Business Decision Making II

Hypothesis Tests

Dr. Nguyen Ngoc Phan

Dr. Nguyen Ngoc Phan Hypothesis Tests

Developing Null and Alternative Hypothesis

In hypothesis testing we begin by making a tentative

assumption about a population parameter. This tentative
assumption is called the null hypothesis and is denoted by H0 .
We then define another hypothesis, called the alternative
hypothesis, which is the opposite of what is stated in the null
hypothesis. The alternative hypothesis is denoted by Ha .
Keep in mind that
The alternative hypothesis is a research hypothesis.
The null hypothesis is a an assumption to be challenged.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Forms for Null and Alternative Hypothesis
The hypothesis tests in this chapter involve two population
parameters: the population mean and the population
proportion. For hypothesis tests involving a population mean,
we let µ0 denote the hypothesized value and we must choose
one of the following three forms for the hypothesis test.
1 H 0 : µ ≥ µ 0 , Ha : µ < µ 0
2 H 0 : µ ≤ µ0 , Ha : µ > µ 0
3 H 0 : µ = µ0 , Ha : µ 6= µ0

The first two forms are called one-tailed tests. the third form
is called a two-tailed test.
Example: Problems 1, 2 and 3, page 390.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Type I and Type II errors

Ideally the hypothesis testing procedure should lead to the

acceptance of H0 when H0 is true and the rejection of H0
when Ha is true. Unfortunately, the correct conclusions are not
always possible. Because hypothesis tests are based on sample
information, we must allow for the possibility of errors.
The following table illustrates the two kinds of errors that can
be made in hypothesis testing.
H0 True Ha True
Accept H0 Correct conclusion Type II Error
Reject H0 Type I Error Correct conclusion

Dr. Nguyen Ngoc Phan Hypothesis Tests

Level of Significance
The level of significance is the probability of making a Type I
error when the null hypothesis is true as an equality.

The symbol α is used to denote the level of significance, and

common choices for α are 0.05 and 0.01.
If the cost of making a Type I error is high, small values of α
are preferred. If the cost of making a Type I error is not too
high, larger values of α are typically used.
Applications of hypothesis testing that only control for the
Type I error are called significance tests. Many applications of
hypothesis testing are of this type.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Example: Problem 5, page 392.
Homework: Problems 7 and 8, page 393.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Population Mean: σ Known

One–Tailed Test
One–tailed tests about a population mean take one of the
following two forms.
Lower Tail Test

H 0 : µ ≥ µ0 , Ha : µ < µ 0

Upper Tail Test

H 0 : µ ≤ µ0 , Ha : µ > µ 0

Dr. Nguyen Ngoc Phan Hypothesis Tests

Let x̄ be√the sample mean of a sample of size n. Then
σx = σ/ n.
Because the sampling distribution of x̄ is normally distributed,
the sampling distribution of
x̄ − µ0
z=
σx
is a standard normal distribution. Such a z is called a test
statistic to determine whether x deviates from the
hypothesized value of µ enough to justify rejecting the null
hypothesis.
We need to determine how small z be before we choose to
reject the null hypothesis.
There are two approaches for this problems: the p–value and
the critical value.
Dr. Nguyen Ngoc Phan Hypothesis Tests
p–Value
A p–value is a probability that provides a measure of the
evidence against the null hypothesis provided by the sample.
The p–value is used to determine whether the null hypothesis
should be rejected.
The p–value is calculated by the standard normal distribution.
For lower tail test

p = P(z ≤ test statistic)

For upper tail test

p = P(z ≥ test statistic)

Dr. Nguyen Ngoc Phan Hypothesis Tests

Computation of p–value for two tail tests
1 If the value of the test statistic is in the upper tail,
compute the probability that z is greater than or equal to
the value of the test statistic. If the value of the test
statistic is in the lower tail, compute the probability that
z is less than or equal to the value of the test statistic.
2 Double the probability from step 1 to obtain the p–value.

Rejection rule using p–value

Reject H0 if p–value ≤ α.

Example: Problems 9, 10 and 11, page 405.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Hypothesis testing using Interval estimation
We can also use confidence intervals to testing a two–tailed
hypothesis
H0 : µ = µ0 , Ha : µ 6= µ0 .

1 Select a simple random sample from the population and

use the value of the sample mean x to develop the
confidence interval for the population mean µ
σ
x̄ ± zα/2 √ .
n
2 If the confidence interval contains the hypothesized value
µ0 , do not reject H0 . Otherwise, reject H0 .

Example: Do problem 11, page 405 using interval estimation.

Dr. Nguyen Ngoc Phan Hypothesis Tests
Example: Problems 21 and 22, page 407.
Homework: Problems 16 and 18, page 407.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Population Mean: σ Unknown

To conduct a hypothesis test about a population mean for the

σ unknown case, the sample mean x̄ is used as an estimate of
µ and the sample standard deviation s is used as an estimate
of σ.
The steps of the hypothesis testing procedure for the σ
unknown case are the same as those for the σ known case.
But the computation of the test statistic and p–value is a bit
different.
The test statistic for the σ unknown case is calculated by
x̄ − µ0
t= √ ,
s/ n

and the p–value is calculated by the t distribution.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Example: Problems 23, 24 and 25, page 411.
Homework: Problems 33 and 34, page 413.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Population Proportion

Using p0 to denote the hypothesized value for the population

proportion, the three forms for a hypothesis test about a
population proportion are as follows.
1 H0 : p ≥ p0 Ha : p < p0
2 H0 : p ≤ p0 Ha : p > p0
3 H0 : p = p0 6 p0 .
Ha : p =
The first form is called a lower tail test, the second form is
called an upper tail test, and the third form is called a
two–tailed test.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Hypothesis tests about a population proportion are based on
the difference between the sample proportion p̄ and the
hypothesized population proportion p0 . The methods used to
conduct the hypothesis test are similar to those used for
hypothesis tests about a population mean.

Test statistic about a population proportion

p̄ − p0
z=r
p0 (1 − p0 )
n

The p–value is calculated by the standard normal distribution,

similar to what we did to calculate the p–value of the
population mean.

Dr. Nguyen Ngoc Phan Hypothesis Tests

Example: Problems 35, 36 and 38, page 417.
Homework: Problems 40 and 45, page 419.

Dr. Nguyen Ngoc Phan Hypothesis Tests