DEFINITION OF HYPOTHESIS

A hypothesis is a temporary statement or a formal theory that shows how two or more
variables are expected to interact. It can also be a formal version of theory-based speculation.
Hypotheses can take the form of a simple proposal about expected returns, or the existence of
a relationship. For example, a simple proposal is that one with a technology-based production
system is cheaper than another technology-based production system.
According to George A. Lunenburg, the hypothesis can be interpreted as a temporary
normalization, and its validity must be tested. At this early stage, the hypothesis can be very
hunch, speculative, imaginary data that forms the basis for an action or inquiry.
TYPES OF STATISTICAL HYPOTHESES
There are two types of statistical hypotheses;
Null hypothesis: The null hypothesis represented by H0 is usually the assumption that the result
of the sample observations is random. The null hypothesis always states that treatment has no
effect According to the null hypothesis, the population means are the same as the condition after
treatment. Suppose an α-level criterion or "cut-off" makes a decision on the null hypothesis. The
alpha level also determines the risk of a Type I error.

Figure 1
The locations of the critical regional boundaries for the three significant levels: = .05, α = .01,
and α = .001 are shown in Figs. 1 shown. The idea is true. That is, the critical region is defined
by a sample that is virtually impossible to obtain when it has no impact on the treatment. This
means that these samples have a lower probability (p) than the alpha level.
Alternative hypothesis: The alternative hypothesis, represented by either H1 or Ha, is the
assumption that the sample observations are influenced by some non-random thing. A one-tailed
(or one-sided) hypothesis specifies the direction of the relationship between predictor and
regressive variables. The two-tailed hypothesis states that an association exists. It does not
specify any direction. The one-tailed hypothesis has the statistical advantage of allowing a
smaller sample size compared to that allowed by a two-tailed hypothesis. Unfortunately, one-
tailed requirements are not always appropriate; In fact, some investigators believe they should
never be used. Subsequent determination of data mining and change in a one-tailed hypothesis
test to reduce sample size and P value indicates a lack of scientific integrity.

Developing Null and Alternative Hypotheses

In the statistical hypothesis test, there are always two prerequisites. The hypothesis being tested
is called the null hypothesis and the symbol H0 is given. The null hypothesis states that there is
no difference between a hypothetical population mean and a sample mean. It is a hypothetical
situation.
For example, if we were to test the hypothesis that college freshmen study 20 hours per week, we
would express our null hypothesis as:
H0 : μ = 20
We test the null hypothesis against an alternative symbol, which becomes the symbol Ha. The
alternative hypothesis is often the assumption that you believe in yourself! It does not contain
reverberations not covered by the null hypothesis. In this example, our alternative assumption is
that newcomers do not go to study for 20 hours a week:
Ha : μ = 20
State the Hypotheses
Every hypothesis test requires the analyst to make a null hypothesis and an alternative
hypothesis. Requirements are mutually exclusive. That is, if one is true, the other must be false;
And vice versa.
The following table shows three requirements. Everyone makes a statement about how the
average population of μ is related to a specific value M. (In the table, the symbol ≠ means "not
equal."

Set Null hypothesis Alternative hypothesis Number of tails

1 μ=M μ≠M 2
 2 μ > M μ<M 1
3 μ < M μ>M 1

The first set of hypotheses (Set 1) is an example of a two-tailed test because a marginal value on
both sides of the sample distribution causes the researcher to reject the null hypothesis. Because
only a marginal value on one side of the sample distribution causes a researcher to reject the null
hypothesis, the other two sets of bias (Sets 2 and 3) are one-tailed test.
P Value Definition
In the hypothesis test, a p-value is used to support or reject the null hypothesis. P-value is proof
against a null hypothesis. The smaller the p-value, the stronger is the proof that you have to
reject the null hypothesis.
P values are expressed as decimals, but when you convert them to percentages, it can be easy to
understand what they are. For example, the p-value of 0.0254 is 2.54%. This means that there is
a 2.54% chance that your results will be random (ie by chance). It is very small. On the other
hand, a high p-value of .9 (90%) means that 90% of your results are completely random and not
due to anything in your experiment. Therefore, the smaller the p-value, the more important
("important") your results will be.

