Testing of

Hypothesis

Book: Statistics for Business and Economics (Chapter 9)

Author: Anderson, Sweeney, et.al.
Edition: 13th Edition

Faculty: Suvechcha Sengupta

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Statistical Inference

Hypothesis testing is the second form of statistical inference. It

also has greater applicability.

To understand the concepts we’ll start with an example of

nonstatistical hypothesis testing.

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Nonstatistical Hypothesis Testing

A criminal trial is an example of hypothesis testing without the

statistics.

In a trial a jury must decide between two hypotheses. The null

hypothesis is
H0: The defendant is innocent
The alternative hypothesis or research hypothesis is
H1: The defendant is guilty

The jury does not know which hypothesis is true. They must
make a decision on the basis of evidence presented.
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Nonstatistical Hypothesis Testing

In the language of statistics convicting the defendant is called

rejecting the null hypothesis in favor of the

alternative hypothesis.

That is, the jury is saying that there is enough evidence to conclude
that the defendant is guilty (i.e., there is enough evidence to
support the alternative hypothesis).

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Nonstatistical Hypothesis Testing

If the jury acquits it is stating that

there is not enough evidence to support the

alternative hypothesis.

Notice that the jury is not saying that the defendant is innocent,
only that there is not enough evidence to support the alternative
hypothesis. That is why we never say that we accept the null
hypothesis.

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Nonstatistical Hypothesis Testing

There are two possible errors.

A Type I error occurs when we reject a true null hypothesis. That

is, a Type I error occurs when the jury convicts an innocent person.

A Type II error occurs when we don’t reject a false null hypothesis.

That occurs when a guilty defendant is acquitted.

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Nonstatistical Hypothesis Testing

The probability of a Type I error is denoted as α (Greek letter

alpha). The probability of a type II error is β (Greek letter beta).

The two probabilities are inversely related. Decreasing one

increases the other.

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Nonstatistical Hypothesis Testing

In our judicial system Type I errors are regarded as more serious.

We try to avoid convicting innocent people. We are more willing
to acquit guilty people.

We arrange to make α small by requiring the prosecution to prove

its case and instructing the jury to find the defendant guilty only
if there is “evidence beyond a reasonable doubt.”

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Nonstatistical Hypothesis Testing

Decision H0 is True (Defendant is H0 is False (Defendant is

Innocent) Guilty)

Reject H0 Type I Error Correct Decision

Convict P(Type I Error) = α
Defendant
Do Not Reject H0 Correct Decision Type II Error
Acquit Defendant P(Type II Error) = β

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Nonstatistical Hypothesis Testing

The critical concepts are theses:

1. There are two hypotheses, the null and the alternative hypotheses.
2. The procedure begins with the assumption that the null hypothesis is
true.
3. The goal is to determine whether there is enough evidence to infer
that the alternative hypothesis is true.
4. There are two possible decisions:
Conclude that there is enough evidence to support the alternative
hypothesis.
Conclude that there is not enough evidence to support the
alternative hypothesis.

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Nonstatistical Hypothesis Testing

5. Two possible errors can be made.

Type I error: Reject a true null hypothesis
Type II error: Do not reject a false null hypothesis.

P(Type I error) = α
P(Type II error) = β

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The Research Hypotheses

 Hypothesis testing can be used to determine whether a statement about the

value of a population parameter should or should not be rejected.
 A hypothesis is an assumption or a statement that may or may not be true.
 The hypothesis is tested based on information obtained from a sample
 Hypothesis tests are widely used in business and industry for making
decisions
 Instead of asking, for example, what the mean assessed value of an
apartment in a multistoried building is, one may be interested in knowing
whether the assessed value equals some particular value or not, say Rs 80
lakh
 Some other examples could be whether a new drug is more effective than the
existing drug based on the sample data

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Concepts of Hypothesis Testing

There are two hypotheses. One is called the null hypothesis and
the other the alternative or research hypothesis. The usual
notation is:
pronounced
H “nought”

H0: — the ‘null’ hypothesis

The null hypothesis, denoted by H0 , is a tentative assumption
about a population parameter.
H1: — the ‘alternative’ or ‘research’ hypothesis
The alternative hypothesis, denoted by Ha or H1 is the opposite
of what is stated in the null hypothesis.

