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ACTL2002/ACTL5101 Probability and Statistics: Week 7

ACTL2002/ACTL5101 Probability and Statistics
c Katja Ignatieva

School of Risk and Actuarial Studies
Australian School of Business
University of New South Wales
k.ignatieva@unsw.edu.au

Week 7
Week 2
Week 3
Week 4
Probability:
Week 6
Review
Estimation: Week 5
Week
8
Week
9
Hypothesis testing:
Week
10
Week
11
Week 12
Linear regression:
Week 2 VL
Week 3 VL
Week 4 VL
Video lectures: Week 1 VL
Week 1

Week 5 VL

ACTL2002/ACTL5101 Probability and Statistics: Week 7

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ACTL2002/ACTL5101 Probability and Statistics: Week 7

Last six weeks
Introduction to probability;
Moments: (non)-central moments, mean, variance (standard
deviation), skewness & kurtosis;
Special univariate (parametric) distributions (discrete &
continue);
Joint distributions;
Convergence; with applications LLN & CLT;
Estimators (MME, MLE, and Bayesian);
Evaluation of estimators;
Interval estimation.
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Simple v.Rejection region. composite. . Likelihood ratio test. Neyman-Pearson Lemma. .Statistical tests.ACTL2002/ACTL5101 Probability and Statistics: Week 7 This & next week Hypothesis testing: . Properties of hypothesis testing. Uniformly most powerful.p-value.Value of test.s. . .Accept the null or reject the null hypothesis.Null hypothesis: Selection of the null hypothesis. . 2103/2155 Special tests and other testing methods. . .Type I and II errors and power.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Introduction in Hypothesis testing Introduction Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

. alternative hypothesis HA or H1 .Is the parameter of the distribution equal to a constant? Neyman-Pearson approach: null hypothesis H0 .Simple hypotheses: completely specify the probability distribution. Examples: .Are the means of two normal distributions with the same variance equal? .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Introduction in Hypothesis testing Introduction Introduction Formal means of distinguishing between probability distributions using sample data. We have different types of hypothesis: 2104/2155 .Composite hypotheses: probability distribution not completely specified. .Are the variances different? .

it is called simple. . A statistical hypothesis is defined to be a conjecture or an assertion about the distribution of a random variable(s). x2 . . also called test statistic. θ). . . of a test T is the set of all (x1 . Otherwise. A statistical test of a statistical hypothesis. . or more commonly called the critical region. If the statistical hypothesis completely specifies the distribution. T is a rule or procedure for deciding whether to reject T . it is called composite. This is usually denoted by C ? . . Assume that X1 . xn ) for which you would reject the statistical hypothesis. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Introduction in Hypothesis testing Introduction Hypothesis testing In hypothesis testing the choice is either reject or accept the hypothesis. . X2 . 2105/2155 The rejection region. . Xn are from a random sample with density f (x.

. Determine the rejection region C ? . Calculate the value of the statistical test. Note that this includes a confidence level (α). iii. iv. Define the test statistic T (using past weeks knowledge). . . Note: we assume that H0 is true when testing! (see Type I and Type II errors) 2106/2155 . v. given observed data (x1 . ii. Define a statistical hypothesis. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Introduction in Hypothesis testing Introduction Hypothesis testing procedure Testing procedure: When testing a hypothesis use the following steps: i. xn ). Accept or reject H0 .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

2107/2155 We can only fix α. II errors: see properties of hypothesis testing (next lecture). therefore the choice of the null is important. Alternative Hypothesis Ha : the hypothesis accepted if H0 is rejected. Results of Decision Making Hypothesis Decision True False Reject H0 Type I Error=α No Error Do not reject H0 No Error Type II Error=β Type I.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Hypothesis testing Null Hypothesis H0 : the hypothesis being tested. .

then no error would be committed. if you reject but there is no correlation. this is called a Type II error and the cost would be potential default due to too few reserves. then an error called a Type I error would have been committed and the cost might be that the insurer must hold more capital. . On the other hand. 2108/2155 If you do not reject the null and later found there is positive correlation.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Illustration Type I and Type II errors Consider the following test: H0 : no correlation between insurance claims Australia and US versus Ha : the correlation is positive If you reject and in fact the there is positive correlation.

The statistical method: select the null as something that you wish to conclusively disprove. .)? .The economic method: The null hypothesis is the hypothesis where the consequences of incorrectly rejecting the null hypothesis are largest.One way: select the simpler of the two hypotheses as the null hypothesis.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Selection of null hypothesis How to select the Null hypothesis (step i. . 2109/2155 Confidence level α is the probability that you reject H0 given that H0 is true. where T is a test statistic and C ? is the rejection region (see later). The level of significance of the test can be determined from: Pr (T ∈ C ? |H0 ) = α. .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Simple and composite hypothesis Recall from introduction. a statistical hypothesis is a statement about the distribution of X . 2110/2155 . θ). two kind of hypothesis: If X ∼ f (x. θ). then it is referred to as a simple hypothesis otherwise it is called composite. If the hypothesis completely specifies f (x.