When you run a hypothesis test, you compare the p-value of your test with the alpha level you
selected when the test was performed. Alpha levels can also be written as a percentage.
Graphically, the p-value is the area of the tail of a probability distribution. It counts when you
run the hypothetical test and the area to the right of the test statistic (the area to the left and right
if you do a double test).

P Value vs Alpha level

Alpha levels are controlled by the researcher and are at confidence levels. If your confidence
level drops by 100%, you get an alpha level. For example, if you want 98% confidence in your
research, then the alpha level is 2% (100% - 98%). If you run the hypothesis test, the test will
have a value of p. Compare that value to your chosen alpha level. For example, let's say you
selected an alpha level of 5% (0.05). When you get the results of the test:
 A small p (≤ 0.05), reject the null hypothesis. This is strong evidence that the null
hypothesis is invalid.
 A large p (> 0.05) means the alternate hypothesis is weak, so you do not reject the null.

Two-Sample t-Test
A hypothesis test that is used to determine questions related to the mean in situations where data
is collected from two random data samples. The two sample T-test is often used for evaluating
the means of two variables or distinct groups, providing information as to whether the means
between the two populations differs. For example, a two sample T-test can be used to compare
the responses of males and females who have each received different treatment within an
experiment.
(Source: http://www.businessdictionary.com/definition/two-sample-t-test.html)
One-Sample z-Test
The one-sample Z test is used when we want to know whether our sample comes from a
particular population. For instance, we are doing research on data collected from successive
cohorts of students taking the Elementary Statistics class. We may want to know if this particular
sample of college students is similar to or different from college students in general. The one-
sample Z test is used only for tests of the sample mean. Thus, our hypothesis tests whether the
average of our sample (M) suggests that our students come from a population with a know
mean (m) or whether it comes from a different population.

Two-Sample z-test:
A hypothesis test that is used to compare two sample groups to determine if they have originated
from the same population. The two sample z-test requires the standard deviation to be known or
the original size of the sample taken to be larger than 30, with a population that falls within a
system of normal distribution.

(Source: http://www.businessdictionary.com/definition/two-sample-z-test.html)

Example 1:
A manufacturer claims that the thickness of the spearmint gum it produces is 7.5 one-hundredths
of an inch. A quality control specialist regularly checks this claim. On one production run, he
took a random sample of n = 10 pieces of gum and measured their thickness. He obtained:
7.65 7.60 7.65 7.70 7.55
7.55 7.40 7.40 7.50 7.50
The quality control specialist's hypotheses are:
H0: μ = 7.5
HA: μ ≠ 7.5
The quality control specialist entered his data into Minitab and requested that the "one-sample t-
test" be conducted for the above hypotheses. He obtained the following output:
Descriptive Statistics
N Mean StDev SE Mean 95% CI for μ
10 7.550 0.1027 0.0325 (7.4765, 7.6235)
μ: mean of Thickness
Test
Null hypothesis     H₀: μ = 7.5
Alternative hypothesis     H₁: μ≠ 7.5
The output tells us that the average thickness of the n = 10 pieces of gums was 7.55 one-
hundredths of an inch with a standard deviation of 0.1027. (The standard error of the mean "SE
Mean", calculated by dividing the standard deviation 0.1027 by the square root of n = 10, is
0.0325). The test statistic t* is 1.54, and the P-value is 0.158.
T-Value P-Value
1.54 0.158

If the quality control specialist sets his significance level α at 0.05 and used the critical value
approach to conduct his hypothesis test, he would reject the null hypothesis if his test statistic t*
were less than -2.2616 or greater than 2.2616 (determined using statistical software or a t-table):
Since the quality control specialist's test statistic, t* = 1.54, is not less than -2.2616 nor greater
than 2.2616, the quality control specialist fails to reject the null hypothesis. That is, the test
statistic does not fall in the "critical region." There is insufficient evidence, at the α = 0.05 level,
to conclude that the mean thickness of all of the manufacturer's spearmint gum differs from 7.5
one-hundredths of an inch.
If the quality control specialist used the P-value approach to conduct his hypothesis test, he
would determine the area under a tn  - 1 = t9 curve, to the right of 1.54 and to the left  of -1.54:

