UNIT – 3

HYPOTHESIS TESTING

MEANING OF HYPOTHESIS :
A hypothesis is an assumption, an idea that is
proposed for the sake of argument so that it
can be tested to see if it might be true.
In the scientific method, the hypothesis is
constructed before any applicable research
has been done.
DEFINITION OF HYPOTHESIS:
Hypothesis may be defined as a proposition or a set of
proposition set forth as an explanation for the occurrence
of some specified group of phenomena either asserted
merely as a provisional guess to guide some investigation
or accepted as highly probable in the light of established
facts.

A hypothesis is a statement that can be tested by scientific

research. If you want to test a relationship between two or
more variables, you need to write hypothesis before you
start your experiment or data collection.
MEANING OF HYPOTHESIS :
A hypothesis is an assumption that is made based on some
evidence. This is the initial point of any investigation that
translates the research questions into predictions.

It includes components like variables, population and the

relation between the variables. A research hypothesis is a
hypothesis that is used to test the relationship between two
or more variables.

In simple terms, hypothesis refers to assumption of a

relationship between two variables or difference between
two or more groups. Hypothesis also contains the direction
of relationship between the variables concerned.
EXAMPLE OF HYPOTHESIS:
Examples of simple hypothesis:
" Students who eat breakfast will perform better on a math
exam than students who do not eat breakfast."

Example of complex hypothesis:

Complex hypothesis: "Students who experience test
anxiety before an English exam will get lower scores than
students who do not experience test anxiety."​

Example: Hypothesis
Daily apple consumption leads to fewer doctor’s visits.
EXAMPLE OF HYPOTHESIS:
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.”
EXAMPLE OF HYPOTHESIS:
Following are the examples of hypotheses based on their
types
 Consumption of sugary drinks every day leads to
obesity is an example of a simple hypothesis.
 All lilies have the same number of petals is an example
of a null hypothesis.
 If a person gets 7 hours of sleep, then he will feel less
fatigue than if he sleeps less. It is an example of a
directional hypothesis.
VARIABLES IN HYPOTHESES
Hypotheses propose a relationship between two or
more types of variables.
An Independent variable is something the researcher
changes or controls.
A Dependent variable is something the researcher
observes and measures.
If there are any control variables, extraneous variables,
or confounding variables, be sure to jot those down as you
go to minimize the chances that research bias will affect
your results.
STEPS IN DEVELOPING A HYPOTHESIS
Step 1. Ask a question
Writing a hypothesis begins with a research question that you want to
answer. The question should be focused, specific, and researchable
within the constraints of your project.
Example: Research question Do students who attend more lectures get
better exam results?

Step 2. Do some preliminary research

Your initial answer to the question should be based on what is already
known about the topic. Look for theories and previous studies to help
you form educated assumptions about what your research will find.
At this stage, you might construct a conceptual framework to ensure
that you’re embarking on a relevant topic. This can also help you
identify which variables you will study and what you think the
relationships are between them. Sometimes, you’ll have
to operationalize more complex constructs.
STEPS IN DEVELOPING A HYPOTHESIS

Step 3. Formulate your hypothesis

Now you should have some idea of what you expect to find. Write your
initial answer to the question in a clear, concise sentence.
Example: Formulating your hypothesis Attending more lectures leads to
better exam results.
Tip AI tools like ChatGPT can be effectively used to brainstorm potential
hypotheses. To learn how to use these tools responsibly, see our AI
writing resources.

Step 4. Refine your hypothesis

You need to make sure your hypothesis is specific and testable. There are
various ways of phrasing a hypothesis, but all the terms you use should have
clear definitions, and the hypothesis should contain:
 The relevant variables
 The specific group being studied
 The predicted outcome of the experiment or analysis
STEPS IN DEVELOPING A HYPOTHESIS
Step 5. Phrase your hypothesis in three ways
To identify the variables, you can write a simple prediction in if…
then form. The first part of the sentence states the independent
variable and the second part states the dependent variable.
If a first-year student starts attending more lectures, then
their exam scores will improve. In academic research, hypotheses
are more commonly phrased in terms of correlations or effects,
where you directly state the predicted relationship between
variables.
The number of lectures attended by first-year students has
a positive effect on their exam score. If you are comparing two
groups, the hypothesis can state what difference you expect to find
between them.
First-year students who attended most lectures will
have better exam scores than those who attended few lectures.
STEPS IN DEVELOPING A HYPOTHESIS
Step 6. Write a null hypothesis
If your research involves statistical hypothesis testing. you
will also have to write a null hypothesis. The null
hypothesis is the default position that there is no
association between the variables. The null hypothesis is
written as H0, while the alternative hypothesis is H1 or Ha.
H0: The number of lectures attended by first-year students
has no effect on their final exam scores.
H1: The number of lectures attended by first-year students
has a positive effect on their final exam scores.
RESEARCH HYPOTHESIS NULL HYPOTHESIS
QUESTION
What are the health Increasing apple consumption in Increasing apple
benefits of eating an apple over-60s will result in decreasing consumption in over-60s
a day? frequency of doctor’s visits. will have no effect on
frequency of doctor’s visits.