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Developing Null and Alternative Hypotheses
• It is not always obvious how the null and alternative hypotheses should be
formulated.
• Care must be taken to structure the hypotheses appropriately so that the test
conclusion provides the information the researcher wants.
• The context of the situation is very important in determining how the
hypotheses should be stated.
• In some cases it is easier to identify the alternative hypothesis first. In other
cases the null is easier.
• Correct hypothesis formulation will take practice.

14
Developing Null and Alternative
Hypotheses
- Alternative Hypothesis as a Research
Hypothesis

 Many applications of hypothesis testing involve an attempt to gather

evidence in support of a research hypothesis.
 In such cases, it is often best to begin with the alternative hypothesis
and make it the conclusion that the researcher hopes to support.
 The conclusion that the research hypothesis is true is made if the
sample data provide sufficient evidence to show that the null
hypothesis can be rejected.

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Developing Null and Alternative
Hypotheses
- Alternative Hypothesis as a Research
Hypothesis

 Example:
A new teaching method is developed that is believed to be better than
the current method.
 Alternative Hypothesis:
The new teaching method is better.
 Null Hypothesis:
The new method is no better than the old method.

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Developing Null and Alternative
Hypotheses
- Alternative Hypothesis as a Research
Hypothesis

 Example:
A new sales force bonus plan is developed in an attempt to increase
sales.
 Alternative Hypothesis:
The new bonus plan increase sales.
 Null Hypothesis:
The new bonus plan does not increase sales.

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Developing Null and Alternative
Hypotheses
- Alternative Hypothesis as a Research
Hypothesis

 Example:
A new drug is developed with the goal of lowering blood pressure
more than the existing drug
 Alternative Hypothesis:
The new drug lowers blood pressure more than the existing drug.
 Null Hypothesis:
The new drug does not lower blood pressure more than the existing
drug.

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Developing Null and Alternative
Hypotheses
- Null Hypothesis as an Assumption to be
Challenged

 We might begin with a belief or assumption that a statement about

the value of a population parameter is true.
 We then using a hypothesis test to challenge the assumption and
determine if there is statistical evidence to conclude that the
assumption is incorrect.
 In these situations, it is helpful to develop the null hypothesis first.

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Developing Null and Alternative Hypotheses
- Null Hypothesis as an Assumption to be Challenged

 Example:
The label on a soft drink bottle states that it contains 67.6 fluid
ounces.
 Alternative Hypothesis:
The label is correct. µ ≥ 67.6 ounces.
 Null Hypothesis:
The label is incorrect. µ < 67.6 ounces.

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The Null Hypothesis, H0

 Begins with the assumption that the null hypothesis is true

 Refers to the status quo
 Always contains “=” sign
 May or may not be rejected

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The Alternative Hypothesis, H1

 Is the opposite of the null hypothesis

 e.g., The average number of TV sets in U.S. homes is not
equal to 3 ( H1: μ ≠ 3 )
 Challenges the status quo
 Contains the “≠” , “<” or “>” sign
 May or may not be proven
 Is generally the hypothesis that the researcher is trying to prove

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Summary of Forms for Null and Alternative
Hypotheses about a Population Mean

 The equality part of the hypotheses always appears in the null

hypothesis.
 In general, a hypothesis test about the value of a population mean must
take one of the following three forms (where is the hypothesized value
of the population mean).

≥ ≤ =
< > ≠
One-tailed One-tailed Two-tailed
(lower-tail) (upper-tail)

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Concepts of Hypothesis Testing

The testing procedure begins with the assumption that the null
hypothesis is true.

Thus, until we have further statistical evidence, we will assume:

H0: µ ≥ 67.6 ounces. (assumed to be TRUE)

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Concepts of Hypothesis Testing

The goal of the process is to determine whether there is enough

evidence to infer that the alternative hypothesis is true.

That is, is there sufficient statistical information to determine if

this statement is true?

