CHAPTER III

HYPOTHESIS TESTING
Introduction
Most statistical inference revolves around the parameters of a population. In Chapter II,
Estimation, we used the information obtained in a simple random sample to construct a
confidence interval estimate of the unknown value of a population parameter. In this
chapter (in hypothesis testing), we start with an assumed value of a population
parameter. Then sample evidence is used to test the reasonableness of hypotheses; i.e
to decide whether the assumed value is reasonable it should be accepted or whether it's
reasonable unreasonable it should be rejected; hence the statistical inferences made in
this chapter are referred to as hypothesis testing.

3.1 Basic Definitions

 Hypothesis: is a statement or an assumption we make about the value of a
population parameter.
 Hypothesis testing: is a procedure based on sample evidence and probability
distribution used to determine whether the hypothesis is accept or reject on a
certain decision rules. It is simply selecting a sample from the populations, calculate
sample statistic and based on certain decision rules accept or reject the hypothesis.
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.
 Null hypothesis: Is a pre assumed statement about the population, which may be
accepted or rejected on the basis of a sampled data.
 Alternative hypothesis: Species all possible values of the population parameter
that aren't specified in the null hypothesis. It's Is a hypothesis which we are inclined
to accept in the event the null hypothesis is rejected on the basis of a prescribed
test.

In hypotheses testing we begin by making a tentative assumption about a population

parameter. This tentative assumption is called the null hypothesis, and is denoted by
Ho-it is the assumption we wish to test. We then define another hypothesis, called the
1
alternative hypothesis, which is the opposite of what is stated in the null hypothesis.
This alternative hypothesis specifies all possible values of the population parameter that
are not specified in the null hypothesis, and in denoted by Ha. The hypothesis testing
procedure involves using data from a sample to test the two competing statements
indicated by Ho and Ha. Ho and Ha are mutually exclusive and collectively exhaustive.
In the process of hypothes is testing, the null hypothesism is initially assumed to be true.
The data are gathered and examined to determine whether the evidence is strong enough
away from the null hypothesis to reject it when the researcher in testing an industry
standard or a widely accepted values, the standard or accepted value is assumed to be
true in the null hypothesis. The opposite of the null hypothesis is the alternative hypothesis
that the defendant is guilty.

Example
1. The manager of a hotel has stated that the mean guest bill for a weekend is Birr 400
or less. A member of the hotel’s accounting staff has noticed that the total charges
for guest bills have been increasing in recent months. The accountant will use a
sample of weekend guest bills to test the manager’s claim. State the null and
alternative hypotheses
Solution:
Ho: μ Birr 400
Ha:  Birr 400

2. Production workers at XY Company have been trained in their jobs by using two
different training programs. The company training director would like to know
whether there is a difference in mean productivity for workers trained in the two
programs. Required; Develop the null and alternative hypotheses.
Solution
Ho:  1=  2 or 1- 2 =0
Ha: 12 1-2 0

3. The manager at a drug store claims that the company’s employees are honest.
However, there have been many shortages from the cash register lately. Required:
Specify the null and alternative hypothesis
Solution:
Ho: Employees are honest
Ha: Employees are dishonest

3.2 Type I and Type II Errors

There are four possible outcomes of any hypothesis test, two of which are
correct and two of which are incorrect.The incorrect ones are called type I and
Type II errors. As we discussed above, In hypothesis testing sample evidenceis
2
used to test the null hypothes is Ho. Occasionally the sample data gathered in
research process lead to a decision to reject a null hypothesis when actually it is
true and vice versa.

3.2.1 TypeI Error

A type I error is committed when a true null hypothes is rejected. Rejecting the Ho, when it
is actually true is alled Type I error.
The possibility/probability of committing a Type I error is represented by Alpha (), or the
level of significance. Alpha is some times referred to as the amount of risk taken in an
experiment. Alpha represents the proportion of the area of the area of the curve occupied
by the rejection region. The most commonly used values of  are 0.001,0.01,0.05 & 0.10.
The larger the area of the rejection region, the greater is the risk of committing Type I
error.

3.2.2 Type II Error

A Type II error is committed by failing to reject a false null hypothesis. That is to say
that, accepting a null hypothes is when itis false is called a Type II error. The probability
of committing a Type II error is represented by beta ().
Note: Alpha () is determined before the experiment, however, Beta ( ) is computed
using alpha, the hypothesized parameter, and various theoretical alternatives to the null
hypothesis.

3.4. One–Tailed Tests Vs Two–Tailed Tests

These are three possible null hypotheses along with their corresponding alternative
hypotheses.

(1) Ho:  (2) Ho:  (3) Ho: 

Ha:  Ha:  Ha: 

  
Leads to two – tailed test leads to a right – tailed test Leads to a left
tests
“In many vsituations, the choice of Ho and Ha isn't obvious; in such cases, judgment on the part of the user is needed to
select the proper farm of Ho and Ha. However, the equality part of the expression (either =,  or ) always appears in
the null hypothesis.

