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Basic Business Statistics

(8
th
Edition)
Chapter 9
Fundamentals of Hypothesis
Testing: One-Sample Tests
Chapter Topics
Hypothesis testing methodology
Z test for the mean ( known)
P-value approach to hypothesis testing
Connection to confidence interval estimation
One-tail tests
T test for the mean ( unknown)
Z test for the proportion
Potential hypothesis-testing pitfalls and ethical
considerations
o
o
What is a Hypothesis?
A hypothesis is a
claim (assumption)
about the population
parameter
Examples of parameters
are population mean
or proportion
The parameter must
be identified before
analysis
I claim the mean GPA of
this class is 3.5!
1984-1994 T/Maker Co.
=
The Null Hypothesis, H
0
States the assumption (numerical) to be
tested
e.g.: The average number of TV sets in U.S.
Homes is at least three ( )
Is always about a population parameter
( ), not about a sample
statistic ( )
0
: 3 H >
0
: 3 H >
0
: 3 H X >
The Null Hypothesis, H
0
Begins with the assumption that the null
hypothesis is true
Similar to the notion of innocent until
proven guilty
Refers to the status quo
Always contains the = sign
May or may not be rejected
(continued)
The Alternative Hypothesis, H
1
Is the opposite of the null hypothesis
e.g.: The average number of TV sets in U.S.
homes is less than 3 ( )
Challenges the status quo
Never contains the = sign
May or may not be accepted
Is generally the hypothesis that is
believed (or needed to be proven) to be
true by the researcher
1
: 3 H
Hypothesis Testing Process
Identify the Population
Assume the
population
mean age is 50.
( )
REJECT
Take a Sample
Null Hypothesis
No, not likely!
X 20 likely if Is ? = = 0
0
: 50 H =
)
20 X =
Sampling Distribution of
= 50
It is unlikely that
we would get a
sample mean of
this value ...
... Therefore,
we reject the
null hypothesis
that m = 50.
Reason for Rejecting H
0

20
If H
0
is true
X
... if in fact this were
the population mean.
X
Level of Significance,
Defines unlikely values of sample statistic if
null hypothesis is true
Called rejection region of the sampling distribution
Is designated by , (level of significance)
Typical values are .01, .05, .10
Is selected by the researcher at the beginning
Provides the critical value(s) of the test
E
E
Level of Significance
and the Rejection Region
H
0
: > 3
H
1
: < 3
0
0
0
H
0
: 3
H
1
: > 3
H
0
: = 3
H
1
: = 3
E
E
E/2
Critical
Value(s)
Rejection
Regions
Errors in Making Decisions
Type I Error
Rejects a true null hypothesis
Has serious consequences
The probability of Type I Error is
Called level of significance
Set by researcher
Type II Error
Fails to reject a false null hypothesis
The probability of Type II Error is
The power of the test is
E
)
1

Errors in Making Decisions


Probability of not making Type I Error

Called the confidence coefficient


)
1 E
(continued)
Result Probabilities
H
0
: Innocent
The Truth The Truth
Verdict Innocent Guilty Decision H
0
True H
0
False
Innocent Correct Error
Do Not
Reject
H
0
1 - E
Type II
Error ( )
Guilty
Error
Correct
Reject
H
0
Type I
Error
(
E
)
Power
(1 - )
Jury Trial
Hypothesis Test
Type I & II Errors Have an
Inverse Relationship
E

If you reduce the probability of one


error, the other one increases so that
everything else is unchanged.
Factors Affecting Type II Error
True value of population parameter
Increases when the difference between
hypothesized parameter and its true value
decrease
Significance level
Increases when decreases
Population standard deviation
Increases when increases
Sample size
Increases when n decreases

o
How to Choose between
Type I and Type II Errors
Choice depends on the cost of the errors
Choose smaller Type I Error when the cost of
rejecting the maintained hypothesis is high
A criminal trial: convicting an innocent person
The Exxon Valdez: causing an oil tanker to sink
Choose larger Type I Error when you have an
interest in changing the status quo
A decision in a startup company about a new piece
of software
A decision about unequal pay for a covered group
Critical Values
Approach to Testing
Convert sample statistic (e.g.: ) to test
statistic (e.g.: Z, t or F statistic)
Obtain critical value(s) for a specified
from a table or computer
If the test statistic falls in the critical region,
reject H
0
Otherwise do not reject H
0
X
E
p-Value Approach to Testing
Convert Sample Statistic (e.g. ) to Test
Statistic (e.g. Z, t or F statistic)
Obtain the p-value from a table or computer
p-value: Probability of obtaining a test statistic
more extreme ( or ) than the observed
sample value given H
0
is true
Called observed level of significance
Smallest value of that an H
0
can be rejected
Compare the p-value with
If p-value , do not reject H
0
If p-value , reject H
0
X
>

