Lesson structure

• Recap of Seminar 5: Hypothesis Testing

• Part 1: Hypothesis testing of population means [Questions &
discussion (Tutor led)]
• Quiz Part A
• Part 2: Testing of proportions and potential errors [Questions &
Discussion (Tutor led)]
• Quiz Part B
• Summary
Hypothesis Test for Evidence-based Decisions
2

Sample

Sampling
STATISTICS Distribution

DESCRIPTIVE INFERENTIAL

ESTIMATION
HYPOTHESIS TESTS
Point & Interval

Estimating the value of a Testing a claim about the value

population parameter of a population parameter
Steps in Hypothesis Test

1 2 3 4
Formulate Decide Calculate Apply
𝐻0 & 𝐻1 on  the p-value decision rule:
reject 𝐻0
if p-value < 
OR retain it if
p-value > 
Defining the hypothesis
•Formulate 𝐻0 & 𝐻1
1 •The null hypothesis always involve equality sign (=)

•The alternative hypothesis is what we are searching evidence for. It can contain an “≠” , “>” or “<“ sign

𝐻0 : 𝜇 = 𝜇0 𝐻0 : 𝜇 = 𝜇0
𝐻0 : 𝜇 = 𝜇0
𝐻1 : 𝜇 > 𝜇0 𝐻1 : 𝜇 < 𝜇0
𝐻1 : 𝜇 ≠ 𝜇0

Two-tailed test Right-tailed test Left-tailed test

“different to” “greater than” “less than”
 Mechanics of Hypothesis Testing
Decide on .
2 Recommendations: 𝛼 = 5%; or 𝛼 = 1% for conservative cases.

ҧ 0
𝑥−𝜇 ഥ−𝝁𝟎
𝒙
𝑇𝑒𝑠𝑡 𝑆𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 = = ഥ
𝑠/ 𝑛 𝑺𝑬 𝒙
3 Judging whether or not the test statistic is outstanding “far from zero”, in the
direction of the alternative.

Decision:

4 Reject 𝐻0 if p-value <  OR Retain it if p-value > 

A smaller p-value means that there is stronger evidence in favor of H1

P-value for a right-tail test P-value for a left-tailed test P-value for a two-tail test
=1-NORM.S.DIST(test statistic ,TRUE) =NORM.S.DIST(test statistic ,TRUE) =2*NORM.S.DIST(??,TRUE)
Errors in Hypothesis Testing: Type I and II errors
Since we rely on data samples to conduct hypothesis tests, there is a potential
of errors.
Possible scenarios:
The true ‘state of the world’

𝑯𝟎 is TRUE 𝑯𝟎 is FALSE
Do not reject 𝑯𝟎 CORRECT TYPE II ERROR
DECISION! (β)
Reject 𝑯𝟎 TYPE I ERROR CORRECT
(α) DECISION!
Part A: Hypothesis testing of sampling means
Go to the sheet labelled "Cassava". You will see the price received by farmers
in Timor-Leste for Cassava. The price is measured per kilogram. You have
already analysed the summary statistics of this data set in the Week 4
Tutorial.
We now analyse the entire data set, not by geographical location. You are
given the summary statistics for the price of Cassava. Take note of the sample
mean, sample standard deviation, sample size and the reported standard
error.
The local government is currently working on regulations to standardise the
price of Cassava sold. In order to understand the current market situation,
they wish to establish if the price of cassava is more than $0.19 per kilogram
on average.
Questions
T1. Formulate the null and alternative hypotheses for the statistical test
that would assist the local government in establishing evidence from the
data collected.

T2. Report the p-value for this test. Report your answer to four decimal
places.

T3. Compare the p-value with the significance level and state whether you
would reject or retain the null hypothesis.
Questions
T4. Write your conclusion in one sentence.

T5. Which two of the following statements are TRUE?

● At the significance level of 5%, there is enough statistical evidence to
establish that the average cassava price is greater than $0.19.
● There is not enough statistical evidence to support the fact that the average
Cassava price is greater than $0.19, even if the 10% significance level is used.
● At the significance level of 5%, there is not enough statistical evidence to
establish that the average cassava price is greater than $0.19.
● The p-value helps us to establish evidence about the null hypothesis.
Questions

T6. How would the analysis change if the local government instead wished to
establish if the price cassava is, in fact, different to $0.19 on average?
Which statement is correct?

● The analysis does not change; we can still use the t-statistic and the p-value
from above.
● We cannot conduct such a statistical test to validate this claim.
● The t-statistic remains the same, but the p-value changes to 0.618.
● The t-statistic remains the same, but the p-value changes to 0.155.
Quiz Part A

• Click on Week 6 Tutorial quiz on Moodle

• Follow the instructions and complete only the questions in Part A
• Time allowed: 20 minutes
Testing of proportions and potential errors
In Week 5 Tutorial, you have analysed the proportions of houses in a
Melbourne suburb that is sold by Auction from the “Real Estate”
worksheet.
Questions

T7. Let us conduct a hypothesis test to validate the claim that more than
50% of properties are sold by auction. Define the null and alternative
hypotheses.

T8. Report the test statistic and p-value:

T9: Provide a conclusion using a significance level of 5%

T10: What is a potential error in this test? Provide a contextual

interpretation of the potential error.
Questions

T11. Which of the following statements are FALSE?

● In T9, there is a conflict of conclusion if the significance level of 10% is

used to make the conclusion.
● If the 10% significance level is used, there is a smaller chance of type I
error.
● If the 10% significance level is used, there is a smaller chance of type II
error.
● Hypothesis tests are invalid if p-values are greater than 0.5.
Quiz Part B

• Follow the instructions and complete only the questions in Part B

• Time allowed: 20 minutes