Which airlines have the Low-cost airlines are more likely to Low-cost and premium
most delays? have delays than premium airlines. airlines are equally likely to
have delays.
Can flexible work Employees who have flexible There is no relationship
arrangements improve job working hours will report greater job between working hour
satisfaction? satisfaction than employees who flexibility and job
work fixed hours. satisfaction.

How effective is high school Teenagers who received sex High school sex education
sex education at reducing education lessons throughout high has no effect on teen
teen pregnancies? school will have lower rates of pregnancy rates.
unplanned
pregnancy than teenagers who did
not receive any sex education.

What effect does daily use There is a There is no relationship

of social media have on the negative correlation between time between social media use
attention span of under- spent on social media and attention and attention span in
16s? span in under-16s. under-16s.
CHARACTERISTICS OF HYPOTHESIS
1. 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.
2. Hypothesis should be capable of being tested. In a swamp of
untestable hypotheses, many a time the research programs have
bogged down. Some prior studies may be done by researchers in
order to make the 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.”
3. Hypothesis should state the relationship between variables if it
happens to be a relational hypothesis.
4. 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.
CHARACTERISTICS OF HYPOTHESIS
5. 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 the hypothesis has nothing to do
with its significance.
6. 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.
7. 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 a reasonable time for one cannot spend a lifetime
collecting data to test it.
8. 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 actually explain
what it claims to explain; it should have the empirical reference.
MAIN SOURCES OF HYPOTHESIS IN
RESEARCH:
A hypothesis may be formulated through a number of is
sources.
Following are the main sources of hypothesis.
1. Personal Experience
2. Imagination & Thinking
3. Observation
4. Scientific Theory
5. Previous Study
6. Culture
1. Personal Experience
On the basis of his personal experience he uses his mind
and suggests some points for the eradication of a social
problem through developing a good hypothesis. Greater the
researcher experience lead to higher degree of formation.

2. Imagination & Thinking

Creative thinking and imagination of a researcher
sometimes help in formulating a good hypothesis. Personal
ideas and the thinking capabilities of a researcher would
lead to greater number of hypothesis formulation as well as
control over the problem.
3. Observation
In consideration and undertaking a research problem,
observation is necessary. The collection of previous facts
and current facts related to the problem lead to the
formulation of a good hypothesis.

4. Scientific Theory
Theory is capable in explaining all the facts relating to the
problem. Scientific theory is a fertile source of hypothesis
formulation. The theory which is used by a researcher may
satisfied the needs of making it, because theory explains
the known facts.
5. Previous Study
Previous study is also a source of developing a concrete
hypothesis. If a researcher uses previous knowledge about a
phenomenon for a particular place, then another researcher
followed his techniques and formulates his own. For example
increase in fertilizers and irrigation leads to higher production
in agriculture in District Mardan. Now another researcher
studies his work and applies it to another District Nowshera
6. Culture
Culture is the accumulation of ways of behaving and adoption
in a particular place and time. While formulating a hypothesis
for a problem, culture should be studied. If we want to study
trends towards female education in a particular area, for this
purpose we will study, traditions, family system, Norms,
Values, region and education system of that area.
FUNCTIONS OF HYPOTHESIS:
Following are the functions performed by the
hypothesis:

1.Hypothesis helps in making an observation and

experiments possible.
2.It becomes the start point for the investigation.
3.Hypothesis helps in verifying the observations.
4.It helps in directing the inquiries in the right
directions
HYPOTHESIS TESTING:
What Is Hypothesis Testing?
Hypothesis testing, sometimes called as significance
testing, is an act in statistics whereby an
analyst tests an assumption regarding a population
parameter. The methodology employed by the analyst
depends on the nature of the data used and the reason
for the analysis.
Hypothesis testing is used to assess the plausibility of a
hypothesis by using sample data. Such data may come
from a larger population, or from a data-generating
process. The word "population" will be used for both
of these cases in the following descriptions.
HYPOTHESIS TESTING:
What Is Hypothesis Testing?
• Hypothesis testing is the formal procedure that
statisticians use to test whether a hypothesis can
be accepted. It is used to figure out if the primary
hypothesis is true or not.
• Forms of hypothesis testing were first used in the
1700s by men named John Arbuthnot and Pierre-
Simon Laplace. They both analysed the human
gender ratio at birth. In the modern world,
hypothesis testing is used frequently in research
and it's also an important method in online
marketing.
HYPOTHESIS TESTING:
• Hypothesis testing is used to assess the
plausibility of a hypothesis by using sample data.
• The test provides evidence concerning the
plausibility of the hypothesis, given the data.
• Statistical analysts test a hypothesis by measuring
and examining a random sample of the population
being analysed.
• The four steps of hypothesis testing include
stating the hypotheses, formulating an analysis
plan, analysing the sample data, and analyzing the
result.
HOW TO TEST A HYPOTHESIS:
Researchers commonly use hypothesis testing when
comparing two or more groups.
The four steps of hypothesis testing are:
1. Specify the null hypothesis
A null hypothesis attempts to show that there isn't
any variation between variables, or that a single
variable isn't any different than its mean. It's a
statement of no effect between two or more factors
or groups. If conducting research studies,
researchers are usually interested in disproving the
null hypothesis.
2. Specify the alternative hypothesis
An alternative hypothesis is the opposite of the null
hypothesis; it states that there is a difference
between the two variables. Often, researchers are
interested in proving the alternative hypothesis.

3. Set the significance level

The significance level is the probability of rejecting
the null hypothesis when it is true. The significance
level is commonly set at 0.05.
4. Calculate the test statistic and corresponding
P-value
The test statistic is calculated using a formula with
the means and deviations. The test statistic usually
examines associations between variables or
compares groups. The P-value is determined from
the test statistic result. The P-value is the probability
of finding the observed results when the null
hypothesis is true.
TYPES OF HYPOTHESIS
1. Simple hypothesis
2. Complex hypothesis
3. Directional hypothesis
4. Non-directional hypothesis
5. Null hypothesis
6. Associative hypothesis
7. Causal hypothesis
8. Logical hypothesis
9. Alternate hypothesis
10. Statistical hypothesis
11. Empirical hypothesis
1. Simple Hypothesis
It shows a relationship between one dependent variable
and a single independent variable.
For example – If you eat more vegetables, you will lose
weight faster. Here, eating more vegetables is an
independent variable, while losing weight is the
dependent variable.

2. Complex Hypothesis
It shows the relationship between two or more dependent
variables and two or more independent variables.
For example - Eating more vegetables and fruits leads to
weight loss, glowing skin, and reduces the risk of many
diseases such as heart disease.
3. Directional Hypothesis
It shows how a researcher is intellectual and committed to a
particular outcome. The relationship between the variables can also
predict its nature.
For example- children aged four years eating proper food over a
five-year period are having higher IQ levels than children not having
a proper meal. This shows the effect and direction of the effect.

4. Non-directional Hypothesis
It is used when there is no theory involved. It is a statement that a
relationship exists between two variables, without predicting the
exact nature (direction) of the relationship.
For example - a non-directional hypothesis might state that there
exists a relationship between a person’s diet (independent variable)
and their mood (dependent variable), without indicating whether
improvement in diet enhances mood positively or negatively.
5. Null Hypothesis
It provides a statement which is contrary to the hypothesis. It’s a
negative statement, and there is no relationship between independent
and dependent variables. The symbol is denoted by “H O”.
For example - If one plant is watered with distilled water and the
other with mineral water, then there is no difference in the growth
and nourishment of these two plants.