.H0 : θ ≥ θ0 vs H1 : θ < θ0 . composite alternative.H1 : θ = 6 θ0 . H1 : θ = θ1 . Where usually the null and alternative are of the form: 2111/2155 . . for given constants θ0 and θ1 . Where usually the alternative is of the form: .s.Simple null v.H0 : θ ≤ θ0 vs H1 : θ > θ0 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis The first step Simple and composite hypothesis We consider three cases: . composite alternative. H1 : θ ∈ ω1 . for given sets ω0 and ω1 . Example: H0 : θ = θ0 v.s.Composite null v.s. H1 : θ ∈ ω1 .s.s. .s.H1 : θ < θ 0 .Simple null v.H1 : θ > θ 0 . simple alternative. Example: H0 : θ = θ0 v. . for given constant θ0 and set ω1 . . Example: H0 : θ ∈ ω0 v. .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis Example: testing proportions Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

1%. Preform the test the insurer is going to make. The last five years the number of claims were 5 and the number of insurance contracts 2500. 2112/2155 . Due to the Law of Large Numbers the insurer has a good (almost certain) estimate of the probability of lodging a claim before the climate change (say before T − 5).ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis Example: testing proportions Example: testing proportions An insurer investigates whether climate change has already an (positive or negative) effect on the probability that insured lodge a claim. He knows that the probability was p0 = 0. with a significance level of 5%.

. Var (b p) p (1 − p) n has an approximate standard normal distribution. we know that: 2113/2155 b b p − E [b p] p−p p =r . . p= n k=1 From central limit theorem (see week 6).s. Ha : p 6= p0 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis Example: testing proportions Example: testing proportions i. ii. Xn from a Bernoulli (p) distribution. Consider the hypothesis test: H0 : p = p0 v. . We know that the best unbiased point estimator of p is: n 1X b Xk . with a random sample X1 . . X2 . .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis Example: testing proportions f(x|H0) → np 0 − z1−α/2 When 2114/2155 p np 0 (1 − p 0 ) P np0 np 0 + z1−α/2 p np 0 (1 − p 0 ) Xi is in the blue shaded area ⇒ likely that p 6= p0 ⇒ reject H0 . .

p 2115/2155 v.001. iv. We have p0 = 0.002. Question: Comment on the test.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Selection of null hypothesis Example: testing proportions Under the null hypothesis H0 : p = p0 . np(1 − p)) which is good if np → ∞. p) →N(np. (More on this in the remainder of the lecture) b = 0. but n · p0 = 2. iii. the observed test statistic (know this from last week CI properties) is: T =r b p − p0 p0 (1 − p0 ) n where T is standard normal distributed. d Test uses: Bin(n. n = 2500 thus T = 1.5! . Do not reject H0 .58193. We then reject the null hypothesis if: T < −z1−α/2 or T > z1−α/2 at a level of significance α. .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Statistical test Statistical test Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Statistical test Statistical test Step ii.e. 2116/2155 . H0 defines the population parameters. For this we can use our previous obtained knowledge. which are being tested. Recall from week 5: Central limit theorem. Recall from week 6: Interval estimation using confidence intervals. Recall from week 6: CI for Maximum likelihood estimates. i. Assume null hypothesis is true. Define a statistical test.. Recall from week 5: Maximum likelihood estimator.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Best critical region Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

5. i. 7. . . 2) UMP.6943 v.05. . 6. acceptance region is {0. with n = 8 and unknown p.05 = α. Example: Consider the following region to reject the null hypothesis: . 3) GLR. p). 1.. H1 : p > 0. 8} Question: Is this a correct rejection region? Solution: Yes. 2117/2155 .Test H0 : p = 0.6943 at α = 0.Possible rejection region: Reject H0 only if X = 3.Let X ∼ Bin(n. we have Pr(X = 3) = 0. 4. Consider three cases: 1) Neyman-Pearson Lemma.s.e. 2. but it is not the best.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Best critical region The critical region for a test of hypothesis is the subset of the sample space that corresponds to rejecting the null hypothesis.Hence.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Best critical region Best critical region f(x|H0) → 2118/2155 ← f(x|H1) µ0 µ1 c x How to select blue shaded area (rejection region) such that purple area (i..e. . rejecting H0 given H1 is true) is the largest? Note: blue shaded area is Type I error = α.

. Xn ) ∈ C ? |H0 ) = α.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Best critical region Formally: A subset C ? of the sample space is called a best critical region for testing the above hypothesis if for every subset A of the sample space for which: Pr ((X1 . given a significance level α. . X2 . . . . . . i) Implies that the probability of rejection null hypothesis. the following two conditions hold: i) Pr ((X1 . . ii) The probability that the H0 is rejected given H1 is true is the largest for region C ? . . ii) Pr ((X1 . . Xn ) ∈ A |H0 ) = α. . Xn ) ∈ C ? |H1 ) > Pr ((X1 . Used on slide 2120 for NP and on slide 2132 for UMP. . is equal to α. Xn ) ∈ A |H1 ). X2 . . . 2119/2155 Optimal tests: tests with higher power than any other test. X2 . . given that the null hypothesis is true. . . X2 .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