H1: µ < 67.6 ounces

This is what we are interested

in determining…

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Concepts of Hypothesis Testing

There are two possible decisions that can be made:

Conclude that there is enough evidence to support the alternative

hypothesis
(also stated as: rejecting the null hypothesis in favor of the
alternative)

Conclude that there is not enough evidence to support the

alternative hypothesis
(also stated as: not rejecting the null hypothesis in favor of the
alternative)
NOTE: we do not say that we accept the null hypothesis…
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Concepts of Hypothesis Testing

Once the null and alternative hypotheses are stated, the next step
is to randomly sample the population and calculate a test statistic
(in this example, the sample mean).

If the test statistic’s value is inconsistent with the null hypothesis

we reject the null hypothesis and infer that the alternative
hypothesis is true.

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Concepts of Hypothesis Testing

For example, if we’re trying to decide whether the mean is less

than 67.6 ounces, a very small value of (say, 20) would provide
enough evidence.

If is close to 67.6 (say, 60) we cannot say that this provides a

great deal of evidence to infer that the population mean is lesser
than 67.6 ounces.

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Concepts of Hypothesis Testing

Because hypothesis tests are based on sample data, we must allow for the
possibility of errors.
Two possible errors can be made in any test:
A Type I error occurs when we reject null hypothesis when it is true
and
A Type II error occurs when we don’t reject null hypothesis when it is false
The probability of making a Type I error when the null hypothesis is true
as an equality is called the level of significance:
P(Type I error) = α
P(Type II error ) = β

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Type I and Type II Errors

Do NOT reject
H0 when it is
FALSE
Population Condition
H0 True H0 False
Conclusion (µ < 12) (µ > 12)

Do not Reject H0 Correct

Type II Error
(Conclude µ < 12) Decision

Reject H0 Correct
Type I Error Decision
(Conclude µ > 12)

Reject H0 when it
is TRUE

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31
32
Steps in Hypothesis Testing

1. State the null hypothesis, H0 and the alternative hypothesis, H1

2. Specify the level of significance 
3. Collect sample data, compute the value of test statistic
4. State the Decision Criteria. p-value approach or Critical Value
approach
5. Make the statistical and 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

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Hypothesis Testing

Population Mean

Pop. Variance / Pop. Variance /

SD Known (σ) SD Unknown (s)

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 Population Mean

Pop. Variance Pop. Variance

Known (σ) Unknown (s)

12.35
Example to explain the Process of
Hypothesis Testing

 The label on a large can of Hilltop Coffee states that the can contains
3 pounds of coffee. The FTC knows that Hilltop’s production process
cannot place exactly 3 pounds of coffee in each can, even if the mean
filling weight for the population of all cans filled is 3 pounds per can.
However, as long as the population mean filling weight is at least 3
pounds per can, the rights of consumers will be protected. Thus, the
FTC interprets the label information on a large can of coffee as a
claim by Hilltop that the population mean filling weight is at least 3
pounds per can.

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Step 1

State the null hypothesis, H0 and the alternative hypothesis, H1

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Step 2

Specify the level of significance 

If the value of the sample mean is less than 3 pounds, the sample results
will cast doubt on the null hypothesis. What we want to know is how much
less than 3 pounds must be before we would be willing to declare the
difference significant and risk making a Type I error by falsely accusing
Hilltop of a label violation. A key factor in addressing this issue is the value
the decision maker selects for the level of significance. The decision maker
must specify the level of significance.
In the Hilltop Coffee study, the director of the FTC’s testing program
made the following statement: “If the company is meeting its weight
specifications at µ = 3, I do not want to take action against them. But, I am
willing to risk a 1% chance of making such an error.”

From the director’s statement, we set the level of significance for the
hypothesis test at α = .01

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Step 3

Collect sample data, compute the value of test statistic

Suppose a sample of 36 cans of coffee is selected and the sample mean is
computed as an estimate of the population mean µ. Previous FTC tests show that
the population standard deviation can be assumed known with a value of σ = .18.
In addition, these tests also show that the population of filling weights can be
assumed to have a normal distribution..
For hypothesis tests about a population mean in the σ known case, we use the
standard normal random variable z as a test statistic to determine whether
deviates from the hypothesized value of µ enough to justify rejecting the null
hypothesis
Test Statistic for Hypothesis Tests About a Population Mean: σ Known

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Step 4

State the Decision Criteria based on the level of significance, α.