6. Associative Hypothesis
Associative hypothesis occurs when there is a change in one variable
resulting in a change in the other variable. An associative hypothesis
states that a change in one variable results in the change of the other
variable. The associative hypothesis defines interdependency
between variables. For Example- “There is a positive association
between physical activity levels and overall health.”
7. Causal Hypothesis
The causal hypothesis proposes a cause and effect
interaction between two or more variables. A causal
hypothesis is a supposition or theory about how things
interact, specifically, on whether one thing causes
another. The purpose of causal studies is to confirm or
reject any given causal hypothesis
For example - a company implements a new individual
marketing strategy for a small group of customers and
sees a measurable increase in monthly subscriptions.
After receiving identical results from several groups,
they concluded that the one-to-one marketing strategy
has the causal relationship they intended.
8. Logical Hypothesis
A logical hypothesis suggests a relationship between
variables without actual evidence. Claims are instead
based on reasoning or deduction, but lack actual data.
A logical hypothesis is a rational conclusion that
assumes certain events are true based on prior
knowledge or basic observation and experience. Unlike
other hypotheses, it is not possible to test a logical
hypothesis, but this type of prediction can be useful
when you want to assess a problem and develop an
effective solution quickly.
For example - An alien raised on Venus would have
trouble breathing in Earth's atmosphere. Dinosaurs with
sharp, pointed teeth were probably carnivores.
8. Logical Hypothesis
Examples -
• If an employee is late to work, then there was a
lot of traffic that caused several delays.
• The ability to write an effective report on the
buying patterns of customers requires access to
the resources in the market research folder.
• If the number of customers who answered that
they plan to make another purchase from the
company increased, then brand loyalty also
increased.
9. Alternate Hypothesis
An alternative hypothesis aims to disprove the null hypothesis after
you've tested your original prediction and learned that it was
incorrect. Alternative hypotheses can be either directional or non-
directional. A directional alternative hypothesis predicts a specific
outcome, while a non-directional hypothesis predicts a more general
outcome.
Examples -
• Employees are more productive if the company provides them
with one break every two hours, as opposed to one break every
four hours.
• Eating three balanced meals a day has a positive effect on
productivity, as opposed to eating small snacks throughout the
day.
• Job satisfaction increases when employees have access to a
variety of professional development opportunities throughout the
year, as opposed to a single training opportunity once a year.
10. Statistical hypothesis
A statistical hypothesis is a measurable data prediction based on a
set of variables. It quantifies predictions using percentages,
allowing for enhanced experimentation. Most statistical hypotheses
use statistical analysis to assess a representative sample of the
population and apply their findings to a larger population. This
hypothesis can be useful if you plan to design a study or conduct a
survey.
Examples -
• 70% of employees in the office prefer to use a tablet rather than
a computer when completing marketing tasks.
• At least 30% of managers are likely to use the new performance
management system when conducting evaluations.
• 60% of managers who ask for feedback from employees and
develop processes to monitor their own performance report
feeling better prepared to lead others and accept new tasks.
11. Empirical hypothesis
An empirical hypothesis is a theory based on previous experiments
or past observations. You can use an empirical hypothesis to develop
an alternative hypothesis, and it's possible to test it using scientific
or empirical analysis. This often involves completing extensive
research and engaging in different types of testing. This type of
hypothesis may be effective if you want to validate multiple other
hypotheses and determine the correlation between two or more
elements.
Examples -
• Employees complete their work faster if the temperature in an
office is 70 degrees.
• Employees who arrive to work at least 15 minutes early also
complete their work 15 minutes earlier.
• New hires progress in their roles more quickly if they get the
opportunity to meet the members of their team prior to their first
week of work.
DIFFERENCES BETWEEN NULL HYPOTHESIS AND ALTERNATIVE HYPOTHESIS
DIFFERENCES BETWEEN NULL HYPOTHESIS AND ALTERNATIVE HYPOTHESIS
NULL HYPOTHESIS V/S ALTERNATIVE HYPOTHESIS

There are two types of statistical hypotheses:

Null Hypothesis (H0) – a statistical hypothesis that states that there

is no difference between a parameter and a specific value, or that
there is no difference between two parameters.

Alternative Hypothesis (H1) – a statistical hypothesis that states

the existence of a difference between a parameter and a specific
value, or states that there is a difference between two parameters.
We tend to want to reject the null hypothesis so we assume it is true
and look for enough evidence to conclude it is incorrect. We tend to
want to accept the alternative hypothesis. If the null hypothesis is
rejected then we must accept that the alternative hypothesis is true.
A simple rule may be followed to develop a
hypothesis:
1. What we hope or expect to be able to conclude as
a result of the test usually should be placed in
alternative hypothesis.
2. The null hypothesis should contain a statement of
equality (=) and an alternative hypothesis
contains a > or < than sign.
3. The null is the hypothesis that is tested.
4. The null and alternate hypothesis are
complementary.
DIRECTIONAL HYPOTHESIS V/S NON – DIRECTIONAL HYPOTHESIS
STEPS OF HYPOTHESIS TESTING

Step 1: Specify Your Null and Alternate Hypotheses

It is critical to rephrase your original research hypothesis (the
prediction that you wish to study) as a null (Ho) and alternative
(Ha) hypothesis so that you can test it quantitatively. Your first
hypothesis, which predicts a link between variables, is generally
your alternate hypothesis. The null hypothesis predicts no link
between the variables of interest.

Step 2: Gather Data

For a statistical test to be legitimate, sampling and data collection
must be done in a way that is meant to test your hypothesis. You
cannot draw statistical conclusions about the population you are
interested in if your data is not representative.
STEPS OF HYPOTHESIS TESTING

Step 3: Conduct a Statistical Test

Other statistical tests are available, but they all compare
within-group variance (how to spread out the data inside a
category) against between-group variance (how different
the categories are from one another).

