Chapter Three

Hypothesis Testing
 3.1. Basic concepts

• Hypothesis is a statement about the value of a population

parameter developed for the purpose of testing or
• It is an assertion or tentative solution.
• Hypothesis testing is a procedure used for testing hypothesis.
 Types of hypothesis

There are two types of hypothesis

• The Null hypothesis: - is an assertion that a population parameter assumes a

fixed value.

– It always includes the equality sing, and is denoted by Ho.

• The null hypothesis is often established in such a way that it states ‘nothing

is different’

• The alternative hypothesis: - describes what you will conclude if you reject

the null hypothesis.

• It is a statement that is accepted if the sample data provide evidence that the

null hypothesis is false.

 3.2. Steps in Hypothesis testing
• There are five-step procedures that systematize hypothesis testing.
Step I. Identity the null hypothesis and the alternate hypothesis
• The first step is to state the hypothesis to be tested. It is called the
Null Hypothesis, designated by Ho and read “H sub-zero”.
Step II: Determine the level of significance
• It is the probability of rejecting the null hypothesis when it is
actually true.
• The level of significance is designated by the Greek letter alpha, ,
it is also referred to as the level of risk.
 Step III: Find the Test statistic

• There are many test statistics, Z (the normal

distribution), the student t test, F, and X 2 or the chi –
square.
• Test statistic – A value, determined from sample
information, used to reject or not to reject the null
hypothesis.
• In hypothesis testing the test static Z is computed by
Z= x  N

n
 Step IV: Determine the decision rule
• A decision rule is a statement of the conditions under
which the null hypothesis is rejected and the conditions
under which it is not rejected.
• The critical value separates the critical region from the
noncritical region. The symbol for critical value is C.V.
 Cont’d…..
• The critical or rejection region is the range of values of the test
value that indicates that there is a significant difference and that
the null hypothesis should be rejected.

• The noncritical or non rejection region is the range of

values of the test value that indicates that the difference
was probably due to chance and that the null hypothesis
should not be rejected.
 Steps V: Take a sample and made a decision

• At this step a decision is made to reject or not to reject

the null hypothesis.
3.3. Type I and type II errors (concepts)
• In hypothesis testing, there are two possible kinds of
errors called type I error and type II error.
• Type I error: - is the error committed in rejecting the
null hypothesis while it is actually true.
 – type I error is denoted by  and is called the level of

significance.

– i.e., the level of significance is the probability of rejecting the

null hypothesis when it is actually true.

Type II error: - is the error that is committed in accepting the null

hypothesis when it is actually false.

• The probability of type II error is designated by a Greek letter beta

().

• Notice that there are two possibilities for a correct decision and two

possibilities for an incorrect decision .

We often refer to these two possible errors as the alpha error, ,
and the beta error, , Alpha () is the probability of making a
Type I error, and beta () is the probability of making a type II
error.

H0 true H0 false

Reject H0 Error Type I Correct decision

Do not reject H0 Correct decision Error Type II

 Two-tailed and one-tailed tests
• A one-tailed test indicates that the null hypothesis
should be rejected when the test value is in the critical
region on one side of the mean.
• A one-tailed test is either a right tailed test or left-
tailed test, depending on the direction of the inequality
of the alternative hypothesis.
• In a two-tailed test, the null hypothesis should be
rejected when the test value is in either of the two
critical regions.
 • For hypothesis tests involving a population mean, we let μ0
denote the hypothesized value and we must choose one of
the following three forms for the hypothesis test.

• The three possible forms of hypotheses H0 and H1 are shown

here. Note that the equality always appears in the null
hypothesis H0
• .  =0
Ho: Ho:  = µ0 Ho:  = µ0
H1:   0 H1:  > 0 Ho:   µ0
Two-tailed test Right- tailed test Left-tailed test
 Hypothesis testing common phrase
 
Is greater than Is less than
Is above Is below

Is higher than Is lower than

Is longer than Is shorter than

Is bigger than Is smaller than

 = 
Is equal to Is not equal to
Is the same as Is different from
Has not changed from Has changed from
Is the same as Is not the same as
 Finding critical values for 
Find critical and noncritical Regions for  0.01 (left -Tailed Test)

non critical region

0.9900
Critical region
0.01

-2.33
Find critical and noncritical Regions for  0.01 (Left-Tailed Test)

non critical region

0.9900
Critical region
0.01

2.33
Find critical and noncritical Regions for  = 0.01 (Two-Tailed Test)
For a two-tailed test, then, the critical region must be split into two equal parts.
If  = 0.01, then one-half of the area, or 0.005, must be to the right of the mean and
one half must be to the left of the mean.
non critical region
0.9900
Critical region
Critical region
0.005
0.005