3.4.1 Two–Tailed Test

A two–tailed test of a hypothesis will reject the null hypothesis if the sample statisticis
significantly higher than or lower than a hypothesized population parameter i.e if Ha
does not state a direction. Thus, in a two–tailed test there are two rejection regions. A
two tailed is appropriate when the null hypothesis is equal to some specified value (e.g.
3
Ho: ) and the alternative hypothesis is different from (not equal to) some specified
value (e.g. Ha: . The dividing point between the region where the null hypothesis is
rejected and accepted is called critical value.

Example; in a given firm manager’s claims that there is no difference between the
mean income of males and the mean income of females.
Ho: there is no difference b/n the mean income of males & the mean income of females.
Ha: there is a difference in the mean income of males & the mean income of females.
If Ho is rejected and Ha accepted the mean income of males could be greater than or
less 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. The standardized z-value (critical points) at the 0.05 level of
significance is ±1.96
 Z/2=0.025 Z0.025=±1.96

Non-rejection
Rejection region Region or do not reject H 0 Rejection region

0.95 Probability

-1.96 0 +1.96
Z
0.025 Probability 0.025 Probability

Initial Value Initial Value

3.4.2 One Tailed Test

A one tailed test is one in which the alternative hypothesis is directional; unlike a two–
tailed test which does not specify direction.
One–tailed test can be:

A. Right–tailed/upper–tailed test: a right–tailed test will reject the null hypothesis if the

4
 sample statistic is significantly higher than the hypothesized population parameter.

B. Left–tailed/lower–tailed test: a left–tailed test will reject the null hypothesis if the
sample statistic is significantly lower thanthe hypothesized population parameter.

One–Tailed (Right–tailed/upper–tailed) tests of significance at 5% level of

significance

Non-rejection
Region or do not reject H 0 Rejection region

Scale
of Z
0 1.6 45
0.95 Probability 0.05 Probability

Initial Value





 The above chart portrays the rejection region for a test of significance. The level of
significance selected is 0.05.
 The area where the Ho is not rejected includes the area to the left of 1.645
 The area of rejection is to the right of 1.645
 The 0.05 level of significant was chosen
 The sampling distribution is for the test statistic Z , the standard normal deviate.
 The value 1.645 separates the regions where the Ho is rejected & where it is not
rejected.
 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.

5
One–Tailed Left–tailed/lower–tailed) tests of significance at 5% level of significance;

Non-rejection
Rejection region Region or do not reject H 0

0.95 Probability

Z
-1.6 45 0
0.05 Probability 0.95 Probability

Initial Value
The region of rejection is only in one tail of the curve. The above example indicates that
the region of rejection is in the left (lower) tail of the curve.

3.5 Hypothesis Testing about the  and P

There are five-step in testing hypothesis about the  and P:

I. Identity/State the null hypothesis and the alternate hypothesis,

II. State the distribution (Z-table or t-table), type of tailed test, level of significance,

III. State/Determine the decision rule: Find the level of significance (z or t value
accordingly) from the table and determine the decision rule,

IV. Compute Sample Statistic/Test Statistic,

V. Make decision: Take a sample statistic result and make a decision.

3.5.1 HYPOTHESIS TEST ABOUT A POPULATION MEAN ():

Population-Normal, Population Standard Deviation-Known, n-large

In hypothesis testing if the population in normal and standard deviation is known, we

use z-Value to test the hypothes is; regardless of the sample size, n. It is also applicable
when n 30 regardless of the population distribution.

Example:

6
1. Matador-Addis Tyre Share Company claims that its tires have a mean life of 35,000
miles. A random sample of 36 of these tires is tested if the sample mean in 33,000
miles. Assume that the population standard deviation is 4,500 miles and the lives of
tires are approximately normally distributed. Test the share company’s claim using
a 5% level of significance.

Solution
1.Ho:=35,000 miles 2. Z–distribution, two tailed
Ha:≠35,000 miles test
3.=0.05 4. =33,000 miles
/2=0.025 =4,500 miles
Z0.025=±1.96 n= 36 tires
Reject Ho if |Sample Z|>1.96 SampleZ=?
 Reject Ho, if the computed
value sample Z doesn't fall
between the critical value
±1.96

4. Reject Ho because |sample Z=-2.67| >1.96

2. A fertilizer company claims that the useofits product will result in a yield of atleast
35 quintals of wheat per hectare, on average, Application at the fertilizer to a
randomly selected 36 sample hectares resulted in a yield of 34 quintals per hectare.
Assume the population standard deviation is 5 quintals and yields per hectare are
normally distributed. Test the company’s claim at 1% levelof significance.
Solution
1. Ho: ≥35 quintals
Ha: 35 quintals

7
 2. Z–distribution, left–tailed test
3. =0.01
Z=Z0.01=2.33
Reject Ho if sample Z-2.33
4. =34 quintals
n=36
=5quintals
Sample Z =?