In the output above, Minitab

reports that the P-value is
0.158. Since the P-value,
0.158, is greater than α = 0.05,
the quality control
specialist fails to reject the null
hypothesis. There is insufficient evidence, at the α = 0.05 level, to conclude that the mean
thickness of all pieces of spearmint gum differs from 7.5 one-hundredths of an inch.
Note that the quality control specialist obtains the same scientific conclusion regardless of the
approach used. This will always be the case.

In closing
In our review of hypothesis tests, we have focused on just one particular hypothesis test, namely
that concerning the population mean μ. The important thing to recognize is that the topics
discussed here — the general idea of hypothesis tests, errors in hypothesis testing, the critical
value approach, and the P-value approach — generally extend to all of the hypothesis tests you
will encounter.
Example 2:
A manufacturer of salad dressings uses machines to dispense liquid ingredients into bottles that
move along a filling line. The machine that dispenses salad dressings is working properly when 8
ounces are dispensed. Suppose that the average amount dispensed in a particular sample of 35
bottles is 7.91 ounces with a variance of 0.03 ounces squared,  . Is there evidence that the
machine should be stopped and production wait for repairs? The lost production from a
shutdown is potentially so great that management feels that the level of significance in the
analysis should be 99%.
We will follow the steps in our analysis of this problem.
STEP 1: Set the Null and Alternative Hypothesis.
The random variable is the quantity of fluid placed in the bottles. This is a continuous random
variable and the parameter we are interested in is the mean. Our hypothesis therefore is about the
mean. In this case we are concerned that the machine is not filling properly. From what we are
told it does not matter if the machine is over-filling or under-filling, both seem to be an equally
bad error. This tells us that this is a two-tailed test: if the machine is malfunctioning it will be
shutdown regardless if it is from over-filling or under-filling.
The null and alternative hypotheses are thus:
Null hypothesis     H₀: μ = 8
Alternative hypothesis     Ha: μ ≠ 8
STEP 2: Decide the level of significance and draw the graph showing the critical value.
This problem has already set the level of significance at 99%. The decision seems an appropriate
one and shows the thought process when setting the significance level. Management wants to be
very certain, as certain as probability will allow, that they are not shutting down a machine that is
not in need of repair. To draw the distribution and the critical value, we need to know which
distribution to use. Because this is a continuous random variable and we are interested in the
mean, and the sample size is greater than 30, the appropriate distribution is the normal
distribution and the relevant critical value is 2.575 from the normal table or the t-table at 0.005
column and infinite degrees of freedom. We draw the graph and mark these points.

