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Testing of Hypothesis
P
ROCEDURE FOR
S
OLUTION
Dr. Rohit Vishal Kumar
For Marketing / Financial Management (2nd Trimester) Students Xavier Institute of Social ServiceRanchi, Jharkhand, India
November 11, 2008
1 Steps for Solution
1.
Null Hypothesis:
Set up the Null hypothesis
H
0
. It must be noted that the nullhypothesis
H
0
is always of ‘=’ type.2.
Alternative Hypothesis:
Set up the Alternative hypothesis
H
1
from the problemprovided. The alternate hypothesis
H
1
can either be of Not Equal (
=
), Less than(
<
) or Greater than (
>
) type.3.
Determine Level of Significance:
Choose the appropriate level of significance(
α
) depending on the reliability of the estimates and permissible risk. This is tobe decided before the sample is drawn — as because it is a key determininant of the sample size to be selected.Specify the level of significance at which the testing needs to be done. The levelof significance is usually provided in the problem. If the level of significance isnot specified it is preferable to use 95% level rather than 99% because the nullhypothesis that is accepted at 95% level will necessarily be accepted at 99% level.The alternative may not necessarily hold true — a null hypothesis that is acceptedat 99% level may or may not be accepted at 95% level. It is wiser to err on theside of caution.4.
Compute the Test Statistic:
Specify the test statistic (say
θ
) to be followed fortesting. Calculate the value of the test statistic using the problem given in thedata. This value is also termed as the observed value or the calculated value
θ
calc
.5.
Find the Tabulated Value of the Statistic:
Find out the value of test statisticfrom the distribution table provided. This value is also termed as tabulated valueor
θ
tab
. In the case of examinations - either the
θ
tab
will be provided with theproblem and / or you will be allowed to consult the tables. However the values of
Z
statistic at 99% and 95% level may not always be provided. You should alwayslearn the value(s) of the
Z
statistic by heart.1
6.
Compare and Conclude:
Compare
θ
calc
and
θ
tab
. If
|
θ
calc
|
<
|
θ
tab
|
then accept
H
0
else reject
H
0
and accept
H
1
.Based on the result of the comparison write down your conclusion. The conclusionshould always be written in probabilistic terms and NEVER in deterministic terms.
2 Common Test Statistics
2.1 Mean of the population has a specified value
µ
0
Null Hypothesis (
H
0
) : (
µ
=
µ
0
)
CASE A:
Population standard deviation is known and is equal to
σ
0
Z
=
√
n
(
X
−
µ
0
)
σ
0
where n
=
sample size
X
=
sample meanSampling distribution : Standard Normal
CASE B:
Population standard deviation is not known but sample is large (
>
30)
Z
=
√
n
(
X
−
µ
0
)
s
where n
=
sample size
s
=
sample standard deviationSampling distribution : Standard Normal
CASE C:
Population standard deviation is not known but sample is small (
≤
30)
t
=
√
n
(
X
−
µ
0
)
σ
0
where n
=
sample size
X
=
sample meanSampling distribution : t distribution with (n-1) degrees of freedom. Also known as“Students T”.
2.2 Mean of the two population are equal
Null Hypothesis (
H
0
) : (
µ
1
=
µ
2
)
CASE A:
Population are independent and their standard deviation are known and areequal to
σ
1
and
σ
2
respectively
Z
=
X
1
−
X
2
σ
21
n
1
+
σ
22
n
2
where
n
1
n
2
=
sample sizes
X
1
X
1
=
sample means2
Sampling distribution : Standard Normal
CASE B:
Population are independent and their standard deviation are not known andthe sample is large (
n
1
, n
2
>
30
) respectively
Z
=
X
1
−
X
2
S
21
n
1
+
S
22
n
2
where
n
1
n
2
=
sample sizes
X
1
X
1
=
sample means
S
21
S
22
=
sample standard deviationsSampling distribution : Standard Normal
CASE C:
Population are independent and their standard deviation are unknown butequal; and the sample is small (
n
1
, n
2
≤
30
) respectively
t
=
X
1
−
X
2
S
1
n
1
+
1
n
2
where
n
1
n
2
=
sample sizes
X
1
X
1
=
sample means
S
2
=(
n
1
−
1)
S
21
+ (
n
2
−
1)
S
22
n
1
+
n
2
−
2
(Pooled standard deviation)
Sampling distribution : t distribution with
(
n
1
+
n
2
−
2)
degrees of freedom. Thisdistribution is also known as “Fischer’s Non Paired T”.
CASE D:
Population are correlated and the sample is small (
n
1
, n
2
≤
30
) respectively
t
=
√
n U S
U
where
n
1
,n
2
=
sample sizes
U
= (
X
1
−
X
2
)
and
U
and
S
U
are calculated w.r.t USampling distribution : t distribution with
(
n
−
1)
degrees of freedom. This distributionis also known as “Fischer’s Paired T”.
2.3 Standard deviation of a population has a specified value
σ
0
Null Hypothesis (
H
0
) : (
σ
=
σ
0
)
CASE A:
Population mean is known and is equal to
µ
0
χ
2
=
ni
=1
(
x
i
−
µ
o
)
2
σ
20
where
n
=
sample size3
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