>
E
E
E
E
General Steps in
Hypothesis Testing
e.g.: Test the assumption that the true mean number of of
TV sets in U.S. homes is at least three ( Known) o
1. State the H
0
2. State the H
1
3. Choose
4. Choose n
5. Choose Test
0
1
: 3
: 3
=.05
100
Z
H
H
n
test

E
>

=
E
100 households surveyed
Computed test stat =-2,
p-value = .0228
Reject null hypothesis
The true mean number of TV
sets is less than 3
(continued)
Reject H
0
E
-1.645
Z
6. Set up critical value(s)
7. Collect data
8. Compute test statistic
and p-value
9. Make statistical decision
10. Express conclusion
General Steps in
Hypothesis Testing
One-tail Z Test for Mean
( Known)
Assumptions
Population is normally distributed
If not normal, requires large samples
Null hypothesis has or sign only
Z test statistic

o
>
/
X
X
X
X
Z
n


o
o


= =
Rejection Region
Z
0
Reject H
0
Z
0
Reject H
0
H
0
: >
0
H
1
: <
0
H
0
:
0
H
1
: >
0
Z Must Be Significantly
Below 0 to reject H
0
Small values of Z dont
contradict H
0
Dont Reject H
0
!
E E
Example: One Tail Test
Q. Does an average box of
cereal contain more than
368 grams of cereal? A
random sample of 25
boxes showed = 372.5.
The company has
specified o to be 15 grams.
Test at the E = 0.05 level.
368 gm.
H
0
: 368
H
1
: > 368
X
Finding Critical Value: One Tail
Z .04 .06
1.6 .9495 .9505 .9515
1.7 .9591 .9599 .9608
1.8 .9671 .9678 .9686
.9738 .9750
Z
0 1.645
.05
1.9 .9744
Standardized Cumulative
Normal Distribution Table
(Portion)
What is Z given E = 0.05?
E = .05
Critical Value
= 1.645
.95
1
Z
o =
Example Solution: One Tail Test
E = 0.5
n = 25
Critical Value: 1.645
Test Statistic:
Decision:
Conclusion:
Do Not Reject at E = .05
No evidence that true
mean is more than 368
Z
0 1.645
.05
Reject
H
0
: 368
H
1
: > 368
1.50
X
Z
n

= =
1.50
p -Value Solution
Z
0
1.50
P-Value =.0668
Z Value of Sample
Statistic
From Z Table:
Lookup 1.50 to
Obtain .9332
Use the
alternative
hypothesis
to find the
direction of
the rejection
region.
1.0000
- .9332
.0668
p-Value is P(Z > 1.50) = 0.0668
p -Value Solution
(continued)
0
1.50
Z
Reject
(p-Value = 0.0668) > (E = 0.05)
Do Not Reject.
p Value = 0.0668
E = 0.05
Test Statistic 1.50 is in the Do Not Reject Region
1.645
One-tail Z Test for Mean
( Known) in PHStat
PHStat | one-sample tests | Z test for the
mean, sigma known
Example in excel spreadsheet
o
Microsoft Excel
Worksheet
Example: Two-Tail Test
Q. Does an average box
of cereal contain 368
grams of cereal? A
random sample of 25
boxes showed =
372.5. The company
has specified o to be
15 grams. Test at the
E = 0.05 level.
368 gm.
H
0
: = 368
H
1
: = 368
X
372.5 368
1.50
15
25
X
Z
n

o

= = =
E = 0.05
n = 25
Critical Value: 1.96
Example Solution: Two-Tail Test
Test Statistic:
Decision:
Conclusion:
Do Not Reject at E = .05
No Evidence that True
Mean is Not 368 Z
0 1.96
.025
Reject
-1.96
.025
H
0
: = 368
H
1
: = 368
1.50
p-Value Solution
(p Value = 0.1336) > (E = 0.05)
Do Not Reject.
0
1.50
Z
Reject
E = 0.05
1.96
p Value = 2 x 0.0668
Test Statistic 1.50 is in the Do Not Reject Region
Reject
PHStat | one-sample tests | Z test for the
mean, sigma known
Example in excel spreadsheet
Two-tail Z Test for Mean
( Known) in PHStat
o
Microsoft Excel
Worksheet
) )
For 372.5, 15 and 25,
the 95% confidence interval is:
372.5 1.96 15/ 25 372.5 1.96 15/ 25
or
366.62 378.38
If this interval contains the hypothesized mean (368),
we do not reject the null hypothesis.
I
X n o

