HYPOTHESIS TESTING

In this chapter
 We develop a procedure to test the
validity of a statement about a population
parameter.
Examples:
 The mean starting salary for graduates of
four year business schools is Rs. 32,000
per month.
 Eighty percent of those who play the state
lottery regularly never win more than $
100 in any one play.
What is Hypothesis?
 Is a statement about a population
developed for the purpose of testing.
 In most cases the population is too
large that it is not feasible to study
all items in the population.
 We can, therefore, test a statement
to determine whether the sample
does or does not support the
statement concerning the population.
HYPOTHESIS TESTING
 A procedure based on sample
evidence and probability theory to
determine whether the hypothesis is
a reasonable statement.
Five-Step Procedure for Testing a
Hypothesis

 State the Null Hypothesis (Ho) and

the Alternate Hypothesis (Hı)
 Select a level of significance.
 Identify the test statistic.
 Formulate a decision rule.
 Make a decision
Step 1: State the Null Hypothesis (Ho)
and the Alternate Hypothesis (Hı)

 The first step is to state the

hypothesis being tested. It is called
the null hypothesis, designated (Ho).
 The capital H stands for hypothesis,
and the subscript zero implies “no
difference”.
 There is usually a “not” or a “no”
term in the null hypothesis, meaning
that there is “no change”.
 For example, the null hypothesis is that
the number of miles driven on the steel-
belted tire is not different from 60,000.
 Therefore, Ho: μ = 60,000.
 We either reject or fail to reject the null
hypothesis.
 The null hypothesis is a statement that is
not rejected unless our sample data provide
convincing evidence that it is false.
ALTERNATE HYPOTHESIS
 The alternate hypothesis describes
what you will conclude if you reject
the null hypothesis. It is written as
Hı.
 It is also called the research
hypothesis.
 The alternate hypothesis is accepted
if the sample data provide us with
enough statistical evidence that the
null hypothesis is false.
Example:
 A recent article indicated that the
mean age of U.S. commercial
aircraft is 15 years.
 The null hypothesis represents the
current or reported condition.
 Ho: μ = 15.
 The alternate hypothesis is that the
statement is not true: H1: μ ≠15.
Select a level of significance
LEVEL OF SIGNIFICANCE The probability of making a
Type 1 error when the null hypothesis is true as an equality.

 The level of significance is designated the

Greek letter alpha. It is also sometimes
called level of risk.
 There is no one level of significance that it is
applied to all tests.
 The common choices for are .05, .01 and .
10.
 Traditionally, .05 level is selected
for consumer research projects, .01
for quality assurance, and .10 for
political polling.
Type I and Type II Errors
Population Condition

Ho True Hı True

Accept Ho Correct Type II

Conclusion Error
Conclusion

Reject Ho Type I Correct Error

Conclusion
Type I Error from Indian Epic
It may be recalled that in “Abhigyan
Shakuntalam” , king Dushyanta had married
shakuntala when he met her in her village, while
wandering in a jungle. He gave her his royal ring
as a gift which could also serve as her identity
when she would come to meet him, in future.
However, while going to meet him, she lost the
ring in the river. When she reached Dushayant’s
place and met him, he failed to recognize her
especially since she did not have the ring. Thus
Dushayant committed Type I error as he
rejected Shankutla as his wife when, in fact, she
was his true wife.
Type II Error from Indian Epic
In Mahabharta epic, Dronacharya – the
‘guru’ of both Pandavas and Kauravas –
was fighting from the Kaurav’s side.
However, he had taken a vow that he
would stop fighting if and when his son
Aswathama was killed in the war. It so
happened that during the war, one
elephant named Aswathama was killed.
Lord - Krishna the mentor of Pandavas –
thought of a strategy to make
Dronacharya lay down his arms.
Yudhishter on advice of lord Krishna, went
to Dronacharya and pronounced
Aswathama was dead-but was it a human
or an elephant? Dronacharya, on listening
the first part of Yudhishtir’s sentence,
presumed that his son was dead, and he
left for his heavenly abode without
waiting to listen to the second part of
Yudhishter’s sentence. Thus, Droncharya
could be said to have committed Type II
error i.e. accepting a statement when it
was not true.
Select a Test Statistic
 A value, determined from sample
information, used to determine
whether to reject the null
hypothesis.
 The test criteria that are frequently
used in hypothesis testing are Z, t,
F, Χ test.
Formulate the Decision Rule
 A decision rule is a statement of the
specific conditions under which the
null hypothesis is rejected and the
conditions under which it is not
rejected .
Step 5: Make a Decision
 Make a decision regarding the null
hypothesis on the sample
information .
 Interpret the results of the test.
One-Tailed Test of Hypothesis
Let us consider a null and alternative hypotheses as below:

