HYPOTHESIS TESTING

SUBMITTED TO: PREETI MAAM

SUBMITTED BY: MAVERICKS

WHATS THIS ALL ABOUT?

o Hypothesis
An educated guess A claim or statement about a property of a population

o The goal in Hypothesis Testing is to analyze a sample in an attempt to distinguish between population characteristics that are likely to occur and population characteristics that are unlikely to occur.

THE BASICS
Null Hypothesis vs. Alternative Hypothesis
Type I vs. Type II Error

vs.

NULL HYPOTHESIS VS. ALTERNATIVE HYPOTHESIS

Null Hypothesis
Statement about the value of a population parameter

Alternative Hypothesis
Statement about the value of a population parameter that must be true if the null hypothesis is false Represented by H1 Stated in on of three forms > <

Represented by H0
Always stated as an Equality

TYPE I VS. TYPE II ERROR

Referring to Ho, the Null Hypothesis True Reject Fail to Reject Type I Error O.K. False O.K Type II Error

ALPHA VS. BETA

is the probability of Type I error
is the probability of Type II error The experimenters (you and I) have the freedom to set the -level for a particular hypothesis test. That level is called the level of significance for the test.

Changing can (and often does) affect the results of the testwhether you reject or fail to reject H0.

FORMING CONCLUSIONS
Every hypothesis test ends with the experimenters (you and I) either
Rejecting the Null Hypothesis, or Failing to Reject the Null Hypothesis

As strange as it may seem, you never accept the Null Hypothesis. The best you can ever say about the Null Hypothesis is that you don t have enough evidence, based on a sample, to reject it!

SEVEN STEPS TO HYPOTHESIS TESTING HAPPINESS (TRADITIONAL OR CLASSICAL METHOD)

THE SEVEN STEPS

1) Describe in words the population characteristic about which hypotheses are to be tested 2) State the null hypothesis, Ho 3) State the alternative hypothesis, H1 or Ha 4) Display the test statistic to be used

THE SEVEN STEPS

5) Identify the rejection region
Is it an upper, lower, or two-tailed test? Determine the critical value associated with , the level of significance of the test

6) Compute all the quantities in the test statistic, and compute the test statistic itself

THE SEVEN STEPS

7) State the conclusion. That is, decide whether to reject the null hypothesis, Ho, or fail to reject the null hypothesis. The conclusion depends on the level of significance of the test. Also, remember to state your result in the context of the specific problem.

EXAMPLE
XYZ Corporation is a company that is focused on a stable workforce that has very little turnover. XYZ has been in business for 50 years and has more than 10,000 employees. The company has always promoted the idea that its employees stay with them for a very long time, and it has used the following line in its recruitment brochures: "The average tenure of our employees is 20 years." Since XYZ isn't quite sure if that statement is still true, a random sample of 100 employees is taken and the average age turns out to be 19 years with a standard deviation of 2 years. Can XYZ continue to make its claim, or does it need to make a change?

State the hypotheses.

H0 = 20 years H1 20 years Determine the test statistic. Since we are testing a population mean that is normally distributed, the appropriate test statistic is z test. Specify the significance level. Since the firm would like to keep its present message to new recruits, it selects a fairly weak significance level ( = .05). Since this is a two-tailed test, half of the alpha will be assigned to each tail of the distribution. In this situation the critical values of Z = +1.96 and 1.96.

EXAMPLE CONTD.
State the decision rule. If the computed value of Z is greater than or equal to +1.96 or less than or equal to 1.96, the null hypothesis is rejected. Calculations. Reject or fail to reject the null. Since 2.5 is greater than 1.96, the null is rejected. The mean tenure is not 20 years, therefore XYZ needs to change its statement

TYPES OF HYPOTHESIS TESTS

Large Sample Tests, Population Mean (known population standard deviation) Large Sample Tests, Proportion (unknown standard deviation) Population population

Small Sample Tests, Mean of a Normal Population