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Fundamentals of Hypothesis-testing Methodology

# Fundamentals of Hypothesis-testing Methodology

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Hypothesis testing typically begins with a theory, a claim, or an assertion about a particular parameter of a population. There are a variety of methods through which you can test your hypothesis.
Hypothesis testing typically begins with a theory, a claim, or an assertion about a particular parameter of a population. There are a variety of methods through which you can test your hypothesis.

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12/23/2013

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Statistics

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Subject: Statistics

F
UNDAMENTALS OF
H
YPOTHESIS
-T
ESTING
M
ETHODOLOGY

Hypothesis testing typically begins with a theory, a claim, or an assertion about a particularparameter of a population.Some of them are:

The Null and Alternative Hypotheses
The hypothesis that the population parameter is equal to the company specification isreferred to as the null hypothesis. A null hypothesis is often one of status quo and isidentified by the symbol H0. Whenever a null hypothesis is specified, an alternativehypothesis is also specified, and it must be true if the null hypothesis is false. The alternativehypothesis H1, is the opposite of the null hypothesis H0. The alternative hypothesisrepresents the conclusion reached by rejecting the null hypothesis. The null hypothesis isrejected when there is sufficient evidence from the sample data that the null hypothesis isfalse.

Regions of Rejection and Non-rejection
The sampling distribution of the test statistic is divided into two regions, a region of rejection (sometimes called the critical region) and a region of non-rejection. If the teststatistic falls into the region of non-rejection, you do not reject the null hypothesis. Theregion of rejection consists of the values of the test statistic that are unlikely to occur if thenull hypothesis is true. These values are much more likely to occur if the null hypothesis isfalse. Therefore, if a value of the test statistic falls into this rejection region, you reject thenull hypothesis because that value is unlikely if the null hypothesis is true.

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The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Subject: Statistics

To make a decision concerning the null hypothesis, you first determine the critical value of the test statistic. The critical value divides the non-rejection region from the rejection region.Determining the critical value depends on the size of the rejection region. The size of therejection region is directly related to the risks involved in using only sample evidence tomake decisions about a population parameter.

Risks in Decision Making Using Hypothesis Testing
Using hypothesis testing involves the risk of reaching an incorrect conclusion. You might wrongly reject a true null hypothesis, or, conversely, you might wrongly not reject a falsenull hypothesis, H0. These types of risk are called Type I and Type II errors.Traditionally, you control the Type I error by determining the risk level, which you are willing to have of rejecting the null hypothesis when it is true. This risk, or probability, of committing a Type I error is called the level of significance. Because you specify the level of significance before you perform the hypothesis test, you directly control the risk of committing a Type I error.The probability of committing a Type II error is called the risk. Unlike a Type I error, which you control through the selection of the probability of making a Type II error depends on thedifference between the hypothesized and actual values of the population parameter. Becauselarge differences are easier to find than small ones, if the difference between thehypothesized and actual value of the population parameter is large, is small.