. . . Xn is a random sample from a distribution whose density function is f (x. . . Xn ) ∈ C ? |θ0 ) = α. Xn be: L (x1 . xn . . .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma Neyman-Pearson Lemma Suppose X1 . . . where k ≤ 1 is a constant such that: Pr ((X1 .. . θ1 } of the sample space is the best critical region for testing the simple null/simple alternative test stated above. . θ0 . . . . . X2 . xn ) ∈ C ? ) the likelihood of the data coming from the 2120/2155 alternative is larger than from the null distribution. . x2 . . . ii) Λ(x. X2 . (x1 . . Xn ) ∈ C ? |H0 ) = α. θ0 . . . A subset C ? = {x. xn . θ0 ) 6 k. . . if the following conditions are satisfied (see slide 2119): i) Pr ((X1 . . . . X2 . Hence: when rejecting the null. . . . θ). . . L (x1 . xn ) ∈ C ? . θ) = Pr(X = x. . θ) = f (x1 . . θ1 ) for every (x1 . θ). θ1 ) = L (x1 . θ)·f (x2 .e. θ)·. . . . Let the joint density of X1 . .·f (xn . . when it is incorrect (i. xn . .

. θ) = · · · fX (x1 . . xn .in case A ⊆ C : ? ? 1 − Pr(X ∈ C |θ0 ) ≤k · (1 − Pr(X ∈ C |θ1 )) ⇒ 2121/2155 ⇒ ? ? ? Pr(X ∈ C |θ0 ) ≥k · Pr(X ∈ C |θ1 ) + (1 − k) ≥ k · Pr(X ∈ C |θ1 ) Pr (X ∈ A|θ0 ) ≥k · Pr (X ∈ A|θ1 ). . θ).in case A ⊆ C ? : L(x. A A for any θ (continuous case). . let: Z Z Z Pr (X ∈ A|θ) = fX (x. . . . . . . xn ] and A is an n-dimensional event. . . dxn = L(x.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma Proof Neyman-Pearson Lemma Let us denote C as the complement of set C . θ1 ) ? ⇒ Pr (X ∈ A|θ0 ) ≤ k · Pr (X ∈ A|θ1 ) . X = [X1 . θ)dx1 . Using condition ii) we obtain: . Xn ] and x = [x1 . . . θ0 ) ≤ k · L(x. .

Define for a set A and parameter θ: πA (θ) = Pr(X ∈ A|θ): πC ? (θ) =Pr(X ∈ C ? ∩ C |θ) + Pr(X ∈ C ? ∩ C |θ) ? πC (θ) =Pr(X ∈ C ? ∩ C |θ) + Pr(X ∈ C ∩ C |θ) ? ⇒ πC ? (θ) − πC (θ) =Pr(X ∈ C ? ∩ C |θ) − Pr(X ∈ C ∩ C |θ). .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma For any critical region C we have (using LTP): C ? = (C ? ∩ C ) ∪ (C ? ∩ C ) and ? C = (C ∩ C ? ) ∪ (C ∩ C ). (1) * using (1) with θ = θ1 ** using previous slide *** using (1) with θ = θ0 **** using slide 2119 πA (θ0 ) = Pr (X ∈ A |H0 ) = α: ∗ ? πC ? (θ1 ) − πC (θ1 ) =Pr(X ∈ C ? ∩ C |θ) − Pr(X ∈ C ∩ C |θ)   ∗∗ ? ≥(1/k) · Pr(X ∈ C ? ∩ C |θ0 ) − Pr(X ∈ C ∩ C |θ0 ) ∗∗∗ ∗∗∗∗ = (1/k) · (πC ? (θ0 ) − πC (θ0 )) = (α − α)/k = 0 2122/2155 ⇒ πC ? (θ1 ) ≥πC (θ1 ).

Question: What does a low ratio imply? Solution: A low ratio implies that the data are more likely under H1 than under H0 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma Interpretation Neyman-Pearson Lemma Suppose H0 specifies density or frequency function L (x. 2123/2155 then any other test with significance level ≤ α will have power less than or equal to that of the likelihood ratio test. θ1 ) < c. Thus: Likelihood ratio rejects for small values of the ratio. . θ0 ) /L (x. Neyman-Pearson Lemma: if the likelihood ratio that rejects H0 with significance level α is: L (x. θ1 ) . θ0 ) and alternative H1 specifies L (x. Relative likelihoods of H0 versus H1 is the likelihood ratio: L (x. θ0 ) /L (x. θ1 ).

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

N(µAB . for example: . due to small sample size of insurer BC.adverse selection effects.statistical uncertainty.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Example: Neyman-Pearson Lemma Insurer AB is in the process of taking over local (and thus small) insurer BC. In the process of controlling the books of insurer BC the insurer observes that the normally distributed claim sizes of insurer BC are larger than of insurer AB. known and equals σAB . This can be due to. σAB 2124/2155 Insurer AB want to know whether the mean claims of insurer BC is x or µAB . . Due to the LLN insurer AB knows that his claims are 2 ) distributed. variances of both insurers are equal. Assume that µAB is a know constant and the 2 .