-2.58 +2.58
 Critical value for common confidence
interval
Left tailed Right tailed
 = 0.10, C.V. = +1.28  = 0.10, C.V. = –1.28
 = 0.05, C.V. = +1.65 = 0.05, C.V. = –1.65
 = 0.01, C.V. = +2.33  = 0.01, C.V. = –2.33
Two tailed test
 = 0.10, C.V. =  1.65
 = 0.05, C.V. =  1.96
 = 0.01, C.V. =  2.58
Z value
3.5. Hypothesis testing for population means and
proportion
• Methods for testing hypothesis for population
means and proportion
A. Critical value method
Steps for testing hypothesis by using critical value
method
Step 1 State the hypotheses and identify the claim.
Step 2 Find the critical value(s) from the appropriate table.
Step 3 Compute the test value.
Step 4 Make the decision to reject or not reject the null
hypothesis.
Step 5 Summarize the results (Interpretation).
 B. P-value method
• The P-value (or p-value or probability value) is the probability of
getting a value of the test statistic,

• that is at least as extreme as the one representing the sample data,

assuming that the null hypothesis is true.
Steps for testing hypothesis by using p-value method
Step 1 State the hypotheses and identify the claim.
Step 2 Compute the test value.
Step 3 Find the P-value.
Step 4 Make the decision
Step 5 Summarize the results.
 3.5.1. Hypothesis testing for population means

• In case of testing the hypothesis for the population mean we

consider two case i.e standard deviation known and unknown
case.
3.5.1.1 Hypothesis testing for the population mean: σ known case
Many hypotheses are tested using a statistical test based on the
following general formula:
Test statistics =
The z test is defined formally as follows.
• The z test is a statistical test for the mean of a population. It can be
used when n 30, or when the population is normally distributed
and s is known. The formula for the z test is
X  0
Z 
 n
Z is the standard normal distribution
0 is the hypothesized mean

X is the sample mean

 is the population standard deviation
n is the sample size.
 Decision rule
Critical value
Test value  critical value = do not reject null hypothesis
Test value  critical value = reject null hypothesis
P- value
If P-value   = do not reject null hypothesis
If P-value  = reject null hypothesis
Example1: A researcher reports that the average salary of assistant
professors is more than birr 42,000. A sample of 30 assistant
professors has a mean salary of birr 43,260. At = 0.05, test the
claim that assistant professors earn more than birr 42,000 per
year. The standard deviation of the population is birr 5,230.
 Test the hypothesis by using critical value and p-value
method?
Solution
Critical value method
Step 1 State the hypotheses and identify the claim.
H0: µ= $42,000 and H1: µ $42,000 (claim)
Step 2 Find the critical value. Since = 0.05 and the test is a right-
tailed test, the critical value is z= 1.65.
Z value
Step 3 Compute the test value.

X  O br 43,250  br 42,000
Z  Z  1.32
 n 5230 30
Step 4 Make the decision.
Since the test value, +1.32, is less than the critical value, +1.65, and
is not in the critical region, the decision is to not reject the null
hypothesis.
Step 5 Summarize the results. There is not enough evidence to
support the claim that assistant professors earn more on average
than $42,000 per year.
 P- Value method
Step: 1 State the hypotheses and identify the claim.
H0: µ= br 42,000 and H1: µ br42,000 (claim)

Step 2 Compute
X
the test value.
Z  O br 43,250  br 42,000
 n Z  1.32
5230 30

• Step 3 Find the P-value. 0.4066

– find the corresponding area under the normal distribution for z =
1.32.
• It is 0.4066. Subtract this value for the area from 0.5 to find the
area in the right tail. 0.5000 - 0.4066 = 0.0934.
• Hence the P-value is 0.0934
• Step 4 Make the decision.
– The decision is to not reject the null hypothesis, since the P-
value is greater than 0.05.
• Step 5 Summarize the results.
– There is not enough evidence to support the claim that
assistant professors earn more on average than $42,000 per
year
Example 2: A researcher claims that the average
wind speed in a certain city is 8 miles per hour a
sample of 32 days has an average wind speed of
8.2 miles per hour. The standard deviation of the
population is 0.6 mile per hour. At =0.05, is
there enough evidence to reject the claim? Use the
P-value method.
 O

8 .2  8
X 
Z 
 n

Z 1.89
0.6 32
Step 3 Find the P-value. Find the corresponding area for z =1.89. It
is 0.4706. Subtract the value from 0.5000.
0.5000 - 0.4706 = 0.0294.
Since this is a two-tailed test, the area of 0.0294 must be doubled to
get the P-value. 2(0.0294) = 0.0588
Step 4 Make the decision. The decision is to not reject the null
hypothesis, since the P-value is greater than 0.05.
Step 5 Summarize the results. There is no enough evidence to reject
the claim that the average wind speed is 8 miles per hour.
Practice, practice makes perfect