Statistical

Methods
IPM – Term I, September 2022

Dr. Landis Conrad Felix Michel

 Fundamentals of Hypothesis-Testing Methodology

• Hypothesis testing typically begins with a theory, a claim, or an assertion about a particular parameter
of a population. Hypothesis always refer to population parameters.

• The hypothesis that the population parameter is equal to a specific value is referred
to as the null hypothesis (H0). Whenever a null hypothesis is specified, an alternative hypothesis is also
specified, and it must be true if the null hypothesis is false. The alternative hypothesis, H1, is the
opposite of the null hypothesis, H0.

• The null hypothesis is stated in terms of the population parameter, while we use the sample statistic to
make inferences.

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel

• The following key points summarize the null and alternative hypotheses:

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
• If the sample statistic is close to the population parameter, you have insufficient evidence to reject
the null hypothesis.

• However, if there is a large difference between the value of the sample statistic and the
hypothesized value of the population parameter, you might conclude that the null hypothesis is false.

• Determining what is “very close” and what is “very different” is arbitrary without clear
definitions. Hypothesis testing methodology provides clear definitions for evaluating differences.
Furthermore, it enables you to quantify the decision-making process by computing the probability
of getting a certain sample result if the null hypothesis is true. You calculate this probability by
determining the sampling distribution for the sample statistic of interest (e.g., the sample mean)
and then computing the particular test statistic based on the given sample result. Because the
sampling distribution for the test statistic often follows a well-known statistical distribution, such
as the standardized normal distribution or t distribution, you can use these distributions to help
determine whether the null hypothesis is true.

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel

 • The sampling distribution of the test statistic :

• To make a decision concerning the null hypothesis, you first determine the critical value of the test
statistic. The critical value divides the nonrejection region from the rejection region.

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
The t test is a robust test. A robust test does not lose power if the shape of the population
departs somewhat from a normal distribution, particularly when the sample size is large
enough to enable the test statistic t to follow the t distribution. However, you can reach erroneous
conclusions and can lose statistical power if you use the t test incorrectly. If the sample
size, n, is small (i.e., less than 30) and you cannot easily make the assumption that the underlying
population is at least approximately normally distributed

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel
References – Additional Readings
• Chapter 9 “Statistics for Managers, Using Microsoft Excel”, 8th Edition, David M. Levine,
David Stephan, Kathryn A. Szabat.

•.

IPM – Term I, September 2022 - Dr. Landis Conrad Felix Michel