Question: What is the best critical region? Solution: Use Neyman-Pearson lemma. . with α a (given) constant. X1 . X2 . µ = x and µ = µ Let σ 2 = σAB 0 A AB . Hypotheses: H0 : µ = µ 0 H1 : µ = µ1 v.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Example: Neyman-Pearson Lemma 2 . . The likelihood ratio is: Λ(x. θ0 . θ1 ) √1 exp −12 (xi − µ1 )2 i=1 σ 2π 2σ  P  n 2 −1 exp 2σ 2 i=1 (xi − µ0 )  P  < k. θ0 )   = =Q n f1 (x) L(x. . θ1 ) = 2125/2155 Qn √1 i=1 σ 2π exp  −1 2σ 2 (xi − µ0 )2  f0 (x) L(x. . 1.s. = n 2 −1 exp 2σ (x − µ ) 1 i 2 i=1 . Xn from a normal distribution with known variance σ 2 .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Question: when to reject H0 ? Solution: reject for small values of the ratio L (x. θ0 ) /L (x. Thus. * using 2126/2155 n P xi = n · x. θ1 ). by using a log-transformation (monotonic increasing transformation) we have that we reject H0 when: n X ⇒ i=1 n X i=1 (xi − µ1 )2 − n X i=1 (xi − µ0 )2 < k1 = log(k) · 2 · σ 2   xi2 −2xi µ1 + µ21 − xi2 −2xi µ0 + µ20 < k1  ⇒ 2n · x (µ0 − µ1 ) + n µ21 − µ20 < k1 n X   ⇒ xi · (µ0 − µ1 ) < k2 = (k1 −n µ21 − µ20 )/2 ∗ i=1 is small. i=1  .

. xn ) : x ≤ µ0 − z1−α · n C ? = (x1 . we have: (a) if µ0 > µ1 ⇒ (µ0 − µ1 ) > 0 the likelihood ratio is small if x is small. (b) if µ0 < µ1 ⇒ (µ0 − µ1 ) < 0 the likelihood ratio is small if x is large. . . . σ 2 /n ⇒ calculate the value of x0 . . .  Pr X < x0 |H0 = α Pr (Z < −z1−α ) = α 2127/2155 ⇒ ⇒   X − µ0 x −µ √ < 0 √ 0 =α σ/ n σ/ n √ x0 − µ 0 √ −z1−α = ⇒ x0 = µ0 − z1−α · σ/ n. σ/ n Pr Best critical region: n ? C = (x1 .  We know: X |H0 ∼ N µ0 . . xn ) : x ≥ µ0 + z1−α · √σ n σ √ n o o in case of (a) and in case of (b). In the latter (former)  case need to determine  a value x0 such that Pr X > x0 |H0 = α (Pr X < x0 |H0 = α) if H0 is true. 2. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Therefore. .

H1 : θ = θ1 < θ0 . θ1 · exp (−θ1 · ni=1 xi ) where k is a constant such that Pr(Λ(x. θ1 ) = n ≤ k. θ1 ) ≤ k|H0 ) = α. Exercise: Find the best critical region. i=1 Next step: Find k1 use Pr(X ∈ C ? |θ0 ) = Pr Pn i=1 n X i=1 xi ≥ k1 .  Xi ≥ k1 |θ0 . | {z } <0 Thus 2128/2155 C? = {(x1 . 1. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises Time until a natural disaster claims.s. xn ) : n P xi ≥ k1 }. . θ0 . ⇒ n X i=1 n xi · (θ1 − θ0 ) ≤ log((θ1 /θ0 ) · k) ⇒ where k1 = (θ1 − θ0 )−1 · log((θ1 /θ0 )n · k). θ0 . Consider a random sample of size n with Xi ∼ EXP(θ). . Solution: The Neyman-Pearson Lemma says to reject H0 if: P θ0n · exp (−θ0 · ni=1 xi ) P Λ(x. . . Test H0 : θ = θ0 v.

. with 0 ≤ xi ≤ 1 for i = 1. . .5 and Var (Xi ) = 1/12. xn ) : xi ≥ χ1−α (2n)/(2 · θ0 ) .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises 2.g. 1) with fX (xi ) = 1 v. H1 : X ∼ EXP(1) with fX (xi ) = e −xi . . . Note: under H0 : E[Xi ] = 0. ! n n X X Pr Xi ≥ k1 |H0 = α ⇒ Pr (2 · θ0 Xi ≥ 2 · θ0 · k1 |H0 ) = α | {z } i=1 i=1 χ21−α (2n) | {z } ∼χ2 (2n) χ2 (2n) ⇒ χ21−α (2n) = 2 · θ0 · k1 ⇒ k1 = 1−α .s. n. 2 · θ0   n P ? 2 Thus: C = (x1 . i=1 2129/2155 Exercise: Consider a random sample of size n. Test H0 : X ∼ UNIF(0. . . .f. technique (see week 4) P n 2 i=1 Xi |H0 ∼ Gamma(n. . Using we have: Pn m. θ0 ) ⇒ 2θ0 i=1 Xi |H0 ∼ χ (2n).

