Chapter Three: Hypothesis Testing

3.1 Basic concepts

Hypothesis is a statement or an assumption about the value of a population parameter or
parameters.
Hypothesis testing is a procedure based on sample evidence and probability distribution used to
determine whether the hypothesis is a reasonable statement and should not be rejected, or is
unreasonable and should be rejected. Or Hypothesis testing refers to the formal procedures used
by statisticians to accept or reject statistical hypotheses. It is simply selecting a sample from the
populations, calculate sample statistic and based on certain decision rules accept or reject the
hypothesis.
A statistical hypothesis is an assumption about a population parameter. This assumption may or
may not be true.
Statistical Hypotheses
The best way to determine whether a statistical hypothesis is true would be to examine the entire
population.
There are two types of statistical hypotheses.
 Null hypothesis. The null hypothesis, denoted by H 0, is usually the hypothesis that
sample observations result purely from chance.
 Alternative hypothesis. The alternative hypothesis, denoted by H 1 or Ha, is the
hypothesis that sample observations are influenced by some non-random cause.
3.2 Steps for Testing Hypothesis
There is a five-step procedure that systematize hypothesis testing.
Hypothesis testing as used by the statisticians does not provide proof that something is true, in
the manner in which a mathematician “proves” a statement. It does provide a kind of “proof
beyond a reasonable doubt” in the manner of an attorney.
Step 1. Identity the null hypothesis and the alternate hypothesis
Identity the null hypothesis (H0): The Null Hypothesis,
 H0, always states that the treatment has no effect (no change, no difference).
 According to the null hypothesis, the population mean after treatment is the same is it
was before treatment.
 The alpha level also determines the risk of a Type I error.
 The testing hypothesis is always a statement of equality such as , =, or .
 The null hypothesis (Ho) is a statement that will be rejected it our sample information
provide us with convincing evidence that it false.
 Or it is a statement about the value of population parameter.it is a statement that hold as
true unless we have sufficient statistical evidence to conclude otherwise.
Identify the Alternative hypothesis (H1): The Alliterate hypothesis,
 The testing hypothesis is always there is difference or effect is expected.
 The testing hypothesis is always a statement of inequality such as >, , or <.
 It is a statement describes what we will believe if we reject the null hypothesis. the
alternate hypothesis will be accepted if the sample data provide sufficient evidence that
the null hypothesis is false.

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  It is a statement that will be accepted if our sample data provide us with ample evidence
that the null hypothesis is false.
 The alpha level also determines the risk of a Type II error.
Step 2: Determine the level of significance
Level of significance is the probability of rejecting the null hypothesis when it is true. Level of
significance is the risk we assume of rejecting the null hypothesis when it is a actually true.
The level of significance is designated by the Greek letter alpha, , it is also referred to as the
level of risk.
Traditionally three levels of significance are known
0.05. level is selected for consumer research
0.01. for quality assurance
0.10. for political polling
The level of significance reflects the risk we want to assume A 0.01 level of significance will
yield smaller risk than 0.05 or 0.1.
Step 3: select the test statistics /Find the Test statistic/
Test statistic is a sample statistic computed from the sample data. The value of the test statistic
is used in determining whether or not we may reject the hypothesis.
Test statistic – A value, determined from sample information, used to reject or not to reject the
null hypothesis.
There are many test statistics, Z (the normal distribution), the student t test, F, and X 2 or the chi –
square.
The standard normal deviate, Z distribution is used as test statistic when the sample size is large,
n  30. Based on the sample size and the parameter to be tested the statistician will select the
X−μ X−μ
σ s
appropriate test statistic. Z = √ n or t = √n
Step 4: Determine the decision rule / formulate the decision rule/
A decision rule is a statement of the conditions under which the null hypothesis is rejected and
the conditions under which it is not rejected.
The region or area of rejection defines the location of all those values that are so large or so
small that the probability of their occurrence under a true null hypothesis is rather remote.
Sampling distribution for the statistic Z, 0.05 level of significance.