Step 4: Determine Rejection Of Your Null Hypothesis

Your statistical test results must determine whether your
null hypothesis should be rejected or not. In most
circumstances, you will base your judgment on the p-value
provided by the statistical test.
STEPS OF HYPOTHESIS TESTING
In most circumstances, your present level of
significance for rejecting the null hypothesis will be
0.05 - that is, when there is less than a 5%
likelihood that these data would be seen if the null
hypothesis were true. In other circumstances,
researchers use a lower level of significance, such
as 0.01 (1%). This reduces the possibility of
wrongly rejecting the null hypothesis.
STEPS OF HYPOTHESIS TESTING
Step 5: Present Your Results
The findings of hypothesis testing will be discussed
in the results and discussion portions of your research
paper, dissertation, or thesis. You should include a
concise overview of the data and a summary of the
findings of your statistical test in the results section.
You can talk about whether your results confirmed
your initial hypothesis or not in the conversation.
Rejecting or failing to reject the null hypothesis is a
formal term used in hypothesis testing. This is likely
a must for your statistics assignments.
PARAMETRIC TEST AND NON-PARAMETRIC TESTS
OF HYPOTHESIS
Hypothesis testing determines the validity of the assumption
(technically described as null hypothesis) with a view to
choose between two conflicting hypothesis about the value
of a population parameter.
Hypothesis testing helps to decide on the basis of a sample
data, whether a hypothesis about the population is likely to
be true or false. Statisticians have developed several tests of
hypotheses (also known as the tests of significance)
For the purpose of testing of hypotheses which can be
classified as
(a) Parametric tests or standard tests of hypotheses and
(b) Non-parametric tests or distribution-free test of
hypothesis.
PARAMETRIC TESTS
Parametric tests usually assume certain properties of
the parent population from which we draw samples.
Assumptions like observations come from a normal
population, sample size is large assumptions about
the population parameters like mean, variance, etc.,
must hold good before parametric tests can be used.
TYPES OF PARAMETRIC TESTS
1. Z- Test
2. T- Test
3. F- Test (Analysis of Variance) (ANNOVA)
TYPES OF PARAMETRIC TESTING
1. Z Test
To determine whether a discovery or relationship is
statistically significant, hypothesis testing uses a z-
test. It usually checks to see if two means are the
same (the null hypothesis). Only when the
population standard deviation is known and the
sample size is 30 data points or more, z-test be
applied.
 TYPES OF PARAMETRIC TESTING
Z-Test
1. It is a parametric test of hypothesis testing.
2. It is used to determine whether the means are
different when the population variance is known
and the sample size is large (ie, greater than 30).
3. Assumptions of this test:
• Population distribution is normal
• Samples are random and independent.
• The sample size is large.
• Population standard deviation is known.
TYPES OF PARAMETRIC TESTING
2. T Test
A statistical test called a t-test is employed to
compare the means of two groups. To determine
whether two groups differ or if a procedure or
treatment affects the population of interest, it is
frequently used in hypothesis testing
TYPES OF PARAMETRIC TESTING
T - Test
1. It is a parametric test of hypothesis testing based
on Student’s T distribution.
2. It is essentially, testing the significance of the difference of
the mean values when the sample size is small (ie, less than 30)
and when the population standard deviation is not available.
3. Assumptions of this test:
• Population distribution is normal, and
• Samples are random and independent
• The sample size is small.
• Population standard deviation is not known.
4. Mann-Whitney ‘U’ test is a non-parametric counterpart of
the T-test.
TYPES OF HYPOTHESIS TESTING
3. F- Test (ANNOVA)
This test was developed by R.A. Fisher.
This test is used to compare the variance of the two
independent samples. When it is used as analysis of
variance, it helps to judge the significance of more
than two sample means at one and the same time.
An ANOVA test is a way to find out if survey or
experiment results are significant.
In other words, they help you to figure out if you
need to reject the null hypothesis or accept the
alternate hypothesis.
TYPES OF PARAMETRIC TESTING
F-Test
1. It is a parametric test of hypothesis testing based
on Snedecor F-distribution.
2. It is a test for the null hypothesis that two normal
populations have the same variance.
3. An F-test is regarded as a comparison of equality
of sample variances.
4. F-statistic is simply a ratio of two variances.
What Does “One-Way Annova” or “Two-
Way Annova Mean?
One-way or two-way refers to the number of
independent variables in your Analysis of Variance
test.
• One-way has one independent variable (with 2
levels).
For example: brand of cereal
• Two-way has two independent variables (it can
have multiple levels).
For example: brand of cereal, calories.
1. One way ANOVA
One way Annova is used to compare two means from
two independent (unrelated) groups using the F-
distribution. The null hypothesis for the test is that
the two means are equal. Therefore, a significant
result means that the two means are unequal.
Examples of when to use a one way ANOVA.
Situation 1: You have a group of individuals
randomly split into smaller groups and completing
different tasks. For example, you 82 Business
Research Methods might be studying the effects of
tea on weight loss and form three groups: green tea,
black tea, and no tea.
1. One way ANOVA
Situation 2:
Similar to situation 1, but in this case the
individuals are split into groups based on an
attribute they possess. For example, you might be
studying leg strength of people according to weight.
You could split participants into weight categories
(obese, overweight and normal) and measure their
leg strength on a weight machine.