Solution: The Neyman-Pearson Lemma says to reject H0 if: 1 Pn Λ(x. exp (− i=1 xi ) where k is a constant P such that Pr(Λ(x. . 2130/2155 . θ0 . 1) n/12 ! n X p n ⇒ Pr (Zn < −z1−α ) = α ⇒ Pr Xi ≤ − z1−α · n/12 = α 2 i=1   √ n P z1−α · n n ? Thus C = (x1 . . . How to determine the distribution of ni=1 Xi |H0 . P 2.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Neyman-Pearson Lemma: examples and exercises 1. θ1 ) = ≤ k. θ0 . So we reject H0 if ni=1 xi ≤ k1 = log(k). use CLT: Pn Pn P X − n · E[Xi ] Xi − E[ ni=1 Xi ] i=1 p p i = i=1 Zn = Pn Var ( i=1 Xi ) n · Var (Xi ) Pn X − n/2 d p i = i=1 → Z ∼ N(0. xn ) : xi ≤ 2 − √12 . θ1 ) ≤ k|H0 ) = α. .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Uniformly most powerful (UMP) Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

θ1 )? Answer: This would depend on the θ1 ∈ ω1 which is true.. x2 . composite alternative hypothesis. H1 : θ ∈ ω1 .e. .s. 2131/2155 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Uniformly most powerful (UMP) Uniformly most powerful Consider simple null. . i. H0 : θ = θ0 v. . Question: When applying Neyman-Pearson Lemma what would be L (x1 . xn . . The corresponding test is called the UMP test of size α. If H1 composite then a uniformly most powerful test is most powerful for every simple alternative in H1 . The critical region C is uniformly most powerful (UMP) of size α for testing a simple H0 against a composite H1 if C is the best critical region of size α for testing H0 against every simple hypothesis in H1 .

. . . θ ∈ Ω − Ω0 ) is the largest for critical region C ? .e. . f (x1 . .. xn . . Xn ) ∈ C ? |θ) ≥ Pr((X1 . . . θ∈Ω0 ii) for all θ ∈ Ω − Ω0 and all critical regions C of size α we have: Pr((X1 . . when the null is incorrect (i.d. H1 : θ ∈ Ω − Ω 0 . Consider hypothesis of the form: H 0 : θ ∈ Ω0 v.e. Xn ) ∈ C |θ) 2132/2155 i.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Uniformly most powerful (UMP) Uniformly most powerful Let X1 . θ) for θ ∈ Ω. . A critical region C ? and the associated test are said to be uniformly most powerful (UMP) of size α if the following two conditions hold (using slide 2119): i) max {Pr((X1 .f. Xn have joint p. . . . Xn ) ∈ C ? |θ)} = α. . . the probability of rejecting the null.s. . .. . . . .

If a joint p. f (x.f. the ratio f (x. We have τ (X ) = i=1 Xi and ! P  n n X θ0n · exp (− ni=1 xi · θ0 ) θ0 P Λ(x. θ1 ) = n = · exp xi · (θ0 − θ0 ) θ1 · exp (− ni=1 xi · θ1 ) θ1 i=1 2133/2155 is thus a nondecreasing function in τ (x) if θ1 < θ0 . f (x. θ0 . Example: Consider Pnthe example from slide 2128. θ) is said to have a monotone likelihood ratio (MLR) in the statistic T = τ (X ) if for any two values of the parameter θ1 < θ2 . θ1 ) depends on X only through the function τ (x).f. where Pr(τ (X ) ≥ k|θ0 ) = α.d. and this ratio is a nondecreasing function of τ (x). θ) has a MLR in T = τ (X ) then a UMP test of size α for H0 : θ ≤ θ0 v. θ2 )/f (x.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Uniformly most powerful (UMP) A joint p.d.s. H1 : θ > θ0 is to reject H0 if τ (x) ≥ k. . Neyman-Pearson tests also provide UMP test for corresponding one-sided composite alternatives.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

.  Suppose X1 . We wish to test: H0 : µ = µ 0 v. . σ 2 /n). Same example. Xn is a random sample from N µ. X2 . If the variance σ 2 is known.s. but now test whether the claims sizes of insurer BC are higher. . σ 2 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Example UMP: testing means from normal distribution Consider sampling from the normal distribution to test the mean parameter. for some known constant µ0 and α. we know from week 5: 2134/2155 X ∼ N(µ. . . H1 : µ > µ0 .

2σ 2 2πσ i=1 The Likelihood ratio denominator f1 (x) = L(x. Pn 2 (x − µ ) 1 i i=1 Pn . µ0 . The Likelihood ratio numerator f0 (x) = L(x. µ1 ) = 2135/2155 exp   −1 2σ 2 −1 2σ 2  2 (x − µ ) 0 i=1 i  < k. µ0 ) is constant: ! n  n −1 X 1 · exp f0 (x) = √ (xi − µ0 )2 . We have: exp Λ(x. θ1 ) depends on µ1 > µ0 : !  n n 1 −1 X 2 · exp f1 (x) = √ (xi − µ1 ) .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Example UMP: testing means from normal distribution 1. 2σ 2 2πσ i=1 for all µ1 > µ0 .