Non-rejection
Region or do not reject H0 Rejection region

Scale of Z
0 1.6 45

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 0.95 Probability 0.05 Probability

Initial Value

The above chart portrays the rejection region for a test of significance. The level of significance
selected is 0.05.
1. The area where the null hypothesis is not rejected includes the area to the left of 1.645
2. The area of rejection is to the right of 1.645
3. A one – tailed test is being applied /will be discussed latter on/
4. The 0.05 level of significant was chosen
5. The sampling distribution is for the test statistic Z, the standard normal deviate.
6. The value 1.645 separates the regions where the null hypothesis is rejected and where it is
not rejected
7. The value 1.645 is called the critical value. It is the corresponding value of the test statistic
for the selected level of significance i.e. Z value at the 0.05 level of significance is 1.645.
Critical value: The dividing point between the region where the null hypothesis is rejected and
the region where it is not rejected.
Steps 5: Make a decision
At this step a decision is made to reject or not to reject the null hypothesis. For the above chart, if
based on sample data or information, Z is computed be 2.34 the null hypothesis is rejected at the
0.05 level of significance.

The decision to reject Ho is made because 2.34 lies in the region of rejection that is beyond
1.645. We would reject the null hypothesis reasoning that it is highly improbable that a
computed Z value this large is due to sampling variation or chance. Had the computed value
been 1.645 or less say 0.71 then Ho would not be rejected. It would be reasoned that such a small
computed value could be attributed to chance that is sampling variation.
3.3. Type I and type II errors (concepts)
The following are two types of errors in a hypothesis test.
A. Type I error. A Type I error occurs when the researcher rejects a null hypothesis when
it is true. The probability of committing a Type I error is called the significance level.
This probability is also called alpha, and is often denoted by α.
B. Type II error. A Type II error occurs when the researcher fails to reject a null
hypothesis that is false. The probability of committing a Type II error is called Beta,
and is often denoted by β. The probability of not committing a Type II error is called
the Power of the test.
The following table shows the decision the researcher could make and the possible
consequences.
Null Hypothesis The researcher The Researcher
does not reject Ho rejects Ho
If Ho is true Correct decision Type I error

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If Ho is false Type II error Correct decision

3.4. One – Tailed and Two – Tailed tests of significance

One Tailed Test
The region of rejection is only in one tail of the curve. The above example indicates that the
region of rejection is in the right (upper) tail of the curve.

Non-rejection
Rejection region Region or do not reject H0

0.95 Probability
Z
-1.6 45 0
0.05 Probability 0.95 Probability

Initial Value
Example-1: Consider companies purchase larger quantities of tyre. Suppose they want the tires
to an average mileage of 40,000 Km of wear under normal usage. They will therefore reject a
shipment of tires if accelerated - life test reveal that the life of the tires is significantly below
40,000 Km on the average. The purchasers gladly accept a shipment if the mean life is greater
than 40,000 Kms, they are not concerned with this possibility.
They are only concerned if they have sample evidence to conclude that the tires will average less
than 40,000 Kms of useful life.
Thus the test is set up to satisfy the concern of the companies that the mean life of the tires is less
than 40,000Km.
The null and alternate hypotheses are written: -
Ho:  ≥40,000 km and
H1:  < 40,000 km
One way to determine the location of the rejection region is to look at the direction in which the
inequality sign in the alternate hypothesis is pointing.
Test is one – tailed, if H1 states  > or  < if 1 , states a direction, test is one - tailed.
Two-tailed test
A test is two - tailed if H1 does not state a direction.
Consider the following example:
Ho: there is no difference between the mean income of males and the mean income of females.
H1: there is a difference in the mean income of males and the mean income of females.
If Ho is rejected and H1 accepted the mean income of males could be greater than that of females
or vis versa. To accommodate these two possibilities, the 5 level of significance representing the

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area of rejection is divided equally in to two tails of the sampling distribution. If the level of
significant is 0.05 each rejection region will have 0.025 probability.

Note that the total area under the normal curve is one found by 0.95 + 0.025 + 0.025.

Non-rejection
Rejection region Region or do not reject H0 Rejection region

0.95 Probability
Z
-1.96 0 + 1.96
0.025 Probability 0.025 Probability

Initial Value Initial Value

Table 3.1: Mathematical symbols and type of test

Mathematics symbols in Ha Type of test
≤∧¿ Left one tail test
≥∧¿ Right one tail test
≠ Two tail test

3.5 Hypothesis Testing of:

3.5.1 Test for the Population Mean
3.5.1.1 Test for the Population Mean (Standard Deviation Known)
Example. The Jamestown steel company manufactures and assembles desks and other office
equipment at several plants in western New York State. The weekly production of the model
A325 desk at the Fredonia plant follows the normally distribution, with a mean of 200 and
standard deviation of 16 a additionally the sample mean is 203.5 with 100 samples. Recently,
because of market expansion, new production methods have been introduced and employees
hired. The vice president of manufactures would like to investigate whether there has been a
change in the weekly production of the model A325 desk. To put it another way, it the mean
number of desks produced at the Fredonia plant different from 200 at the 0.01 significance level?
Solution:
Step 1. The null hypothesis is “The population mean is still 200” the alternative hypothesis is
“The mean is different from 200” or "The mean is not 200" the two hypotheses are written as:
Ho :  =200
H1:   200

