estimator: The estimator for a parameter with the smallest variance.
This actually compares two or more estimators for one parameter.
4. An estimator is said to Sufficient if the sample contained all information about population
parameter.

Point and Interval estimation of the population mean: µ

Point Estimation

Another term for statistic is point estimate, since we are estimating the parameter value. A
point estimator is the mathematical way we compute the point estimate. For instance, sum of
xi over n is the point estimator used to compute the estimate of the population means,
 xi
 .That is X  is a point estimator of the population mean.
n
 Confidence interval estimation of the population mean
Although X possesses nearly all the qualities of a good estimator, because of sampling error,
we know that it's not likely that our sample statistic will be equal to the population parameter,

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

but instead will fall into an interval of values. We will have to be satisfied knowing that the
statistic is "close to" the parameter. That leads to the obvious question, what is "close"?

We can phrase the latter question differently: How confident can we be that the value of the
statistic falls within a certain "distance" of the parameter? Or, what is the probability that the
parameter's value is within a certain range of the statistic's value? This range is the confidence
interval.
The confidence level is the probability that the value of the parameter falls within the range
specified by the confidence interval surrounding the statistic.
Confidence interval for the parameter is:
Estimate ± critical value × Standard error of the estimator
Example 2.1: Confidence interval for the population mean is:
± Critical value × Standard error of ( )

There are different cases to be considered to construct confidence intervals.

Case 1: If sample size is large or if the population is normal with known variance
Recall the Central Limit Theorem, which applies to the sampling distribution of the mean of a
sample. Consider samples of size n drawn from a population, whose mean is  and standard
deviation is  with replacement and order important. The population can have any frequency
distribution. The sampling distribution of X will have a mean  x   and a standard

deviation  x  , and approaches a normal distribution as n gets large. This allows us to
n
use the normal distribution curve for computing confidence intervals.
X 
Z  has a normal distributi on with mean  0 and var iance  1
 n
   X  Z n
 X , where  is a measure of error.
  Z n

- For the interval estimator to be good the error should be small. How it be small?
 By making n large
 Small variability
 Taking Z small

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

- To obtain the value of Z, we have to attach this to a theory of chance. That is, there is an area of
size 1   such that
P (  Z 2  Z  Z 2 )  1  
Where   is the probabilit y that the parameter lies outside the int erval
Z 2  s tan ds for the s tan dard normal var iable to the right of which
 2 probabilit y lies , i.e P( Z  Z 2 )   2

X 
 P( Z 2   Z 2 )  1  
 n
 P( X  Z 2  n    X  Z 2  n)  1  

 ( X  Z 2  n , X  Z 2  n ) is a1001   % conifidenc e int erval for 

But usually  2 is not known, in that case we estimate by its point estimator S2
 ( X  Z 2 S n , X  Z 2 S n ) is a1001   % conifidenc e int erval for 

Here are the Z values corresponding to the most commonly used confidence levels.

100(1   ) %   2 Z 2
90 0.10 0.05 1.645
95 0.05 0.025 1.96
99 0.01 0.005 2.58
Case 2: If sample size is small and the
population variance,  is not known.
2

X 
t has t distributi on with n  1 deg rees of freedom.
S n

 ( X  t 2 S n , X  t 2 S n ) is a1001   % conifidenc e int erval for 

The unit of measurement of the confidence interval is the standard error. This is just the
standard deviation of the sampling distribution of the statistic.