= = =
+

t does. Do not reject.
Connection to
Confidence Intervals
t Test: Unknown
Assumption
Population is normally distributed
If not normal, requires a large sample
T test statistic with n-1 degrees of freedom

o
/
X
t
S n

=
Example: One-Tail t Test
Does an average box of
cereal contain more than
368 grams of cereal? A
random sample of 36
boxes showed X = 372.5,
and s = 15. Test at the E =
0.01 level.
368 gm.
H
0
: 368
H
1
: > 368
o is not given
Example Solution: One-Tail
E = 0.01
n = 36, df = 35
Critical Value: 2.4377
Test Statistic:
Decision:
Conclusion:
Do Not Reject at E = .01
No evidence that true
mean is more than 368
t
35
0
2.437
7
.01
Reject
H
0
: 368
H
1
: > 368
372.5 368
1.80
15
36
X
t
S
n

= = =
1.80
p -Value Solution
0
1.80
t
35
Reject
(p Value is between .025 and .05) > (E = 0.01).
Do Not Reject.
p Value = [.025, .05]
E = 0.01
Test Statistic 1.80 is in the Do Not Reject Region
2.4377
PHStat | one-sample tests | t test for the
mean, sigma known
Example in excel spreadsheet
t Test: Unknown in PHStat
o
Microsoft Excel
Worksheet
Proportion
Involves categorical values
Two possible outcomes
Success (possesses a certain characteristic) and
Failure (does not possesses a certain
characteristic)
Fraction or proportion of population in the
success category is denoted by p
Proportion
Sample proportion in the success category is
denoted by p
S

When both np and n(1-p) are at least 5, p


S
can be approximated by a normal distribution
with mean and standard deviation

(continued)
Number of Successes
Sample Size
s
X
p
n
= =
s
p
p =
(1 )
s
p
p p
n
o

=
Example: Z Test for Proportion
Q. A marketing company
claims that it receives
4% responses from its
mailing. To test this
claim, a random
sample of 500 were
surveyed with 25
responses. Test at the
E = .05 significance
level.
)
) )
Check:
500 .04 20
5
1 500 1 .04
480 5
np
n p
= =
>
=
= >
) )
.05 .04
1.14
1 .04 1 .04
500
S
p p
Z
p p
n

= = =

Z Test for Proportion: Solution
E = .05
n = 500
Do not reject at E = .05
H
0
: p = .04
H
1
: p = .04
Critical Values: 1.96
Test Statistic:
Decision:
Conclusion:
Z
0
Reject Reject
.025 .025
1.96 -1.96
1.14
We do not have sufficient
evidence to reject the
companys claim of 4%
response rate.
p -Value Solution
(p Value = 0.2542) > (E = 0.05).
Do Not Reject.
0
1.14
Z
Reject
E = 0.05
1.96
p Value = 2 x .1271
Test Statistic 1.14 is in the Do Not Reject Region
Reject
Z Test for Proportion in PHStat
PHStat | one-sample tests | z test for the
proportion
Example in excel spreadsheet
Microsoft Excel
Worksheet
Potential Pitfalls and
Ethical Considerations
Randomize data collection method to reduce
selection biases
Do not manipulate the treatment of human
subjects without informed consent
Do not employ data snooping to choose
between one-tail and two-tail test, or to
determine the level of significance
Potential Pitfalls
and Ethical Considerations
Do not practice data cleansing to hide
observations that do not support a stated
hypothesis
Report all pertinent findings
(continued)
Chapter Summary
Addressed hypothesis testing methodology
Performed Z Test for the mean ( Known)
Discussed p Value approach to hypothesis
testing
Made connection to confidence interval
estimation
o
Chapter Summary
Performed one-tail and two-tail tests
Performed t test for the mean ( unknown)
Performed Z test for the proportion
Discussed potential pitfalls and ethical
considerations
(continued)
o