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This is a two - tailed test because the alternate hypothesis does not state the direction of the
difference.
That is, it does not state whether the mean is greater than or less than 200.
Step 2: - As noted the 0.01 level of significance is to be used. This is  the probability of
committing a type I error. That is the probability of rejecting a true hypothesis.
Step 3: - The test statistic for this type of problem is Z, the standard normal deviate /you will see
X−μ
σ
later on that the sample size is large/ Z = √ n
Step 4: The decision rule is formulated by finding the critical values of Z from the table of
normal distribution.
Since this is a two - tailed test, half of 0.01 or 0.005 is in each tail. Each rejection region will
have a probability of 0.005.
The area where Ho is not rejected located between the two tails, is therefore, 0.99.
0.5000-0.005= 0.4950 so 0.4950 is the area between 0 and the critical value. The value nearest to
0.4950 is 0.495. The value for this probability is 2.58.

Non-rejection
Rejection region with Region or do not reject H0 Rejection region
Probability 0.99 Probability with probability 0.01÷2=0.005
0.01÷2=0.005 0.4950=0.5-0.005 0.4950=0.5-0.005
Z
It is not rejected

The decision rule is therefore: Reject the null hypothesis and accept the alternate hypothesis if
the computed value of Z does not fall in the region between +2.58 and -2.58. Otherwise do not
reject the null hypothesis.
Step 5: Take a sample and make a decision
Take a sample from the population (efficiently ratings) compute Z and based on the decision
rule, arrive at a decision to reject Ho or not reject Ho.
The efficenty ratings of 100 employees were analyzed. The mean of the sample was computed to
be 203.5.
Compute Z
X−μ 203 .5−200 203 .5−200
=
σ 16 1.6
Z= √ n = √ 100 = 2.19
Since 2.19 does not fall in the rejection region, Ho is not rejected. So we conclude that the
difference between 203.5, the sample mean, and 200 can be attributed to chance variation.

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Note: Selecting the level of significance before setting up the decision rule and sampling the
population is important not to be biased.
Ho is not rejected at the 1% level. We would have biased the later decision by not initially
selecting the 0.01 level. Instead we could have waited until after the sampling and selected a
level of significance that would cause the null hypothesis to be rejected. We could have chosen,
for example, the 0.05 level. The critical value for that level are + 1.96.
Since the computed value of Z (2.19) lies beyond 1.96 the null hypothesis would be rejected and
we could concluded that the mean efficiency rating is not 200.
Example 2: The mean annual turnover rate of a brand of chemical is 6.0 (this indicates that the
stock of the chemical turns over an average of six times a years). The standard deviation is 0.5. It
is suspected that the average turnover is not 6.0. The 0.05 level of significance is to be used to
test this hypothesis. A random sample of 64 bottles of a brand was selected. The mean turn over
rate computed to be 5.84. Shall we reject the null hypothesis at the 0.05 levels?
1) State Ho, ad H1
2) What is the value of ?
3) Give the formula for the test statistic
4) State the decision rule
5) Interpret your results
Solution:
1. Ho:  = 6.00
H1:   6.00
2. 0.05
X−μ 5. 84−6 . 00
σ 0. 5
3. Z = √ n Z = √ 64 = -2.56
4. Do not reject the null hypothesis if the computed Z value fales between – 1.96 and + 1.96
5. reject Ho at the 0.05 level. Accept H1 the mean turnover is not equal to 6.00.
A one Tailed Test
If the alternate hypothesis states a direction (either greater than “ or “ less than”) the test is one
tailed. The hypothesis – testing procedure is generally the same as for a two – tailed test, except
that the critical value is different.
Let us change the alternate hypothesis in the previous problem, involving efficing racting of
worker
H1:   200 (tow – tailed test) to
H1:  > 200 ( a one – tailed test )
The critical values for the two – tailed test were -2.58 and +2.58. The region of rejection for a
one – tailed test is in the right tail of the curve
For a one-tailed test the critical value is found by
a. 0.5000 – 0.01 = 0.4900
b. The Z value for 0.4900 = probability is  2.33

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P – values is Hypothesis Testing
Additional value is often reported on the strength of the rejection, or how confident we are in
rejecting the null hypothesis. This method reports the probability (assuming that the null
hypothesis is true) of getting a value of the test statistic at least as extreme as that obtained.
This procedure compares the probability, called P – Value, with the significance level.
If the P- value is smaller than the significance level, Ho is rejected. If it is larger than the
significant level Ho is not rejected. This procedure not only results in decision regarding Ho but
it gives us in sight into the strength of the decision.