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

Examples:
1. From a normal sample of size 25 a mean of 32 was found .Given that the population
standard deviation is 4.2. Find
a) A 95% confidence interval for the population mean.
b) A 99% confidence interval for the population mean.
Solution:
a)
X  32,   4.2, 1    0.95    0.05,  2  0.025
 Z 2  1.96 from table.
 The required int erval will be X  Z 2  n
 32  1.96 * 4.2 25
 32  1.65
 (30.35, 33.65)

b)

X  32,   4.2, 1    0.99    0.01,  2  0.005

 Z 2  2.58 from table.
 The required int erval will be X  Z 2  n
 32  2.58 * 4.2 25
 32  2.17
 (29.83, 34.17)

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

2. A drug company is testing a new drug which is supposed to reduce blood pressure. From
the six people who are used as subjects, it is found that the average drop in blood pressure
is 2.28 points, with a standard deviation of .95 points. What is the 95% confidence interval
for the mean change in pressure?
Solution:

X  2.28, S  0.95, 1    0.95    0.05,  2  0.025

 t 2  2.571 with df  5 from table.
 The required int erval will be X  t 2 S n
 2.28  2.571 * 0.95 6
 2.28  1.008
 (1.28, 3.28)
That is, we can be 95% confident that the mean decrease in blood pressure is between 1.28 and 3.28
points.

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

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:
- 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 (  ) and type II error (  ) have inverse relationship and therefore, can not
be minimized at the same time.
 In practice we set  at some value and design a test that minimize  . 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.

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

General steps in hypothesis testing:

1. Specify the null hypothesis (H0) and the alternative hypothesis (H1).
2. Specify the significance level, 
3. Identify the sampling distribution (if it is Z or t) of the estimator.
4. Identify the critical region.
5. Calculate a statistic analogous to the parameter specified by the null hypothesis.
6. Making decision.
7. Summarization of the result.

Hypothesis testing about the population mean,  :

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

1. H 0 :   0 vs H1 :   0
2. H 0 :   0 vs H1 :   0
3. H 0 :   0 vs H1 :   0

Case 1: When sampling is from a normal distribution with  known

2

- The relevant test statistic is

X  0
Z cal 
 n
- After specifying  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
  0 Z cal  Z 2 Z cal  Z 2
Z cal  Z 2 or Z cal   Z 2

  0 Z cal  Z Z cal  Z Z cal  Z

  0 Z cal  Z Z cal  Z Z cal  Z

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

- The relevant test statistic is

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

X  0
t cal  ~ t with n  1 deg rees of freedom.
S n
- After specifying  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
  0 tcal  t 2 tcal  t 2 tcal  t 2 or tcal  t 2

  0 tcal  t tcal  t tcal  t

  0 tcal  t tcal  t tcal  t

Case 3: 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  0
Z cal  , if  2 is known.
 n
X  0
 , if  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   Population mean. , 0  10
Step 1: Identify the appropriate hypothesis
H 0 :   10 vs H1 :   10
Step 2: select the level of significance,   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.

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

Step 5: Computations:
X  10.06, S  0.25
X   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?
(Use   0.05 and assume the normality of the population)
Solution:
Let   Population mean. , 0  1600
Step 1: Identify the appropriate hypothesis
H 0 :   1600 vs H1 :   1600
Step 2: select the level of significance,   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   0 1570  1600
Z cal    1.0
 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.

Exercise: 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 gms. Test the hypothesis that the new diet is an
improvement assuming normality.

Test of Association

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

 Suppose we have a population consisting of observations having two attributes or

qualitative characteristics say A and B.
 If the attributes are independent then the probability of possessing both A and B is P A*PB
Where PA is the probability that a number has attribute A.
PB is the probability that a number has attribute B.

- Suppose A has r mutually exclusive and exhaustive classes.

B has c mutually exclusive and exhaustive classes

- The entire set of data can be represented using r * c contingency table.

B
A B1 B2 . . Bj . Bc Total
A1 O11 O12 O1j O1c R1
A2 O21 O22 O2j O2c R2
.
.
Ai Oi1 Oi2 Oij Oic Ri
.
.
Ar Or1 Or2 Orj Orc
Total C1 C2 Cj n

- The chi-square procedure test is used to test the hypothesis of independency of two
attributes .For instance we may be interested
 Whether the presence or absence of hypertension is independent of
smoking habit or not.
 Whether the size of the family is independent of the level of education
attained by the mothers.
 Whether there is association between father and son regarding boldness.
 Whether there is association between stability of marriage and period of
acquaintance ship prior to marriage.
- The  2 statistic is given by:
r c  (O  e ) 
2
 cal    
2 ij ij
 ~  2 ( r 1)(c 1)
i 1 j 1 e 
 ij
Where Oij  the number of units that belong to category i of A and j of B.
eij  Expected frequency that belong to category i of A and j of B.