Lower Tail Test Upper Tail Test

Ho: μ ≥ μo Ho: μ ≤ μo
H1: μ < μo H1: μ > μo

One-tailed test contains the rejection region on one tail of the

sampling distribution of a test statistic. In case of a left-tailed
test, a researcher rejects the null hypothesis if the computed
sample statistic is significantly lower than the hypothesized
population parameter (considering the left side of the curve in
Figure 10.5).
In case of a right-tailed test, a researcher rejects the null
hypothesis if the computed sample statistic is significantly higher
than the hypothesized population parameter (considering the
right side of the curve in Figure 10.6).
Figure 10.5: Acceptance and rejection regions for one-tailed (left) test
(alpha = 0.05)
Figure 10.6: Acceptance and rejection regions for one-tailed (right) test
(alpha = 0.05)
 Population Mean:  known
One - tailed Test
Lower Tail Test Upper Tail Test
Ho: μ ≥ μo H o: μ ≤ μ o
H1: μ < μo H1: μ > μo
Example:
 The Federal trade Commission (FTC)
periodically conducts statistical studies
designed to tests the claims that
manufacturers make about their products.
 For example, the label on a large can of
Hilltop Coffee States that the can contains
3 pounds of coffee.
 The FTC knows that Hilltop production
process cannot place exactly 3 pounds of
coffee, even if the mean filling weight is
for the population of all cans filled is 3
pounds per can.
 However, as long as the population mean
filing weight is at least 3 pounds per can,
the rights of consumers can be protected.
 Thus, the FTC interprets the label
information on a large can of coffee as a
claim by Hilltop that the population mean
is at least 3 pounds per can.
 We will show how the FTC can check the
hilltops claim by conducting the lower tail
hypothesis test?
Develop Null and Alternative
Hypothesis

If the population mean filling weight

is at least 3 pounds per can,
Hilltop’s claim is correct.

H o: μ ≥ 3
H ı: μ < 3

The hypothesized value of population

mean is μo = 3
 Suppose a sample of 36 cans of coffee is
selected.
 Sample mean x is computed as an estimate of
population mean μ.
 If x < 3 pounds, the sample results will cast a
doubt on null hypothesis.
 We want to know how much less than 3 pounds
must x be before we would be willing to declare
the difference significant and risk making a Type
I error by falsely accusing Hilltop of a label
violation.
 The director of FTC’s program made
the following statement:
If the company is meeting its weights
specifications at µ = 3, I would like 99%
chance of not taking any action against the
company. Although I do not want to accuse
the company wrongly of underfilling its
product, I am willing to risk a 1% chance of
making such an error.”
Therefore from the director’s statement we
would set a = .01
Thus we must design the hypothesis test so
that probability of making a type I error when
µ = 3 is .01
Test Statistic
 For the Hilltop Coffee study,
previous FTC test show that the
population standard deviation can
be assumed known with the value
of σ = .18
 In addition these tests also show
the population of filling weights can
be assumed to have a normal
distribution.
Sampling distribution of x

 x    .18  0.03
n 36
TEST STATISTIC FOR HYPOTHESIS TESTS ABOUT A POPULATION
MEAN: σ KNOWN
z  x  0
 / n
Suppose the sample of 36 Hilltop coffee
cans provides a sample mean of x =
2.92 small enough to cause us to reject
Ho ?

x = 2.92; σ = .18 and n = 36

z  x   0  2.92  3  2.67
 / n .18/ 36
Critical Value Approach
 The critical value is the value of the
test statistic that corresponds to the
area of in the lower tail of the
standard normal distribution.
 Using standard normal distribution
table, we find that z = -2.33 provides
an area of .01 in the lower tail.
For Hilltop Coffee Study Critical Value
Rejection Rule for a level of significance of .
01 is

Reject Ho if Z ≤ -2.33
  .01
z
0
Z=-2.33
 x = 2.92
 z = -2.67
 Since z = -2.67 < -2.33, we can
reject Ho and conclude that Hilltop
coffee is under filling cans.
p-value approach
 The p-value is a probability,
computed using the test statistic,
that measures the support (or lack
of support) provided by the sample
for the null hypothesis.
 It has become the preferred method
when using computer software
packages such as Excel, SPSS,
Minitab.
 Because p-value is probability, it
ranges from 0 to 1.
 In general the smaller the p-value,
the less support it indicates for the
null hypothesis.
p-value for Hilltop coffee example
 Thus the p-value is the probability that the
test statistic z is less than or equal to -2.67
 Using the standard normal distribution
table, we find that the area between the
mean and z = -2.67 is .4962.
 Thus the p-value is .5000-.4962 = .0038
 This p-value indicates a small probability of
obtaining a sample mean of x = 2.92 or
smaller when sampling from a population
with μ = 3.
 .0038 <= .01, therefore we reject H0
Two – Tailed Test