A very small P- values say 0.001, means that there is a very little likelihood that Ho is true. On
the other hand, a p- value of 0.4 means that Ho is not rejected, and we did not come very close to
rejecting it.
Recall that for the efficiency ratings the computed value of Z was 2.19. The decision was not to
reject Ho because the Z of 2.19 fall in the non-rejection area between 2.58 and + 2.58. The
probability of obtaining a Z values of 2.19 or more is 0.0143 found by 0.5000 – 0.4857. To
compute the P – value, we need to be concerned with values less than -2.19 and values greater
than + 2.19. The p- value is 0.0286 found by 2(0.0143). The P – value of 0.0286 is greater than
the significance level (0.01) decided upon initially, so Ho is to reject.
Reject Ho if P (Z >Z calc) < α, otherwise fail to reject H0. (One tailed test)
P-value if two-tailed test is 2 × P (Z calc > 2.152) (two tailed test)
Rule: When the p-value is less than  , reject Ho.
Low p => reject null hypothesis
High p => fail to reject null hypothesis
3.5.1.2 Testing for the population mean: (standard deviation unknown)
In the preceding problems, we knew population standard deviation, . In most cases, however, it
is unlikely that  would be known. Thus it must be estimated using the sample standard
X−μ
S
deviation, S. Then the test statistic Z = √ n
Example-1: A department store issues it own credit card. The credit manger wants to find out if
the mean monthly unpaid balance is more than Br. 400. The level of significance is set at 0.05. A
random check of 172 unpaid balances revealed the sample mean to be 407 and the standard
deviation of the sample 38. Should the credit manager conclude that the population mean is
greater than 400, or is it reasonable to assume that the difference of 407- 400=7 is due to chance:

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Solution
Ho:  ≤400
Hi:  > 400
Because Hl states a direction, a one tailed test is applied. The critical value of Z is 1.645 for 0.05
levels
X−μ 407−400
S 38
Z = √ n = √ 172 = 2.42
A value of this large (2.42) will occur less than 5% of the time. So the credit manager would
reject the null hypothesis, Ho. that the mean unpaid balance is greater than 400, in favor of H 1,
which states that the mean is greater than 400.
The P – value, in this one – tailed test is the probability that Z is greater than 2.42. Found by
0.5000-0.4922. 0.4922 is the probability that Z can assume a value of 2.420.
Example 2: Experience in investigating accident claims by an insurance company revealed that
it cost 60 on the average to handle the paper work, pay the investigator, and make a decision.
The cost compared with that of other insurance firms was deemed exorbitant, and cost cutting
measures were instituted. In order to evaluate the impact of these new measures, a sample of 26
recent claims was selected at random and cost studies were made. It was found that the sample
mean, x , and the sample standard deviations, s, were 57 and 10 respectively.
At the 0.01 level is there a reduction in the average cost, or can the difference of 3 = (60-57) be
attributed to chance?
The usual five-step hypothesis testing procedure is used
Step 1: - the null hypothesis, Ho: the population mean is 60
The alternate hypothesis, H1 the populations mean is less than 60. i.e.
Ho:  ≥ 60
H1:-  < 60
Step 2: The 0.01 level is to be used
Step: 3 the test statistic is student’s t distribution. Because the population standard deviation is
unknown and the sample size is small (26 under 30)
X−μ
t = S/ √ n
Step 4: The critical value of t are given
There are n -1 degrees of freedom for the test df (26-1= 25)
The critical value for df = 25, a one tailed test and 0.01 level is 2.485
The decision rule for this one tailed test is reject Ho if the computed value of t falls in any part of
the tails to the left of –2.485 otherwise do not reject Ho.