- The eij is given by :

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

Where Ri  the i th row total .

Ri * C j
eij  C j  the j th column total .
n
n  total number of oservations
r c r c
Remark: n    Oij    eij
i 1 j 1 i 1 j 1

- The null and alternative hypothesis may be stated as:

H 0 : There is no associatio n between A and B.
H1 : not H 0 ( There is associatio n between A and B).

Decision Rule:Reject H0 for independency at  level of significance if the calculated value of

 2
exceeds the tabulated value with degree of freedom equal to (r  1)(c  1) .
 (Oij  eij ) 2 
 2 ( r 1)(c 1) at 
r c
 Reject H 0 if  2
cal    
i 1 j 1 e 
 ij

Examples:
1. A geneticist took a random sample of 300 men to study whether there is association between
father and son regarding boldness. He obtained the following results.

Son
Father Bold Not
Bold 85 59
Not 65 91
Using   5% , test whether there is association between father and son regarding boldness.
Solution:
H 0 : There is no associatio n between Father and Son regarding boldness.
H1 : not H 0

- First calculate the row and column totals

R1  144, R2  156, C1  150, C2  150
- Then calculate the expected frequencies( eij’s)
Ri * C j
eij 
n

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

R1 * C1 144 *150 R1 * C2 144 *150

 e11    72 e12    72
n 300 n 300
R2 * C1 156 *150 R2 * C2 156 *150
e21    78 e22    78
n 300 n 300
- Obtain the calculated value of the chi-square.
2 2  (Oij  eij ) 2 
 2
cal    
i 1 j 1 e 
 ij

(85  72) 2 (59  72) 2 (65  78) 2 (91  78) 2

     9.028
72 72 78 78
- Obtain the tabulated value of chi-square
  0.05
Degrees of freedom  (r  1)(c  1)  1*1  1
 02.05 (1)  3.841 from table.
- The decision is to reject H0 since  cal   0.05 (1)
2 2

Conclusion: At 5% level of significance we have evidence to say there is association

between father and son regarding boldness, based on this sample data.
2. Random samples of 200 men, all retired were classified according to education and number of
children is as shown below
Education Number of children
level
0-1 2-3 Over 3
Elementary 14 37 32
Secondary 31 59 27
and above

Test the hypothesis that the size of the family is independent of the level of education attained
by fathers. (Use 5% level of significance)

Solution:
H 0 : There is no associatio n between the size of the family and the level of
education attained by fathers.
H1 : not H 0 .
- First calculate the row and column totals

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Lecture notes on Probability and Statistics Chapter 8: ESTIMATION AND HYPOTHESIS TESTING

R1  83, R2  117, C1  45, C2  96, C3  59

- Then calculate the expected frequencies( eij’s)
Ri * C j  e11  18.675, e12  39.84, e13  24.485
eij 
n e21  26.325, e22  56.16, e23  34.515
- Obtain the calculated value of the chi-square.
2 3  (Oij  eij ) 2 
 2
cal    
i 1 j 1
 eij 
(14  18.675) 2 (37  39.84) 2 (27  34.515) 2
   ...   6.3
18.675 39.84 34.515
- Obtain the tabulated value of chi-square
  0.05
Degrees of freedom  (r  1)(c  1)  1* 2  2
 02.05 (2)  5.99 from table.
- The decision is to reject H0 since    02.05 ( 2)
2
cal
Conclusion: At 5% level of significance we have evidence to say there is association
between the size of the family and the level of education attained by fathers, based on this
sample data.

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