Limitations of One way ANNOVA:
A one way ANOVA will tell you that at least two
groups were different from each other. But it won’t
tell you which groups were different. If your test
returns a significant f-statistic, you may need to run
an ad hoc test (like the Least Significant Difference
test) to tell you exactly which groups had a
difference in means.
2. Two Way ANOVA
A Two Way ANOVA is an extension of the One Way
ANOVA. With a One Way, you have one
independent variable affecting a dependent variable.
With a Two Way ANOVA, there are two
independents. Use a two way ANOVA when you
have one measurement variable (i.e. a quantitative
variable) and two nominal variables. In other words,
if your experiment has a quantitative outcome and
you have two categorical explanatory variables, a
two way ANOVA is appropriate.
2. Two Way ANOVA
For example, you might want to find out if there is
an interaction between income and gender for
anxiety level at job interviews. The anxiety level is
the outcome, or the variable that can be measured.
Gender and Income are the two categorical
variables. These categorical variables are also the
independent variables, which are called factors in a
Two Way ANOVA.
2. Two Way ANOVA
The factors can be split into levels. In the above
example, income level could be split into three
levels: low, middle and high income. 83 Business
Research Methods Gender could be split into three
levels: male, female, and transgender. Treatment
groups are all possible combinations of the factors.
In this example there would be 3 x 3 = 9 treatment
groups.
Assumptions for Two Way ANOVA
• The population must be close to a normal
distribution.
• Samples must be independent.
• Population variances must be equal.
• Groups must have equal sample sizes.
ANNOVA
1. Also called as Analysis of variance, it is a parametric test of
hypothesis testing.
2. It is an extension of the T-Test and Z-test.
3. It is used to test the significance of the differences in the mean
values among more than two sample groups.
4. It uses F-test to statistically test the equality of means and the
relative variance between them.
5. Assumptions of this test:
 Population distribution is normal, and
 Samples are random and independent.
 Homogeneity of sample variance.
6. One-way ANOVA and Two-way ANOVA are is types.
7. F-statistic = variance between the sample means/variance
within the sample.
ADVANTAGES OF PARAMETRIC TEST:
1. Don’t require data:
One of the biggest and best advantages of using parametric tests is
first of all that you don’t need much data that could be converted in
some order or format of ranks. The process of conversion is
something that appears in rank format and to be able to use a
parametric test regularly, you will end up with a severe loss in
precision.
2. Quite easy to calculate them:
Another big advantage of using parametric tests is the fact that you
can calculate everything so easily. In short, you will be able to find
software much quicker so that you can calculate them fast and quick.
Apart from parametric tests, there are other non-parametric tests,
where the distributors are quite different and they are not all that
easy when it comes to testing such questions that focus related to the
means and shapes of such distributions.
ADVANTAGES OF PARAMETRIC TEST:
3. Provides all the necessary information:
One of the biggest advantages of parametric tests is
that they give you real information regarding the
population which is in terms of the confidence
intervals as well as the parameters.
4. Other benefits of parametric tests:
The parametric test can perform quite well when they
have spread over and each group happens to be
different. While these non-parametric tests don’t
assume that the data follow a regular distribution,
they do tend to have other ideas and assumptions
which can become very difficult to meet.
DIS-ADVANTAGES OF PARAMETRIC
TEST:
1. They aren’t valid:
Parametric tests are not valid when it comes to small data
sets. The requirement that the populations are not still
valid on the small sets of data, the requirement that the
populations which are under study have the same kind of
variance and the need for such variables are being tested
and have been measured at the same scale of intervals.
2. The size of the sample is always very big:
Another disadvantage of parametric tests is that the size
of the sample is always very big, something you will not
find among non-parametric tests. That makes it a little
difficult to carry out the whole test.
DIS-ADVANTAGES OF PARAMETRIC TEST:
3. What you are studying here shall be represented
through the medium itself:
The best reason why you should be using a nonparametric
test is that they aren’t even mentioned, especially not
enough. They can also do a usual test with some non-normal
data and that doesn’t mean in any way that your mean
would be the best way to measure if the tendency in the
centre for the data.
For example if you look at the centre of any skewed spread
out or distribution such as income which could be measured
using the median where at least 50% of the whole median is
above and the rest is below. In case you think you can add
some billionaires to the sample, the mean will increase
greatly even if the income doesn’t show a sign of change.
DIS-ADVANTAGES OF PARAMETRIC
TEST:
4. You have ranked data as well as outliners you
just can’t remove:
Typical parametric tests will only be able to assess
data that is continuous and the result will be affected
by the outliers at the same time. The non-parametric
tests may also handle the ordinal data, ranked data
will not in any way be affected by the outliners. You
have to be sure and check all assumptions of non-
parametric tests since all have their own needs.
COMPARSION BETWEEN Z-TEST & T-TEST
Z Test T-Test

A z- test is a statistical test that is A t-test is used to check if the

used to check if the means of two means of two data sets are
data sets are different when the different when the population
population variance is known. variance is not known.

