Unit 3: Parametric test

Parameter
A statistical constant of the population is called a parameter.
Eg: Population mean, population proportion, Population variance etc
Statistic
A function of the sample values is called a statistic.
Eg: Sample mean, sample proportion, sample variance etc

Estimation
Estimation is the method of obtaining the most likely value of the
population parameter using statistic is called estimation
Estimation is a process where we select a random sample from a
population and use a sample to estimate a population parameter.
There are two ways for estimation
 Point estimation
 Interval estimation

Point estimation: Point estimation is the use of statistics taken from one
or several samples to estimate the value of an unknown parameter of a
population.
Interval estimation: If an interval is proposed as an estimate of the
unknown parameter, then it is interval estimation. Interval estimation is
a kind of statistical inference in which we search for an interval of values
that contains the true parameter with high probability. Such an interval
is called a confidence interval.
A confidence interval is the mean of your estimate plus and minus the
variation in that estimate. This is the range of values you expect your
estimate to fall between if you redo the test within a certain level of
confidence. The probability that a confidence interval contains the
unknown parameter is called confidence coefficient.
Standard error
Standard error is the measure of the variability of a sample statistic used
to estimate the variability of a population.
Standard error is used to denote the standard deviation of different
sample statistics.
Statistical hypothesis: A statistical hypothesis is a statement regarding
the parameters of the population.
Example: The mean monthly telephone bill of
the city is μ = 2500
Example: The proportion of adults using cell
phones in this city is p= 0.8

Null hypothesis:
Null hypothesis is the hypothesis which is being tested for a possible
rejection, under the assumption that it is true. It is denoted by H 0.
Null hypothesis states the claim to be tested.
Example (H0): Average number of TV sets in
Indian homes μ = 3

Alternate hypothesis:
Alternative hypothesis is the hypothesis which is accepted when the null
hypothesis is rejected. It is the hypothesis which is complementary to
the null hypothesis. It is denoted by H1.
Any hypothesis which is complementary to the null hypothesis is called
an alternative hypothesis.
Example (H1): Average number of TV sets in Indian homes
μ ≠ 3(two sided)
or μ < 3(left sided)
or μ > 3(right sided)

One tailed test :

One tailed test is a test of statistical hypothesis, where rejection region
will be located at only one tail of the probability curve of the null
distribution of the test statistic. The rejection region will be either at the
left or right tail of the curve depending upon the alternative hypothesis.
Here the alternative hypothesis is of the type either less than (<) or more
than (>).

Two tailed test:

Two tailed test is a test of statistical hypothesis, where rejection region
is located at both the tails of the probability curve of the null distribution
of the test statistic. Here the alternative hypothesis is of the type which
is not equal to (≠)

Types of errors
H0 is true H0 is false
Reject H0 Type 1 error Correct decision

Do nor reject H0 Correct decision Type 2 error

Critical region and level of significance

A region in the sample space which amounts to rejection of H0 is termed
as critical region or rejection region.
Probability of type 1 error is known as level of significance α.(Usually we
take α=0.01 or 0.05 or 0.10)
Probability of type 2 error is β
1-β is known as the power of the test.(Probability of rejecting H0 when it
is false)

6 Steps in hypothesis Testing

1. State the null hypothesis, H0 and the alternative hypothesis, H1
2. Choose the level of significance, α , and the sample size, n
3. Determine the appropriate test statistic and sampling distribution
4. Determine the critical values that divide the rejection and non
rejection regions.
5. Collect data and compute the value of the test statistic
6. Make the statistical decision and state the managerial conclusion. If
the test statistic falls into the non rejection region, do not reject the
null hypothesis H0. If the test statistic falls into the rejection region,
reject the null hypothesis. Express the managerial conclusion in the
context of the problem
Concept of p-value
p-value: Probability of obtaining a test statistic more extreme ( ≤ or ≥)
than the observed sample value given H0 is true.(Probability of null
hypothesis being true)

Also called observed level of significance.

Smallest value of α for which H0 can be rejected .

Smaller the p-value, stronger the evidence that null hypothesis should be
rejected.