But with a fixed sample size, n when we try to reduce type I error, the probability of committingtype II error increases. Both types of errors can not be reduced simultaneously. There is a trade-off in business situations, decision-makers decide the appropriate level of type I error byexamining the costs of penalties attached to both types of errors. If type I error involves time &trouble of reworking a batch of chemicals that should have been accepted, where as type II error means taking a chance that an entire group of users of this chemicals compound will be poisoned, then in such a situation one should prefer a type I error to a type II error means takinga chance that an entire group of users of this chemicals compound will be poisoned, then in sucha situation one should prefer a type II error. As a result one must set very high level for type Ierror in one’s testing techniques of a given hypothesis. Hence, in testing of hypothesis, one mustmake all possible effort to strike an adequate balance between Type I & Type II error.
Two Tailed Test & One Tailed Test
In the context of hypothesis testing these two terms are quite important and must be clearlyunderstood. A two-tailed test rejects the null hypothesis if, say, the sample mean is significantlyhigher or lower than the hypnotized value of the mean of the population. Such a testinappropriate when we haveH
: µ= µ H
: µ≠µ H
which may µ>µ H
or µ<µ H
. If significance level is % and the two-tailed test to be applied, the probability of the rejection areawill be 0.05 (equally split on both tails of curve as 0.025) and that of the acceptance region will be 0.95. If we take µ = 100 and if our sample mean deviates significantly from µ, in that case weshall accept the null hypothesis. But there are situations when only one-tailed test is consideredappropriate. A one-tailed test would be used when we are to test, say, whether the populationmean in either lower than or higher than some hypothesized value.
Parametric and Non parametric tests
The hypothesis testing determines the validity of the assumption (technically described as nullhypothesis) with a view to choose between the conflicting hypotheses about the value of the population hypothesis about the value of the population of a population parameter. Hypothesistesting helps to secede on the basis of a sample data, whether a hypothesis about the populationis likely to be true or false. Statisticians have developed several tests of hypothesis (also knownas tests of significance) for the purpose of testing of hypothesis which can be classified as:
Parametric tests or standard tests of hypothesis ;
Non Parametric test or distribution – free test of the hypothesis.Parametric tests usually assume certain properties of the parent population from which we drawsamples. Assumption like observations come from a normal population, sample size is large,assumptions about the population parameters like mean, variants etc must hold good before parametric test can be used. But there are situation when the researcher cannot or does not wantto make assumptions. In such situations we use statistical methods for testing hypothesis whichare called non parametric tests because such tests do not depend on any assumption about the parameters of parent population. Besides, most non-parametric test assumes only nominal or original data, where as parametric test require measurement equivalent to at least an intervalscale. As a result non-parametric test needs more observation than a parametric test to achievethe same size of Type I & Type II error.
Q 3. Explain the difference between a causal relationship and correlation, with an exampleof each. What are the possible reasons for a correlation between two variables? ( 10marks).