5. Donot reject H0, because-1.20>-2.33

3.5.2 HYPOTHESIS TESTING about POPULATION MEAN ():

Population Normal, Population Standard Deviation-known, n-Large (np & nq
5%N)
As explained in chapter II, Interval Estimation, use of the t-distribution is appropriate when
 is unknown, the sample size is small (n30), and population is normally distributed. When
we use the t-distribution, it replaces Z a steststatistic.

Example:
1. A contractor assumes that construction workers are idle for 75 minutes or less
perday. A random sample of 25 construction workers was taken and the mean idle
time was found to be 84 minutes per day with a sample standard deviation of 20
minutes. Assume that the population is approximately normally distributed, use a
5% level of significance to test the contractor’s assumption.
Solution
8
 1. Ho:≤75
minutes Ha:75
minutes
2. t–distribution, Right–tailed test
3. =0.05
n=25
=n–1=25–1=24
t,= t0.05,24= 1.711
Reject Ho if sample t1.71
4. n=25
=84
minutes S
=20 minutes
Sample t =?

5. Reject Ho; because + 2.25 1.71 workers are idle for more than 75
minutes per day.

2. A director of a secretarial school claims that its graduates can type at least 50
words per minute on average. Suppose you want to hire some of these graduates if
the director’s claimis true; and you test the typing speed of18 of the graduates and
obtain a mean of 40 wards per minute with a sample variance of 720. Assuming the
typing speed for the graduates of the secretarial school is normally distributed, test
the director’s claim and decide whether to hire the graduates or not, using a 5%
level of significance.
Solution
1. Ho:50
words Ha:50
words
2. t– distribution, Left–tailed test

3. =0.05
9
 n=18
=n–1
=18–1=17
t,=t0.05,17=1.74
Reject Ho if sample t-1.74
4. = 40 words
n=18
s2=720
Samplet=?

5. Donot reject Ho because –1.58 > -1.74

3.5.3 HYPOTHESIS TESTING ABOUT A POPULATION

PROPORTION (P):
Population Normal, Population Standard Deviation-Unknown, n-Small

A proportion is a value between 0 & 1 that expresses the part of the whole that
possesses a given characteristic. The formula (methods) for proportions based on the
central limit theorem make possible the testing of hypotheses about the population
proportion in a manner similar to that of the formul used to test sample means. Similar
to that of hypothes is testing about a population mean, hypothesis testing about a
population proportion has three terms.
1. Ho:P=y 2. Ho:Py 3. Ho:Py
Ha:Py Ha:Py Ha:Py

Example:

1. A magazine claims that 25% of its readers are college students. A random sample of
200 readers is taken. It is found that 42 of these readers are college students. Use a
10% level of significance and test the magazine’s claim.
Solution
1. Ho:
P=0.25
Ha:
P0.25
2. Z–distribution; two tailed test

10
 3. =0.1 /2=0.05
Z/2=Z0.05=1.64
Reject Ho if |sample Z|  1.64
4. n=200
x=42
=0.21
SampleZ=?

5. Donot reject Ho because |-1.31| <1.64

2. An Economist states that more than 35% of Addis’s labor force in unemployed. You
don’t know if the econom ist’s estimateis too high or too low. Thus, you want to test
the economist’s claim using a 5% level of significance. You obtain a random sample
of 400 people in the labor force, of whom 128 are unemployed. Would you reject
the economist’s claim?
Solution
1. Ho:P>0.35
Ha:P≤0.3
5
2. Z–distribution, left-tailed test
3. =0.05
Z0.05=-1.64
Reject Ho if sample Z ≤ -1.64
4. n=400
x=128
=0.32
SampleZ=?

5. Donot reject Ho because -1.31 > -1.64

3.6 GLOSSARY
Hypothesis: A statement about the value of population parameter.

11
Hypothesis 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: Is a pre assumed statement about the population, which may be
accepted or rejected on the basis of a sampled data.
Alternative 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: The probability of rejecting the null hypothesis when it is actually
true or the probability of committing type I error.
Type I error: Rejecting the null hypothesis, HO, when it is actually true.
Type II error: Accepting the null hypothesis when it is actually false.
Test statistic: A value, determined from sample information, used to determine whether
or not to reject the null hypothesis
Critical value: The dividing point between the region where the null hypothesis is
rejected and the region where it is not rejected.
One-tailed-test: Is used when the rejection region is only in one tail or when the
alternative hypothesis states a direction. Eg. H 1:  > 40 or H1 :  < 40
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. Eg. H 1 :   40

12