Determine the critical values that divide the rejection and non rejection
regions

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Level of Significance
and the Rejection Region
Rejection region
is shaded

Level of significance = α

a a
H 0: μ = 3 /2 /2
Non Directional
H1: μ ≠ 3 (Two-tail test)
0

H0: μ ≤ 3 a
Directional (one –
H1: μ > 3 tailed right)
0
H0: μ ≥ 3
a
H1: μ < 3
Directional (one –
tailed left) 0

Represents
critical value

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p-Value Approach to One-Tailed Hypothesis Testing

• The p-value is the probability, computed using the test statistic, that
measures the support (or lack of support) provided by the sample for the
null hypothesis.
• If the p-value is less than or equal to the level of significance , the value of the
test statistic is in the rejection region.
• Reject H0 if the p-value <  .

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Suggested Guidelines for Interpreting p-Values
• Less than .01
Overwhelming evidence to conclude Ha is true.
• Between .01 and .05
Strong evidence to conclude Ha is true.
• Between .05 and .10
Weak evidence to conclude Ha is true.
• Greater than .10
Insufficient evidence to conclude Ha is true.

43
Lower-Tailed Test About a Population Mean: s Known
• p-Value Approach

Sampling
a = .10 Distribution of
𝑥 − 𝜇0
𝑧=
𝜎 /√𝑛
p-value
= .0721

p-Value < a ,
so reject H0. z
z= za = 0
-1.46 -1.28

44
Upper-Tailed Test About a Population Mean: s Known
• p-Value Approach

Sampling
Distribution of a = .04
𝑥 − 𝜇0
𝑧=
𝜎 /√𝑛
p-Value (p-Value < a ,
so reject H0.)
 .011

z
0 za = z=
1.75 2.29

45
Critical Value Approach to One-Tailed Hypothesis Testing
• The test statistic z has a standard normal probability distribution.
• We can use the standard normal probability distribution table to find the z-value
with an area of a in the lower (or upper) tail of the distribution.
• The value of the test statistic that established the boundary of the
rejection region is called the critical value for the test.
• The rejection rule is:
• Lower tail: Reject H0 if z < -z
• Upper tail: Reject H0 if z > z

46
Lower-Tailed Test About a Population Mean: s Known
• Critical Value Approach

Sampling
Distribution of
𝑥 − 𝜇0
𝑧=
Reject H0 𝜎 /√𝑛

a 1
Do Not Reject H0

z
-za = -1.28 0

47
Upper-Tailed Test About a Population Mean: s Known
• Critical Value Approach

Sampling
Distribution of
𝑥 − 𝜇0
𝑧=
𝜎 /√𝑛 Reject H0
= .05
Do Not Reject H0

z
0 za = 1.645

48
Example

 The U.S. Golf Association (USGA) establishes rules that manufacturers of golf
equipment must meet if their products are to be acceptable for use in USGA
events. MaxFlight uses a high technology manufacturing process to produce
golf balls with a mean driving distance of 295 yards. Sometimes, however, the
process gets out of adjustment and produces golf balls with a mean driving
distance different from 295 yards. When the mean distance falls below 295
yards, the company worries about losing sales because the golf balls do not
provide as much distance as advertised. When the mean distance passes 295
yards, MaxFlight’s golf balls may be rejected by the USGA for exceeding the
overall distance standard concerning carry and roll. MaxFlight’s quality control
program involves taking periodic samples of 50 golf balls to monitor the
manufacturing process. The quality control team selected α = .05 as the level
of significance for the test. Data from previous tests conducted when the
process was known to be in adjustment show thatthe population standard
deviation can be assumed known with a value of σ = 12

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Example

Fowle Marketing Research, Inc., bases charges to a client on the assumption

that telephone surveys can be completed in a mean time of 15 minutes or
less. If a longer mean survey time is necessary, a premium rate is charged. A
sample of 35 surveys provided the survey times shown in the file named
Fowle. Based upon past studies, the population standard deviation is assumed
known with σ = 4 minutes. Is the premium rate justified?
a. F ormulate the null and alternative hypotheses for this application.
b. C ompute the value of the test statistic.
c. W hat is the p-value?
d. At α = .01, what is your conclusion?