STEP 3: Calculate
sample parameters and
the test statistic.
The sample parameters are provided, the sample mean is 7.91 and the sample variance is .03 and
the sample size is 35. We need to note that the sample variance was provided not the sample
standard deviation, which is what we need for the formula. Remembering that the standard
deviation is simply the square root of the variance, we therefore know the sample standard
deviation, s, is 0.173. With this information we calculate the test statistic as -3.07, and mark it on
the graph.
x −µ o
Z= ×√n
s
7.91−8
Z= × √ 35=−3.07
173
STEP 4: Compare test statistic and the critical values
Now we compare the test statistic and the critical value by placing the test statistic on the graph.
We see that the test statistic is in the tail, decidedly greater than the critical value of 2.575. We
note that even the very small difference between the hypothesized value and the sample value is
still a large number of standard deviations. The sample mean is only 0.08 ounces different from
the required level of 8 ounces, but it is 3 plus standard deviations away and thus we cannot
accept the null hypothesis.
STEP 5: Reach a Conclusion
Three standard deviations of a test statistic will guarantee that the test will fail. The probability
that anything is within three standard deviations is almost zero. Actually, it is 0.0026 on the
normal distribution, which is certainly almost zero in a practical sense. Our formal conclusion
would be “ At a 99% level of significance we cannot accept the hypothesis that the sample mean
came from a distribution with a mean of 8 ounces” Or less formally, and getting to the point, “At
a 99% level of significance we conclude that the machine is under filling the bottles and is in
need of repair”.
Source: https://opentextbc.ca/introbusinessstatopenstax/chapter/full-hypothesis-test-examples/
Example 3:
The mortgage department of a large bank is interested in the nature of loans of first-time
borrowers. This information will be used to tailor their marketing strategy. They believe that
50% of first-time borrowers take out smaller loans than other borrowers. They perform a
hypothesis test to determine if the percentage is the same or different from 50%. They
sample 100 first-time borrowers and find 53 of these loans are smaller than the other borrowers.
For the hypothesis test, they choose a 5% level of significance.
We have to follow following steps:
STEP 1: Set the null and alternative hypothesis.
Null hypothesis:     H0: p = 0.50  
Alternative hypothesis:     Ha: p ≠ 0.50
The words “is the same or different from” tell you this is a two-tailed test. The Type I and Type
II errors are as follows: The Type I error is to conclude that the proportion of borrowers is
different from 50% when, in fact, the proportion is actually 50%. (Reject the null hypothesis
when the null hypothesis is true). The Type II error is there is not enough evidence to conclude
that the proportion of first-time borrowers differs from 50% when, in fact, the proportion does
differ from 50%. (You fail to reject the null hypothesis when the null hypothesis is false.)
STEP 2: Decide the level of significance and draw the graph showing the critical value
The level of significance has been set by the problem at the 95% level. Because this is two-tailed
test one-half of the alpha value will be in the upper tail and one-half in the lower tail as shown on
the graph. The critical value for the normal distribution at the 95% level of confidence is 1.96.
This can easily be found on the student’s t-table at the very bottom at infinite degrees of freedom
remembering that at infinity the t-distribution is the normal distribution. Of course, the value can
also be found on the normal table but you have go looking for one-half of 95 (0.475) inside the
body of the table and then read out to the sides and top for the number of standard deviations.

STEP 3: Calculate the

sample parameters and
critical value of the test statistic.
The test statistic is a normal
distribution, Z, for testing proportions and is:
p−po
Z=
√ ( po )( qo )
n
.53−.50
Z= =0.60
√ .5(.5)
100
For this case, the sample of 100 found 53 first-time borrowers were different from other
borrowers. The sample proportion, p′ = 53/100= 0.53 The test question, therefore, is: “Is 0.53
significantly different from .50?” Putting these values into the formula for the test statistic we
find that 0.53 is only 0.60 standard deviations away from .50. This is barely off of the mean of
the standard normal distribution of zero. There is virtually no difference from the sample
proportion and the hypothesized proportion in terms of standard deviations.
STEP 4: Compare the test statistic and the critical value.
The calculated value is well within the critical values of ± 1.96 standard deviations and thus we
cannot reject the null hypothesis. To reject the null hypothesis, we need significant evident of
difference between the hypothesized value and the sample value. In this case the sample value is
very nearly the same as the hypothesized value measured in terms of standard deviations.
STEP 5: Reach a conclusion
The formal conclusion would be “At a 95% level of significance we cannot reject the null
hypothesis that 50% of first-time borrowers have the same size loans as other borrowers”. Less
formally we would say that “There is no evidence that one-half of first-time borrowers are
significantly different in loan size from other borrowers”. Notice the length to which the
conclusion goes to include all of the conditions that are attached to the conclusion. Statisticians
for all the criticism they receive, are careful to be very specific even when this seems trivial.
Statisticians cannot say more than they know and the data constrain the conclusion to be within
the metes and bounds of the data.
Source: https://opentextbc.ca/introbusinessstatopenstax/chapter/full-hypothesis-test-examples/