Lecture 3

Hypothesis Testing II

Niza
Talukder
So far, the topics we have covered are:

• Test of mean of a normal distribution: population variance known

• One tailed and two tailed tests
• P value
• Type I and Type II error
• Power of test
• Test of mean of a normal population: Population variance unknown
• Test of population proportion
• Hypothesis test of variance of a normal population

Today we shall look at

• Testing difference between means of two independent population
• Testing equality of variances of two normal population
• F distribution
 Tests for difference between two means (Independent samples)

• There are a number of applications where we wish to draw conclusions about the differences
between population means instead of conclusions about the absolute levels of the means.

• For example, we might want to compare the output of two different production processes for
which neither population mean is known. Similarly, we might want to know if one marketing
strategy results in higher sales than another without knowing the population mean sales
for either.

• These questions can be handled effectively by various different hypothesis-testing

procedures.

• Suppose there is a random sample of from a normal population with mean and variance and an
independent sample of observations from a normal population with mean and variance The
observed sample means are and and significance level is α.
• A political science professor is interested in comparing
the characteristics of students who do and do not vote in national elections.
For a random sample of 114 students who claimed to have voted in the last
presidential election, she found a mean grade point average of 2.71 and a
standard deviation of 0.64. For an independent random sample of 123
students who did not vote, the mean grade point average was 2.79 and the
standard deviation was 0.56. Test, against a two-sided alternative, the null
hypothesis that the population means are equal.
• For a random sample of 125 British entrepreneurs, the mean number of
job changes was 1.91 and the sample standard deviation was 1.32. For an
independent random sample of 86 British corporate managers, the mean
number of job changes was 0.21 and the sample standard deviation was
0.53. Test at 10%, the null hypothesis that the population means are equal
against the alternative that the mean number of job changes is higher for
British entrepreneurs than for British corporate managers.
  Testing the Equality of Two Population Proportions (Large Samples)

• Now we develop procedures for comparing two population proportions. We consider a standard
model with a random sample of observations from a population with a proportion Px and a
second independent random sample of observations from a population with a proportion Py.

• Previously we learnt that for large samples, proportions can be approximated as normally
distributed random variables, and, as a result,

has a standard normal distribution. We want to test the hypothesis that the population proportions Px
and Py are equal.
 • We want to test the hypothesis that the population proportions Px and
Py are equal. Denote their common value by . Then under this
hypothesis

H0 : Px - Py = 0 or H0 : Px = Py

follows to a close approximation a standard normal distribution.

 • Finally, the unknown proportion can be estimated by a pooled estimator defined
as follows:

• The null hypothesis in these tests assumes that the population proportions are equal. If
the null hypothesis is true, then an unbiased and efficient estimator for can be obtained
by combining the two random samples, and, as a result,
is computed using this equation.
Then, we can replace the unknown by
to obtain a random variable that has a distribution close to the standard normal for large sample
sizes.
• A random sample of 1,556 people in country A were asked to
respond to this statement: Increased world trade can increase our
per capita prosperity. Of these sample members, 38.4% agreed with
the statement. When the same statement was presented to a random
sample of 1,108 people in country B, 52.0% agreed. Test the null
hypothesis that the population proportions agreeing with this
statement were the same in the two countries against the alternative
that a higher proportion agreed in country B.
 F-distribution

• There are a number of situations such as quality control, when we are interested in comparing the
variances from two normally distributed populations.

• Here we develop a procedure for testing the assumption that population variances from independent
samples are equal. To perform such tests, we introduce the F probability distribution.

• Suppose we take samples of sizes and respectively from either a single population or from two
populations with the same variance. We calculate the variance and then find the ratio. If we did this
for a large number of pairs of samples, the ratios form a distribution known as the F distribution
whose properties are known for various numbers of degrees of freedom.

• The F distribution is an asymmetric distribution that has a minimum value of 0, but no maximum
value. The curve reaches a peak not far to the right of 0, and then gradually approaches the horizontal
axis the larger the F value is.
 • The F distribution approaches, but never quite touches the horizontal axis.

• The F distribution has two degrees of freedom, for the numerator, for the denominator. For each
combination of these degrees of freedom there is a different F distribution.

• The F distribution is most spread out when the degrees of freedom are small. As the degrees of
freedom increase, the F distribution is less dispersed. f(4, 8) would refer to an F distribution
with v1 = 4 and v2 = 8 degrees of freedom

 • The f statistic, also known as an f value, is a random variable that has an F distribution.

  Testing equality of variances of two normal populations:

In practical applications we usually arrange the F ratio so that the larger sample variance
is in the numerator and the smaller is in the denominator. Thus, we need to use only
the upper cutoff points to test the hypothesis of equality of variances. When the population
variances are equal, the F random variable becomes

and this ratio of sample variances becomes the test statistic. The intuition for this test is
quite simple: If one of the sample variances greatly exceeds the other, then we must conclude
that the population variances are not equal. The hypothesis tests of equality of variances
are summarized as follows.
• The research staff of Investors Now, an online financial trading firm, was interested in
determining if there is a difference in the variance of the maturities of AAA-rated industrial
bonds compared to CCC-rated industrial bonds. At 0.02 level, test the null hypothesis.
• It is hypothesized that the more expert a group of people examining personal
income tax filings, the more variable the judgments will be about the accuracy.
Independent random samples, each of 30 individuals, were chosen from groups
with different levels of expertise. The low-expertise group consisted of people who
had just completed their first intermediate accounting course.

Members of the high-expertise group had completed undergraduate studies and were
employed by reputable CPA firms. The sample members were asked to judge the
accuracy of personal income tax filings. For the
low-expertise group, the sample variance was 451.770, whereas for the high-expertise
group, it was 1,614.208. Test the null hypothesis that the two population variances are
equal against the alternative that the true variance is higher for the high-expertise
group.