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Example

The manager of a department store is thinking about establishing

a new billing system for the store's credit customers.

She determines that the new system will be cost-effective only if

the mean monthly account is more than $170. A random sample
of 400 monthly accounts is drawn, for which the sample mean is
$178.

The manager knows that the accounts are approximately normally

distributed with a standard deviation of $65. Can the manager
conclude from this that the new system will be cost-effective?

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Example

The system will be cost effective if the mean account balance for
all customers is greater than $170.

We express this belief as our research hypothesis, that is:

H1: µ > 170 (this is what we want to determine)

Thus, our null hypothesis becomes:

H0: µ ≤ 170 (this contains the equal to value for the

parameter of interest)
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Example

 Step 1: State the hypothesis

 What we want to show:
H0: µ ≤ 170 (We start with assuming H0 is true)
H1: µ > 170

 Step 2: Identify the given data, sample size and determine

which test statistic to use
 Data given:
n = 400,
= 178, and
σ = 65
 Test Statistic:
Since Population SD is known, therefore use Z score
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Example

Step 3: State the Decision Criteria:

To test our hypothesis, we can use two different approaches:

The rejection region approach (typically used when computing

statistics manually), and

The p-value approach (which is generally used with a computer

and statistical software).

We will explore both in turn…

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Rejection Region

The rejection region is a range of values such that if the test

statistic falls into that range, we decide to reject the null
hypothesis in favour of the alternative hypothesis.
Suppose we define the value of the sample mean that is just large
enough to reject the null hypothesis as
The rejection region is

𝑹𝒆𝒋𝒆𝒄𝒕𝒊𝒐𝒏 𝑹𝒆𝒈𝒊𝒐𝒏

𝒙𝑳
𝝁
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Example Rejection region

It seems reasonable to reject the null hypothesis in favor of the

alternative if the value of the sample mean is large relative to 170,
that is if .
Decision Criteria:
Reject if

Standardizing the sampling distribution we get

Decision Criteria:
Reject if
𝑹𝒆𝒋𝒆𝒄𝒕𝒊𝒐𝒏𝑹𝒆𝒈𝒊𝒐𝒏

0 𝒁𝒙 𝑳

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Example Rejection region

α = P(Type I error)
= P (Reject H0 given that H0 is true)
= P () OR
𝜶
= P()

Here, and

0 𝒁 𝒙 =𝒁 𝜶
𝑳

Let
Therefore, Decision Criteria: Reject if at 5 % significance level (or 95%
confidence level)

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Test Statistic and Critical Value

Test Statistic:

Critical Value:
This can be calculated for any level of
significance ()

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Example

Step 4: Calculate the test statistic and critical value

Step 5: Make the statistical decision and state the managerial

conclusion
Since , hence we reject the null hypothesis in favour of the
alternate hypothesis at 5 % level of significance
In other words, µ > 170 and that it is cost effective to install the
new billing system

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Example - The Big Picture

.05

0 Z
H0: = 170
H1: > 170
Z.05=1.645
z = 2.46
Reject H0 in favor of
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Example - The Big Picture

H0: = 170
H1: > 170 =175.34
=178
Reject H0 in favor of
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p-Value of a Test

The p-value of a test is the probability of observing a test statistic

at least as extreme as the one computed given that the null
hypothesis is true.