Ho: μ = μo
H 1 : μ ≠ μo
Example:
 The U.S. Golf Association (USGA) establishes rules
that manufacturers of golf equipment must meet if
their products are to be acceptable for use in USGA
events.
 MaxFlight uses a high technology manufacturing
process to produce golf balls with average distances
from 295 yards.
 When the average distance falls below 295 yards,
the company worries about losing sales because the
balls do not provide as much distance as advertised.
 When the average distance passes 295 yards,
MaxFlight’s golf balls may be rejected by the
USGA for exceeding the overall distance
standard concerning carry and roll.
 MaxFlights’s quality control program involves
taking periodic samples of 50 golf balls to
monitor the manufacturing process.
 For each sample, a hypothesis test is
conducted to determine whether the process
has fallen out of adjustment.
 We assume that the process is functioning
correctly; i.e. the golf balls produced have
a mean distance of 295 yards.

H0: μ = 295
H1: μ ≠ 295 

 If the sample mean is less than is

significantly less than 295 yards or
significantly greater than 295 yards, we will
reject H0.
x

 The quality control team selected = .05 as

the level of significance for the test. Data
from previous tests conducted when the
process was known to be in adjustment
show that the population standard
deviation can be assumed known with a
value of = 12. Thus, with a sample size of
n = 50, the standard error of x is
 x    12  1.7
n 50
 Because the sample size is large, the
central limit theorem allows us to conclude
that the sampling distribution of can be
approximated by a normal distribution.

Suppose that a sample of 50 golf balls is

selected and that the sample mean is =
297.6 yards. This sample mean provides
support for the conclusion that the
population mean is larger than 295 yards.
Computing z - statistic

z  x  0  297.6  295  1.53

/ n 12/ 50
Critical Value Approach

 With a level of significance of = .05

 The area in each tail beyond the
critical values is  / 2  .05 / 2  .025
 Using the table of of areas of
standard normal distribution.
 z
-1.96 0 1.96

Reject H0 Reject H0
  z.025  1.96 and z.025  1.96

Reject H0 if z ≤ 1.96 or if z ≥ 1.96

Because the value of the test for the MaxFlight study is z = 1.53,
The statistical evidence will not permit us to reject the null
hypothesis at the .05 level of significance.
p-value Approach
 Area between mean and z = 1.53 is .4370
 .5000 - .4370 = .0630
 P-value = 2(.0630) = .1260
 Since p-value = .1260 >.05
 Null hypothesis is not rejected, no action
will be taken to adjust the MaxFlight
manufacturing process.
P( z  1.53)  .0630 P( z  1.53)  .0630

z
-1.53 0 1.53

P-value = 2(.0630) = .1260

Example:
• The Jamestown Steel Company
manufactures and assembles desks
and other office equipment at several
plants in Western New York State. The
weekly production of Model A325 desk
at the Fredonia Plant follows a normal
distribution, with a mean of 200 and a
standard deviation of 16. recently
because of market expansion, new
production methods have been
introduced and new employees hired.
 The vice president of manufacturing
would like to investigate whether
there has been a change in the
weekly production of the model
A325 desk. To put it another way, is
the mean number of desk produced
at the Florida plant different from
200 at the .01 significance level?
Solution
 State the null hypothesis and
alternate hypothesis:
H 0 :   200
H1 :   200

 This is a two-tailed test because the

alternative hypothesis does not
state a direction.
 As noted, the .01 level of
significance is used.
 It is the probability of committing a
Type I error, and it is the probability
of rejecting a true null hypothesis.
Select the test statistic

z  x
/ n
Formulate the decision Rule
 The decision rule is formulated by
finding the critical values of z.
 Since it is a two tailed test, half of .
01, or .005, is placed in each tail.
 The area where H0 is not rejected,
located between the two tails, is
therefore .99.
 Make a decision and interpret the result

z  x    203.5  200  1.55

/ n 16 / 50

Because H0 does not fall in the rejection region, H0 is not rejected

We conclude that population mean is not different from 200.
 Lower Tail Test Upper Tail Test Two-Tailed Test

Hypothesis H 0 :   0 H 0 :   0 H 0 :   0
H1 :   0 H1 :   0 H1 :   0
Test Statistic x  0 x  0 x  0
  
n n n
Rejection Rule:
p-value app Reject H 0 if Reject H 0 if Reject H 0 if
p  value   p  value   p  value  

Rejection Rule: Reject H 0 if

Critical value Reject H 0 if Reject H 0 if
z   z
z   z z  z
or if z  z