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Hypothesis Testing

Although we normally base our

decisions on knowledge about
the problems that we are trying to
solve, we always have to accept
some risk of making an error. Our
knowledge is never perfect and
complete. Depending on the
consequences of the decision,
we require different degrees of
confidence that the decision is
correct. Non-critical questions
such as whether to take an
umbrella with us when we leave for work, need only low levels of confidence.
Whilst in contrast, critical decisions like weighting the evidence in a murder
case in court, or diagnosing a certain disease in a hospital, require a high
degree of confidence. The uncertainty in the process of making a decision is
related to the fact that the probability of making an error is not zero.

Hypothesis testing gives us the guidelines for choosing between alternatives

by either controlling or minimizing the error associated with the decision. The
simplest case for a decision is the 'yes-or-no' question. In court, for example,
the jurors have to decide "guilty or not guilty". These statements are two
hypotheses. The normal assumption is "not guilty", in statistics this is called
the null hypothesis. It is what we normally assume. Then there is
an alternative hypothesis, in our example "guilty". We will accept this
alternative hypothesis only when there is convincing evidence.
Hypothesis testing gives us the guidelines for choosing between alternatives
by either controlling or minimizing the error associated with the decision. The
simplest case for a decision is the 'yes-or-no' question. In court, for example,
the jurors have to decide "guilty or not guilty". These statements are two
hypotheses. The normal assumption is "not guilty", in statistics this is called
the null hypothesis. It is what we normally assume. Then there is
an alternative hypothesis, in our example "guilty". We will accept this
alternative hypothesis only when there is convincing evidence.

Hypothesis testing gives us the guidelines for choosing between alternatives

by either controlling or minimizing the error associated with the decision. The
simplest case for a decision is the 'yes-or-no' question. In court, for example,
the jurors have to decide "guilty or not guilty". These statements are two
hypotheses. The normal assumption is "not guilty", in statistics this is called
the null hypothesis. It is what we normally assume. Then there is
an alternative hypothesis, in our example "guilty". We will accept this
alternative hypothesis only when there is convincing evidence.

Hypothesis testing can be summarized in the questions: is it reasonable to

assume that the value of a population parameter is equal to / larger than / less
than x? This question can be applied in various situations. The population
parameter can be either the mean or the variance. The value of x is either
specified on the basis of prior knowledge, or an estimated parameter from
another population.

Hypothesis testing is always a five-step procedure:

 Formulation of the null and the alternative hypotheses

 Specification of the level of significance
 Calculation of the test statistic
 Definition of the region of rejection
 Selection of the appropriate hypothesis