STA 9708 Business Statistics

Chapter 9

Hypothesis Testing for Single Populations

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What is Hypothesis Testing?

A method of using sample data to decide between two competing claims about a population characteristic The two competing claims are referred to as two hypotheses: null hypothesis (Ho) and alternative hypothesis (Ha)

Statistical Hypotheses
Two parts
Null hypothesis (H0): a claim that is initially assumed to be true. Alternative hypothesis (Ha): competing claim

U.S. trial system: Ho: Innocent vs. Ha: Guilty

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Null and alternative hypotheses are mutually exclusive (i.e., only one of them can be true). Null and alternative hypotheses are collectively exhaustive (i.e., one of them must be true).
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Basic One-Sample Hypothesis Tests

Forms of Hypothesis Tests

Two-tail tests
H0: pop. char. = hyp. value Ha: pop. char. hyp. value
* hypothesized value is a specific number determined by the context of problem

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Hypothesis Testing Process

In carrying out a test of hypothesis, we initially assume that Ho is true. If the sample data strongly suggest that Ho is false (i.e., sample data are very unlikely under the assumption that Ho i true), we will reject Ho. i h is ) ill j If the sample data do not contain such evidence (sample data are consistent with the assumption that Ho is true), we will not reject Ho. So, the two possible conclusions are reject Ho or fail to reject Ho
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Hypothesis Testing Process: Example

Claim: The population mean age is 50
H0: = 50, Ha: 50

Sample the population & find sample mean

Population

Sample
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Hypothesis Testing Process: Example

Suppose sample mean age was x = 20. This is significantly lower than the claimed mean population age of 50. If the null hypothesis were true, the probability true of getting such a different sample mean would be very small, so we reject the null hypothesis. In other words, getting a sample mean of 20 is so unlikely if population mean was 50, we conclude that population mean must not be 50.
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Hypothesis Testing Process: Example

Sampling Distribution of X

20 2) then it is unlikely that we would get a sample mean of this value ...

= 50 if H0 is true 1) If in fact this were the population mean

X 3) So, we reject the null hypothesis that = 50.

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Conclusions of Hypothesis Testing

Two possible conclusions are reject Ho or fail to reject Ho
A statistical hypothesis test is only capable of g g demonstrating strong support for alternative hypothesis (by rejection of null hypothesis) Only prove guilty in court Failing to reject null hypothesis does not show strong support for null hypothesis only a lack of strong evidence against null hypothesis Not guilty decision does not prove innocence

HTAB System to Test Hypotheses

Task 1: HYPOTHESIZE Task 3: TAKE STATISTICAL ACTION

Task 2: TEST

Task 4: DETERMINING THE BUSINESS IMPLICATIONS

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Testing Hypotheses about When Known

Example: A survey of CPAs in the U.S. done 10 years ago found that their average salary was $74,914. An accounting researcher would like to test whether this o ld hether average has changed over the years. A sample of 112 CPAs produced a mean salary of $78,695. Assume that the population standard deviation of salaries = $14,530.
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Testing Hypotheses about When Known

Step 1: Hypothesize

H 0 : = $ 74 ,914 H a : $ 74 ,914
Step 2: Test statistic

Z=

X / n

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Testing Hypotheses about When Known

Step 3: Specify
= 0.05 zcrit = 1.96

Testing Hypotheses about When Known

Step 4: Establish the decision rule

Reject H0 if the test statistic < -1.96 or if the test statistic > 1.96. 1.96 are called critical values
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Rejection & Nonrejection Regions

Critical Values for Two-Tail Test

Example
Ho: = 3 Ha: 3 Level of significance = 0.01 Critical Values: zcrit = 2.575 Decision Rule: Reject Ho if test statistic |z| > 2.575

/2 = 0.005 Zcrit = -2.575 0 =3

/2 = 0.005 Zcrit = 2.575

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Rejection region for a two-tail test (Ha involves the symbol)

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 & Critical Value(s)

H0: = 50 Ha: 50
/2 /2
Represents critical value(s) Rejection region is shaded

Testing Hypotheses about When Known

Step 5: Gather sample data

n = 112, x = $78,695, = $14,530 hypothesized = $74,914 h h i d

Step 6: Compute the test statistic.

Two tail Two-tail test

z=
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x 78,695 74,914 = = 2.75 / n 14,530 / 112

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Testing Hypotheses about When Known

Step 7: Reach a statistical conclusion
Since z = 2.75 > 1.96, reject H0.

Testing Hypotheses about When Unknown

If population standard deviation is unknown, we use sample standard deviation s instead of . Because of this change, we use t statistic instead of Z statistic to test hypotheses about population mean. All other steps, concepts, and conclusions remain the same.
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Step 8: Business decision

Statistically, researcher has enough evidence to reject the figure of $74,914 as current average salary for CPAs at 0.05 significance level. In addition, it may suggest that the average has increased over the 10-year period.
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Testing Hypotheses about When Unknown

Recall that the underlying theory is CLT So, if the sample size is small (< 30), we need the assumption that population follows a normal distribution. If the sample size is large ( 30), CLT applies & t test is valid.

Testing Hypotheses about When Unknown

Test statistic:

t=

X s/ n df = n 1
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Testing Hypotheses about : Unknown Two-Tail Test Example

The mean cost of a hotel room in New York is said to be $168 per night. A random sample of 25 hotels resulted in x = $172.50 and s = $15.40. Test at the = 0.05 level.
(Suppose the population is approximately normally distributed)

Testing Hypotheses about : Unknown Two-Tail Test Example

H0: = 168 Ha: 168 = 0.05 n = 25 is unknown, so use t statistic Critical values: t24 = 2.064
/2=.025

Determine rejection region

/2=.025

H0: = 168 Ha: 168

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Reject H0

t crit

Do not reject H0

t crit

Reject H0

-2.064

2.064
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Testing Hypotheses about : Unknown Two-Tail Test Example

t= x 172.50 168 = = 1.46 s 15.40 n 25
/2=.025 /2 025 /2=.025 /2 025

z Test of Population Proportion

Involves categorical variables Two possible outcomes
Success (possesses a certain characteristic) F il (does not possesses that characteristic) Failure (d h h i i )

t crit -2.064

t crit 1.46 2.064

Do not reject H0: no sufficient evidence that true mean cost is different from $168

Population proportion of in the success category is denoted by p Sample proportion in the success category is denoted by p = X = # of successes in sample
n sample size
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z Test of Population Proportion

When both np and n (1-p) are at least 5, p can be approximated by a normal distribution with mean

z Test of Population Proportion

Test statistic:

Z=

p = p

p p pq n

and standard deviation

p =

p(1 p) n
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Conditions:

n p 5, and n q 5
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Z Test of p: Two-Tail Test Example

A marketing company claims that it receives 8% responses from its mailing. To test this claim, a random sample of 500 were s r e ed with 30 responses Test at ere surveyed ith responses. the = 0.05 significance level.
First, check conditions: np = (500)(.08) = 40 n(1-p) = (500)(.92) = 460
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Z Test of p: Two-Tail Test

Example
H0: p = .08 Ha: p .08 Determine rejection region
Reject H0 Reject H0

n = 500, x = 30 p = 0.06
z crit = 1 .96 H a : p .08

= 0 .05

.025

.025

-1.96

z
1.96
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Z Test of p: Two-Tail Test Example

Calculated test statistic:
Z= p p = p (1 p) n .06 .08 = 1.648 .08(1 .08) ( ) 500

Decision: Do not reject H0 at = .05 Conclusion: There isnt sufficient evidence to reject the companys claim of 8% response rate.
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.025
-1.96 0 1.96

.025

-1.648