In the case of our department store example, what is the

probability of observing a sample mean at least as extreme as the
one already observed (i.e. = 178), given that the null hypothesis
(H0: µ = 170) is true?

p-value

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P-Value of a Test

p-value = P(Z > 2.46)

α-value =.05

p-value =.00069

z =1.645
z =2.46

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Interpreting the p-value

The smaller the p-value, the more statistical evidence exists to

support the alternative hypothesis.
If the p-value is less than 1%, there is overwhelming evidence
that supports the alternative hypothesis.
If the p-value is between 1% and 5%, there is a strong evidence
that supports the alternative hypothesis.
If the p-value is between 5% and 10% there is a weak evidence
that supports the alternative hypothesis.
If the p-value exceeds 10%, there is no evidence that supports the
alternative hypothesis.
We observe a p-value of .0069, hence there is overwhelming
evidence to support H1: µ > 170.
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Interpreting the p-value

Overwhelming Evidence
(Highly Significant)
Strong Evidence
(Significant)

Weak Evidence
(Not Significant)

No Evidence
(Not Significant)

0 .01 .05 .10

p=.0069
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Interpreting the p-value

Compare the p-value with the selected value of the significance

level:

If the p-value is less than , we judge the p-value to be small

enough to reject the null hypothesis.

If the p-value is greater than , we do not reject the null

hypothesis.

Since p-value = .0069 < = .05, we reject H0 in favor of H1

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Conclusions of a Test of Hypothesis

If we reject the null hypothesis, we conclude that there is enough

evidence to infer that the alternative hypothesis is true.

If we do not reject the null hypothesis, we conclude that there is

not enough statistical evidence to infer that the alternative
hypothesis is true.

Remember: The alternative hypothesis is the more important

one. It represents what we are investigating.

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One– and Two–Tail Testing

The department store example (Example 11.1) was a one tail test,
because the rejection region is located in only one tail of the
sampling distribution:

More correctly, this was an example of a right tail test.

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One– and Two–Tail Testing

The SSA Envelope example is a left tail test because the rejection
region was located in the left tail of the sampling distribution.

0.1

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Right-Tail Testing

H0 : µ ≤ µ0
H1 : µ > µ0

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Left-Tail Testing

H0 : µ ≥ µ0
H1 : µ < µ0

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Two–Tail Testing

Two tail testing is used when we want to test a research hypothesis

that a parameter is not equal (≠) to some value

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Summary of One Tail and
Two - Tail Tests

 NOTE: Zα is calculated as =NORMSINV(1-α) or NORM.S.INV(1-α)

One-Tail Test (left tail) Two-Tail Test One-Tail Test (right tail)

Rejection Region Rejection Region Rejection Region

Z < -Zα Z < -Zα/2 or Z > Zα/2 Z > Zα

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 Population Mean

Pop. Variance Pop. Variance

Known (σ) Unknown (s)

12.74
Test Statistic for Testing
Hypothesis about Population Mean

The table below summarizes the test statistic for testing hypothesis about population
mean

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Test Statistic for Hypothesis Testing
about the Population Mean

Population Standard
Deviation is unknown

 
Z statistic: t statistic:

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 Testing the Population Mean When The
Population Standard Deviation is Unknown
(LARGE SAMPLE SIZE, n>30)

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Rejection Region in One Tail and
Two - Tail Tests

 NOTE: Zα is calculated as =NORMSINV(1-α) or NORM.S.INV(1-α)

One-Tail Test (left tail) Two-Tail Test One-Tail Test (right tail)

Rejection Region Rejection Region Rejection Region

Z < -Zα Z < -Zα/2 or Z > Zα/2 Z > Zα

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Example

A filling machine at a soft drink factory is defined to fill at an average of 200 ml of drink per
bottle. A random sample of 50 filled bottles was taken and the average volume of soft drinks
was computed to be 198 ml per bottle with a standard deviation of 10 ml. Test the hypothesis
that the mean volume of soft drink per bottle is less than 200 ml at 5% level of significance.
Soln:
1. State the appropriate null and alternative hypotheses
 H0: μ = 200
H1: μ < 200 (This is a Left Tail Test)

2. Identify the given data, the sample size and determine the appropriate technique
  = 0.05 and n = 50
 σ is unknown but sample size n > 30 so this is a Z test

3. Determine critical value and state decision criteria

 For  = 0.05 the critical Z value is 1.645
 DC: Reject if | | > at % significance level

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Example

4. Collect the data and compute the test statistic

 Here, n = 50, = 198, s = 10
So the test statistic is:

5. Reach a decision and interpret the result

 Since (| | = | | =) 1.414 < 1.645 (= ), we do not reject the null hypothesis and conclude
that average soft drink is 200 ml per bottle

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 Testing the Population Mean When The
Population Standard Deviation is Unknown
(SMALL SAMPLE SIZE, n ≤ 30)

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Rejection Region in One-Tail and
Two - Tail Tests

One-Tail Test (left tail) Two-Tail Test One-Tail Test (right tail)

Rejection Region Rejection Region Rejection Region

t < -tα t < -tα/2 or t > tα/2 t > tα

NOTE: tα is calculated as = T.INV(1-α,n-1)

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Example 1

The results of a household survey indicated that a sample of 20 households bought an average
of 75 litres of milk per month with a standard deviation of 13 litres. Test the hypothesis that
the value of the population mean is 70 litres against the alternative that it is more than 70
litres. Use 5% level of significance
Soln:
State the appropriate null and alternative hypotheses
 H0: μ = 70
H1: μ > 70 (This is a Right Tail Test)

Specify the desired level of significance and the sample size

  = 0.05 and n = 20
Determine the appropriate technique
 σ is unknown so this is a t test
Determine the critical values
 For  = 0.05, n-1 = 19, the critical t value is 1.729

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Example

Collect the data and compute the test statistic

 Here, n = 20, = 75, σ is unknown and sample std dev s is = 13
So the test statistic is:

Reach a decision and interpret the result

 Since t = 1.72 < 1.729 (= t), we do not reject the null hypothesis and conclude that the
average purchase of milk in a household per month is not significantly different from 70 litres

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 Example 2

Royal Tyres has launched a new brand of tyres for tractors and claims that under
normal circumstances the average life of the tyres is 40,000 km. A retailer wants to test
this claim and has taken a random sample of 8 tyres. He tests the life of the tyres under
normal circumstance. The results obtained are presented in the table below. Use α =
0.05 for testing the hypothesis

Tyres 1 2 3 4 5 6 7 8
Kms (‘000) 35 38 42 41 39 41.5 43 38.5

12.85
Solution

Step 1: Set null and alternative hypotheses

 Null Hypothesis: H0: μ = 40
 Alternate Hypothesis: H1: μ ≠ 40
Step 2: Identify the data given, the sample size and determine the appropriate
technique
 σ is unknown and n = 20 (< 30) so this is a t test
Step 3: Specify the significance level, determine the critical values and the DC
 This is a two- tailed test
 For  = 0.05, n-1 = 7, the critical t/2 value is 2.365
DC: Reject if | t test statistics | > t/2, n-1 at % significance level

-t.025, 7 0 +t.025, 7 z
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At a 5% significance level (i.e. α = .05), we have α/2 = .025. Thus, t.025, 7
= 2.364 and our rejection region is:

t < –2.36 -or- t > 2.36

-t.025, 7 +t.025, 7 z
0
t = -0.27

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Conclusion

 Since (test statistic) |-0.27| = 0.27 < 2.36 (critical value) OR p-

value = 0.79 > 0.05 (alpha) therefore we do not reject the null
hypothesis.
 This implies that the evidence from the sample is not sufficient
to reject the null hypothesis that the population mean (of
average tyre life) is 40,000 km.

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Practice Example

12.89
Steps to follow to conduct
any hypothesis test
 Identify the null and alternate hypothesis
 Identify the appropriate test statistic based on given data ( i.e. whether
population SD known or unknown accordingly z test or t test.)
 Identify the rejection region with respect to alpha and state the Decision
Rule: Reject H0 if
 | Z/t test statistic | > Z/t Critical Value OR
 p-value < α
 Assuming H0 is true, we compute the test statistic for the sample mean
(and/or the p-value)
 We compare the computed values based on the following decision Rule:
Conclusion: Statistical in terms of “reject H0 … ” or “Do not reject H0 …”
and Managerial conclusion in terms of “there exists enough evidence
….” OR “ there does not exist enough evidence …”

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Thank You
simsr.somaiya.edu

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