The sample size is greater than or

The sample size is lesser than 30.
equal to 30.

The data follows a normal The data follows a student-t

distribution. distribution.

The t test statistic is given

The one-sample z test statistic is
as [Math Processing Error] where
given by [Math Processing Error]
is the sample standard deviation
BASIC CONCEPTS CONCERNING TESTING OF
HYPOTHESES

(a) Null hypothesis and alternative hypothesis:

If we compare null hypothesis method with alternative
hypothesis method, then alternative hypothesis has more
superiority and if we proceed on the assumption that both
methods are equally good, then this assumption is termed as
the null hypothesis.
The null hypothesis is generally symbolized as H0 and the
alternative hypothesis as Ha.
BASIC CONCEPTS CONCERNING TESTING OF HYPOTHESES
(b) The level of significance:
This is very important concept in the context of hypothesis
testing. The level of significance has some percentage (usually
5%) which should be chosen with great care 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.
BASIC CONCEPTS CONCERNING TESTING OF
HYPOTHESES
(c) 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.
BASIC CONCEPTS CONCERNING TESTING OF
HYPOTHESES
(d) 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 α (alpha) known as α error, also
called the level of significance of test; and Type II error is
denoted by β (beta) known as β error
NON-PARAMETRIC TESTS
There are situations when the researcher cannot or does
not want to make assumptions. In such situations we use
statistical methods for testing hypothesis which are
called non-parametric tests because such tests do not
depend on any assumption about the parameters of the
parent population.
Most, non-parametric tests assume only nominal or
ordinal data, whereas parametric tests require
measurement equivalent to at least an interval scale. As a
result, non- parametric tests need more observations than
parametric tests to achieve the same size of Type I and
Type II error.
TYPES OF NON- PARAMETRIC TEST
Test (Chi-Square Test)
2. Spearman correlation coefficient
3. Kruskal-Wallis H-test [Not in Syllabus]
4. Wilcoxon signed-rank test [Not in Syllabus]
5. Mann-Whitney U test [Not in Syllabus]
TYPES OF NON – PARAMETRIC TEST
1. Test (Chi-Square)
You utilize a Chi-square test for hypothesis testing
concerning whether your data is as predicted. To
determine if the expected and observed results are
well-fitted, the Chi-square test analyses the
differences between categorical variables from a
random sample. The test's fundamental premise is
that the observed values in your data should be
compared to the predicted values that would be
present if the null hypothesis were true.
Chi-Square Test
1. It is a non-parametric test of hypothesis testing.
2. As a non-parametric test, chi-square can be used
test of goodness of fit. as a test of independence of two
variables.
3. It helps in assessing the goodness of fit between a set of
observed and those expected theoretically.
4. It makes a comparison between the expected
frequencies and the observed frequencies.
5. Greater the difference, the greater is the value of chi-
square.
6. If there is no difference between the expected and
observed frequencies, then the value of chi-square is equal
to zero.
Chi-Square Test
7. It is also known as the “Goodness of fit test” which determines
whether a particular distribution fits the observed data or not.

8.Chi-square is also used to test the independence of two variables.

9. Conditions for chi-square test:

 Randomly collect and record the Observations.
 In the sample, all the entities must be independent.
 No one of the groups should contain very few items, say less
than 10.
 The reasonably large overall number of items. Normally, it
should be at least 50, however small the number of groups may
be.
Chi-Square Test
10. Chi-square as a parametric test is used as a test
for population variance based on sample variance.
11. If we take each one of a collection of sample
variances, divide them by the known population
variance and multiply these quotients by (n-1),
where n means the number of items in the sample,
we get the values of chi-square.
2. Spearman Rank Correlation:
Spearman Rank Correlation Coefficient is a
non-parametric measure of correlation.
Spearman Rank Correlation Coefficient tries to
assess the relationship between ranks without
making any assumptions about the nature of their
relationship.
The Spearman’s rank coefficient of correlation or
Spearman correlation coefficient is a nonparametric
measure of rank correlation (statistical dependence
of ranking between two variables).
2. Spearman Rank Correlation:
Named after Charles Spearman, it is often denoted
by the Greek letter ‘ρ’ (rho) and is primarily used
for data analysis.
It measures the strength and direction of the
association between two ranked variables. But
before we talk about the Spearman correlation
coefficient, it is important to understand Pearson’s
correlation first. A Pearson correlation is a statistical
measure of the strength of a linear relationship
between paired data.
2. Spearman Rank Correlation:
• The Spearman Coefficient,⍴, can take a value
between +1 to -1 where,
• A ⍴ value of +1 means a perfect association of
rank
• A ⍴ value of 0 means no association of ranks
• A ⍴ value of -1 means a perfect negative
association between ranks.