(using a log-transformation and simplifying) when: x · (µ0 − µ1 ) < k1 is small (for all µ1 > µ0 ). i. . σn ⇒ calculate the value of √ k ? = µ0 + z1−α · σ/ n.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Reject H0 for small values of f0 (x)/f1 (x).e. 2136/2155 Best critical region: n ? C = (x1 . (µ0 − µ1 )  2.. Next.   2 We know that X |H0 ∼ N µ0 . . . . . xn ) : x ≥ µ0 + z1−α · √σ n o . We have: µ0 − µ1 < 0 for all µ1 > µ0 . determine a value x0 such that Pr X > k ? |H0 = α. thus:   k1 ? x ≥k = .

with joint p. · xn !) −1 · exp log(λ) · n X i=1 xi − n · λ ! Exercise: use MLR to find the UMP of size α for H0 : λ ≤ λ0 v. . H1 : λ > λ0 .d.s. Xi ∼ Poi(λ). · xn ! =(x1 ! · . λ1 ) = exp (log(λ1 ) − log(λ0 )) · xi − n · (λ1 − λ0 ) f (x. Solution: We have: ! n X f (x. λ) = x1 ! · . Consider a sample of size n from a Poisson distribution.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Exercise UMP Number of claim distribution. . . .: Pn exp(−nλ) · λ i=1 xi fX (x. λ0 ) i=1 2137/2155 . 1.f.

2138/2155 Example: use MLR to find the UMP of size α for H0 : η ≤ η0 v.s.f. . is:  P exp (− ni=1 (xi − η)) . . Dental insurance: Consider a sample of size n from a twoparameter exponential distr. Xi ∼ EXP(1. where Pr(T ≥ k|λ0 ) = α. fX (x. . We have T = ni=1 Xi ∼ POI(nλ0 ). if η < x(1) .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) P P (continued) τ (λ) = ni=1 xi . η). . . reject H0 if T = ni=1 Xi ≥ k. η) = 0.p. P 2. if x(1) ≤ η. The j. xn ) | ni=1 xi ≥ k2 }. H1 : η > η0 .d. thus   ∞  X x exp (−nλ0 ) · (nλ0 ) ≤α k2 = argmax   x! k1 x=k1 P Rejection region: C ? = {(x1 .

η1 )/f (x. η1 )/f (x. 2. . hence we can use MLR. 2139/2155  Rejection region: C ? = (x1 . η0 ) is nondecreasing function in x(1) . . . η0 ) is not defined for x(1) ≤ η0 . η1 ) 0. . Solution: we have:  f (x. Find rejection region by: α = Pr(T ≥ k|η0 ) = Pr(X(1) ≥ k|η0 ) = exp(−n · (k − η0 )) ⇒ k =η0 − log(α)/n. Xn ≥ k) = Pr(Xi ≥ k)n . xn ) : x(1) ≥ η0 − log(α)/n . 1. if η1 < x(1) . . . = exp (n · (η1 − η0 )). η0 ) Note that f (x. f (x.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: Uniformly most powerful (UMP) Distribution of minimum: Pr(X(1) ≥ k) = Pr(X1 ≥ k. T = τ (η) = X(1) . if η0 < x(1) ≤ η1 . . . . but this is no problem because Pr(X(1) ≤ η0 |η0 ) = 0. f (x.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Generalized likelihood ratio test Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

s. simple alternative.Can we use UMP for simple null v. . composite alternative (example H1 : µ > µ0 .s.s. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Generalized likelihood ratio test Generalized likelihood ratio test Summarizing the determination of the critical region we have: . ∞) in case µ > µ0 .UMP: in case of simple null v. When there is no uniformly most powerful test for testing a simple null against a composite alternative hypothesis. In this case the generalized likelihood ratio test (LRT) is used. . but similarly we have H1 : µ < µ0 ). 2140/2155 Note: LRT tests do not always lead to the best critical region. but C = (−∞. The generalized LRT is also the basis for constructing a test of a composite null against a composite alternative hypothesis. C = (x0 . composite alternative with µ1 6= µ0 ? No. x0 ) in case µ < µ0 .Neyman-Pearson: when simple null v.

. rejecting H0 given H1 is true) is the largest? Note: blue shaded area is Type I µ0 + z1−α/2 √σn error = α.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Generalized likelihood ratio test Best critical region. 2-sided tests f(x|H0) → σ µ2141/2155 0 − z1−α/2 √n µ0 µ1 How to select blue ← f(x|H1) shaded area (rejection region) such that purple area (i.e..

.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Generalized likelihood ratio test Generalized likelihood ratio test Suppose X1 .s. xn . xn . . . x2 . x2 . . Denote the test by: H 0 : θ ∈ Ω0 v. θ) · f (x2 . for a given α. . θ) . xn . LΩ (θ) = L (x1 . . X2 . with θ ∈ Ω. . where Ω = Ω0 ∪ Ω1 . . · f (xn . . θ) = f (x1 . Define the likelihood functions: LΩ0 (θ) = L (x1 . θ) · . . . θ) so that the joint density is: L (x1 . . Xn is a random sample from f (x. 2142/2155 with θ ∈ Ω0 . . . . θ) . . x2 . . θ) . H 1 : θ ∈ Ω1 . . .

2143/2155 for some positive k. b L(x. . x2 . respectively. θ∈Ω Denote θb0 the MLE under the restriction that H0 is true and θb under the restriction that H0 or H1 is true (typically the usual MLE). . xn ) = max {LΩ0 (θ)} θ∈Ω0 max {LΩ (θ)} θ∈Ω = L(x. The ratio: Λ (x1 . Note: 0 ≤ Λ (x) ≤ 1. if they exist. . by max {LΩ0 (θ)} and θ∈Ω0 max {LΩ (θ)}. θ) is called the likelihood ratio. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Generalized likelihood ratio test Denote their maximums. . . θb0 ) . . The LRT principle says that the null hypothesis above is rejected if and only if: Λ (x1 . x2 . . xn ) < k. .