Closer the ⍴ value to 0, weaker is the association

between the two ranks.
2. Spearman Rank Correlation:
Spearman's rank correlation measures the strength
and direction of association between two ranked
variables.
It basically gives the measure of monotonicity of
the relation between two variables i.e. how well the
relationship between two variables could be
represented using a monotonic function.
 Why Do we Need a Parametric Test?
• To find the confidence interval for the population
means with the help of known standard deviation.
• To determine the confidence interval for population
means along with the unknown standard deviation.
• To find the confidence interval for the population
variance.
• To find the confidence interval for the difference of
two means, with an unknown value of standard
deviation.
Advantages for using nonparametric methods:
1. They can be used to test population
2. parameters when the variable is not normally
distributed.
3. They can be used when the data are nominal or ordinal.
4. They can be used to test hypotheses that do not
involve population
5. parameters.
6. In some cases, the computations are easier than those for
the parametric counterparts.
7. They are easy to understand.
Disadvantages for using nonparametric methods:
1. They are less sensitive than their parametric counterparts when
the assumptions of the parametric methods are met. Therefore,
larger differences are needed before the null hypothesis can be
rejected.
2. They tend to use less information than the parametric tests. For
example, the sign test requires the researcher to determine only
whether the data values are above or below the median, not how
much above or below the median each value is.
3. They are less efficient than their parametric counterparts when
the assumptions of the parametric methods are met. That is,
larger sample sizes are needed to overcome the loss of
information.
For example the nonparametric sign test is about 60% as efficient
as its parametric counterpart, the t-test. Thus, a sample size of 100 is
needed for use of the sign test, compared with a sample size of 60
for use of the t-test to obtain the same results.
Differences Between Parametric and Non-parametric
Tests
Parameter Parametric Test Nonparametric Test

Assume normal distribution No assumptions about

Assumptions
and equal variance distribution or variance

Suitable for both continuous

Data Types Suitable for continuous data
and categorical data

Based on population Based on ranks or

Test Statistics
parameters frequencies
Generally more powerful More robust to violations of
Power
when assumptions are met assumptions

Requires larger sample size,

Sample Size especially when distributions Requires smaller sample size
are non-normal

Results are based on ranks or

Straightforward interpretation
Interpretation of Results frequencies and may require
of results
additional interpretation
THE CLASSICAL MODEL:
Classical normal linear regression is a type of statistical analysis
used to predict or explain the relationship between one
dependent variable (the outcome) and one or more independent
variables (the predictors).
It is based on the linear equation y = a + bx, where y is the
dependent variable, a is an intercept constant, b is the slope, and
x is the independent variable.
It assumes that the data follows a linear relationship, meaning
that the data points all line up in a straight line when plotted on a
graph and the relationship between the variables can be
described by the equation.
It also assumes that the data has a normal distribution, meaning
that most of the data points are located close to the mean value,
with the remaining data points spread out evenly on either side
of the mean.
THE CLASSICAL MODEL:
OLS (Ordinary least Squares) is the best procedure for
estimating a linear regression model only under certain
assumptions.
The word classical refers to these assumptions that are
required to hold.
• Ordinary Least Squares (OLS) is the most common
estimation method for linear models and that’s true for a
good reason. As long as your model satisfies the OLS
assumptions for linear regression, you can rest easy
knowing that you’re getting the best possible estimates.
• Regression is a powerful analysis that can analyse multiple
variables simultaneously to answer complex research
questions. However, if you don’t satisfy the OLS
assumptions, you might not be able to trust the results.
ASSUMPTIONS OF THE CLASSICAL LINEAR
REGRESSION MODEL:
1. The regression model is linear, correctly specified, and
has an additive error term.
2. The error term has a zero population mean.
3. All explanatory variables are uncorrelated with the error
term
4. Observations of the error term are uncorrelated with each
other (no serial correlation).
ASSUMPTIONS OF THE CLASSICAL LINEAR
REGRESSION MODEL:
5. The error term has a constant variance (no
heteroskedasticity).
6. No explanatory variable is a perfect linear function of
any other explanatory variables (no perfect
multicollinearity).
7. The error term is normally distributed (not required).
Essentially, the rest of the course deals with what happens
when one or more of these assumptions do not hold and
what we can do to remedy the situation.