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Asymptotic distribution for the GLR test Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

. r < k we have approximately for large n: −2 log(Λ(X )) ∼χ2 (r ) An approximate size α test to reject H0 if: 2144/2155 −2 log(Λ(X )) ≥χ21−α (r ) . . If X ∼ f (x. The function Λ (X ) is a valid test statistic ⇒ not a function of unknown parameters: .Λ (X ) under H0 depends on unknown parameters ⇒ MLE are asymptotically normally distributed (under regulatory conditions) ⇒ free of parameters. . .Λ (X ) is free of parameters: exact critical value k can be determined. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Asymptotic distribution for the GLR test GLR is similar to Neyman-Pearson principle. . . θr ) = (θ10 . GLR is not a complete generalization of Neyman-Pearson Lemma. . . . . θ1 . θr 0 ). because the unrestricted estimate θb could be possible in Ω0 . θk ) then under H0 : (θ1 . .

2145/2155 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Asymptotic distribution for the GLR test Asymptotic Distribution of Likelihood Ratio Recall from last week asymptotic MLE property: p d nIf ? (θ)(θb − θ) → N(0. This asymptotic result often used for the (approximate) distribution of the test statistic under the null hypothesis.asymptotically a chi-squared distribution with degrees of freedom dim (Ω) − dim (Ω0 ). 1). θ)))) has -under the null hypothesis. the distribution of the test statistic: T (X ) = −2 log (Λ) (= −2 (log (L(x. Under certain “smoothness” condition of the probability density (or mass) functions involved. θ0 )) − log (L(x.

ACTL2002/ACTL5101 Probability and Statistics: Week 7
Rejection region
Example: generalized likelihood ratio test

Hypothesis testing
Introduction in Hypothesis testing
Introduction
Selection of null hypothesis
The first step
Example: testing proportions
Statistical test
Statistical test
Rejection region
Best critical region
Neyman-Pearson Lemma
Neyman-Pearson Lemma: examples and exercises
Uniformly most powerful (UMP)
Example: Uniformly most powerful (UMP)
Generalized likelihood ratio test
Asymptotic distribution for the GLR test
Example: generalized likelihood ratio test
Summary
Summary

ACTL2002/ACTL5101 Probability and Statistics: Week 7
Rejection region
Example: generalized likelihood ratio test

Example LRT: testing means from normal distribution
Consider sampling from the normal distribution to test the
mean parameter. 

Suppose X1 , X2 , . . . , Xn is a random sample from N µ, σ 2 .
We wish to test:
H0 : µ = µ 0

v.s.

for some known constant µ0 and α.

H1 : µ 6= µ0 ,

1. Define the sets:
thus

2146/2155

Ω0 ={µ = µ0 }

and

Ω ={(−∞, ∞)}.

Ω1 = {µ ∈ {(−∞, µ0 ) ∪ (µ0 , ∞)}

2. Find the θ ∈ Ω and θ ∈ Ω0 that maximizes the likelihood
function (see week 5 MLE):
θb0 = µ0
and
θb = x.

ACTL2002/ACTL5101 Probability and Statistics: Week 7
Rejection region
Example: generalized likelihood ratio test

Example LRT: testing means from normal distribution
3. Thus the Likelihood ratio numerator is:
!  

n
n
−1 X
1
2
· exp
max {LΩ0 (θ0 )} = √
(xi − µ0 ) .
θ∈Ω0
2σ 2
2πσ
i=1
and the likelihood denumerator is:
max{LΩ (θ)} =
θ∈Ω

2147/2155 

1

2πσ 

n

· exp

n
−1 X
(xi − x)2
2σ 2
i=1

Next slide: the likelihood ratio
(using exp(a)/ exp(b) P
= exp(a − b));
and ** using nx − 2x ni=1 xi = nx − 2nx 2 = −nx.

!

.

2148/2155 xi2 + nx 2 − 2x n X i=1 xi ! (= k1 /n)  p  = ± k2 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: generalized likelihood ratio test Λ(x) = exp n  −1 X  2 2 x) (x − µ ) − (x − 0 i i 2σ 2 i=1 ! <k Rejecting for small values of Λ is the same as rejecting for large values of: n   X ⇒ (xi − µ0 )2 − (xi − x)2 > k1 (= −2σ 2 log (k)) {z } | i=1 ⇒ n X i=1 ∗∗ decreasing xi2 + nµ20 − 2µ0 n X i=1 = n · (x − µ0 )2 > k1 xi − n X i=1 ⇒ (x − µ0 )2 > k2 ⇒ x − µ0 > |k3 | equivalently: µ0 − k ? > x > µ0 + k ? .

∞)}} . . . µ0 − k ? ) ∪ (µ0 + k ? . where k ? is such that: . xn ) : x ∈ {(−∞. .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: generalized likelihood ratio test Example LRT: testing means from normal distribution The rejection region is of the form: C ? = {(x1 . .

 Pr µ0 − k ? ≥ X ≥ µ0 + k ? .

f.g. H0 = α. If the variance σ 2 is known. 4. σ 2 /n). technique): X |H0 ∼ N(µ0 . we know from week 5 (or week 4 m. thus: .

  −k ? X − µ0 k ? .

.

√ ≥ √ ≥ √ .

? C = 2149/2155  Hence. H0 = α Pr σ/ n σ/ n σ/ n  √ Pr −z1−α/2 ≥ Z ≥ z1−α/2 = α ⇒ k ? = z1−α/2 · σ/ n. the rejection region is: (x1 . . µ0 − √ z1−α/2 n    σ ∪ µ0 + √ z1−α/2 . n . . . xn ) : x ∈  σ −∞. . ∞ .

. for some known constant µ0 and α. i.s. We wish to test: H0 : µ ≤ µ 0 v. µ b= µ0 . suppose X1 .ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: generalized likelihood ratio test Example LRT: testing means from normal distribution Again. What is then the Likelihood ratio numerator? Given ∂L(µ. σ)/∂µ = 0 if µ = x. H1 : µ > µ0 . . Xn is a random sample from  N µ. .e. 2150/2155 where µ b is the µ ∈ Ω0 which maximizes LΩ0 (µ). . . . and ∂L(µ.e. bounding condition. Note: the Likelihood ratio denominator is the same as in the previous example.. i. σ)/∂µ < 0 if µ > x. if x ≥ µ0 . and x > µ0 . if x < µ0 . ∂L(µ. the MLE. X2 . σ)/∂µ > 0 if µ < x we have:  x. σ 2 .

y ) = f (x. H1 : p1 6= p2 . Exercise: Test whether the proportions are equal. The GLR statistic is: = 2151/2155  n1 b)n1 −x p x · (1 − p x ·b  n1 b1 )n1 −x p1x · (1 − p x ·b b)n1 +n2 −x−y p f (x. p2 ) with X and Y independent. b1 = x/n1 and Solution: Based on x and y the MLEs are p b p2 = y /n2 and the restricted MLE is b p = (x + y )/(n1 + n2 ). b p1 ) · f (y . b p2 ) b p x+y · (1 − b1x · (1 − b p p1 )n1 −x · b p2y · (1 − b p2 )n2 −y · ·  n2 y  n2 y ·b p y · (1 − b p )n2 −y ·b p2y · (1 − b p2 )n2 −y .. H0 : p1 = p2 = p v.e. b p) = Λ(x. p1 ) and Y ∼ Bin(n2 .s. Let X ∼ Bin(n1 . b p ) · f (y . where p is unknown. i.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: generalized likelihood ratio test Exercise LRT Testing equality in proportions of insured issuing claims.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Rejection region Example: generalized likelihood ratio test Exercise LRT GLR test statistic under H0 depends on unknown parameter p. i. An approximately size α test is: −2 log(Λ(x. H0 is rejected if −2 · log(Λ(x. . xn ) : −2 · log(Λ(x. y )) > χ21−α (1). r = 1 free parameter. y )) ∼ χ2 (1) Hence. .e. Note rewrite H0 : θ = p2 − p1 = 0 so H0 represents a one-dimensional restriction in the parameters. . C ? = (x1 .e. i.. . y )) > χ21−α (1) 2152/2155 ..

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Summary Summary Hypothesis testing Introduction in Hypothesis testing Introduction Selection of null hypothesis The first step Example: testing proportions Statistical test Statistical test Rejection region Best critical region Neyman-Pearson Lemma Neyman-Pearson Lemma: examples and exercises Uniformly most powerful (UMP) Example: Uniformly most powerful (UMP) Generalized likelihood ratio test Asymptotic distribution for the GLR test Example: generalized likelihood ratio test Summary Summary .

Calculate the value of the statistical test. . Accept or reject H0 . Define a statistical hypothesis. iii. . Determine the rejection region C ? . iv. Note that this includes a confidence level (α).ACTL2002/ACTL5101 Probability and Statistics: Week 7 Summary Summary Hypothesis tests Testing procedure: When testing a hypothesis use the following steps: i. given observed data (x1 . xn ). Define the test statistic T (using past weeks knowledge). v. ii. . Note: we assume that H0 is true when testing! (see Type I and Type II errors) 2153/2155 . .

θ1 ) Uniform most powerful test: simple/composite null/composite alternative test: i) max {Pr((X1 . . . θ0 . . θb0 ) <k b L(x. . θ) = 2154/2155 L(x.t.ACTL2002/ACTL5101 Probability and Statistics: Week 7 Summary Summary Best critical region Neyman-Pearson Lemma: simple null/simple alternative test: L(x. . . . θ∈Ω0 ii) for all θ ∈ Ω − Ω0 and all critical regions C of size α we have: Pr((X1 . . . .: Pr (X ∈ C ? |H0 ) = α. Xn ) ∈ C ? |θ)} = α. θ0 ) < k s. θ1 ) = L(x. θ0 . Xn ) ∈ C |θ) Generalized likelihood ratio test: simple/composite null/composite alternative test: Λ(x. .: Pr (X ∈ C ? |H0 ) = α Λ(x. Xn ) ∈ C ? |θ) ≥ Pr((X1 .t. . . θ) s.

ACTL2002/ACTL5101 Probability and Statistics: Week 7 Summary Summary 2155/2155 .