Step 5: Compute t, and arrive at a decision Ho;  > 60

H1:  < 60
df = 26 – 1 = 25
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 X−μ
t = S/ √ n
X = 57
 = 67
S = 10 57−60
n = 26 t = 10/ √ 26 = -1.530
Because -1.530 lies in the region to the right of the critical value –2.485 Ho is not rejected at the
0.01 level.
This indicates that the cost cutting measures have not reduced the mean cost per claim to less
than 60 based on sample results.
3.5.2 Testing for the difference between two means and two proportions
3.5.2.1.Hypothesis testing; Two-population means; Independent population
Assumption for two-sample test
1. The population should be normally distributed
2. The population standard deviations for both population should be known. If they are not
known, then both samples should contain at least 30 observations so that the sample
standard deviation can be used to approximate the population standard deviation
3. The samples should be drawn from independent population.
If we select random samples from two normal population the distribution of the differences
between the two means is also normal or if a large number of independent random samples are
selected from two population, the difference between the two means will be normally distributed.
If these differences are divided by the standard error of the difference, the result is the standard
normal distribution.
The formula for the test statistic Z is
x 1 −x 2 The difference between two

√
S S sample means
12 22
+ Standard error of the difference
Z= n1 n2 between two sample means

Example: Each patient at a hospital is asked to evaluate the service at the time of discharge.
Recently there have been several complaints that resident physicians and nurses on the surgical
wing respond too slowly to the emergency calls of senior citizens. The administrator of the
hospital asked the quality assurance department to investigate. After studying the problem, the
quality assurance department collected the following sample information. At the 0.01
significance level, is the response time longer for the senior citizens, emergencies?
Patient type Smaple mean Sample standard deviation Sample Size
Senor Citizens 5.5 Minutes 0.40 minuets 50
Other 5.3 Minutes 0.30 minutes 100

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Solution:-
The testing procedure is the same as for one sample test except the formula for the test statistic,
Z:

Step 1: Ho: There is no difference in the mean response time between the two groups of patients.
i: e The difference of 0.2 minute, in the arithmetic mean response time is due to chances.

H1: The mean response time is greater for the senior citizens
Because the quality assurance department is concerned that the response time is greater for
senior citizens, he wants to conduct a one – tailed test. There fore the null and alternate
hypotheses are stated as follows.
Ho: 1 = 2
H1: 1 > 2
Step 2: The 0.01 significance level is selected.
x 1 −x 2

√
S S
12 22
+
Step 3: the test statistics is Z, the standard normal distribution, Z = n1 n2
Step 4: The decision rule is:
Reject the null hypothesis if the computed value of Z is greater then 2.33.
The critical value for 0.01 cruel, one-tailed test is 2.33

Step 5: Calculate the test statistic and make a decision.

x 1 −x 2
5 .5−5 .3

√ √
S S
12 22 (0 . 40 )2 (0 .30 )2
+ +
The test statistic is Z = n1 n2 Z = 50 100 = 3.13

The computed value of 3.13 is beyond the critical value of 2:33. Therefore, the null
hypothesis is rejected and the alternate hypothesis is accepted at the 0.01 significant level.
The quality assurance department will report to the administrator that the mean response time of
the nurses and resident physicians is longer for senior citizens than for other patients.
What is the P-value in this problem?
P- Value is the probability of computing aZ value this large or larger when Ho is true.
What is the likelihood of a Z value greater than 3.13
P(Z=3.13)= 0.4991
So, P (Z) > 3.13 ) =0.5000-0.44991=0.0009
Ho is very likely false and there is little likelihood of a type I error.
3.5.2.2 Testing for the Difference between two Population Proportions

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Example: - a company has developed a new perfume one of the questions is whether the
perfume is preferred by a larger proportion of younger women or a larger proportions of older
women. A standard smell test is used.
Women selected at random are asked to sniff several perfumes in succession, including the new.
Each woman selects the perfume she likes best.
Step 1
Ho “ There is no difference between the proportion of younger women who prefer the perfume
and the proportion of older women who prefer it” If the proportion of younger women in the
population is designated as P1 and the proportion of older women is P2 then;
Ho: P1= P2
The alternate hypothesis is that the two proportions are not equal or:
Hi: P1  P2
Step 2: It was decided to use the 0.05 level.
Step 3: The test statistic is Z and the formula is: -
P−P 2 where: n1 , is the number of young women selected in
the sample n2 is the number of older women selected

Z= √ Pc (1−Pc ) P c (1−P c )
n1
+
n2
in the sample, Pc = is the weighted mean of the two
sample proportion computed by
Total number of successe x1 + x 2
Pc =Total number of samples = n1 +n2
where x1 is the number of younger women
(sample 1) who prefer the perfume, x 2 is the number
of older women (sample 2) who prefer the perfume.
Pc is generally referred to as the pooled estimate of the population proportion or it is a
combined estimate, combined proportion.
Step 4: The Formulate Decision Rule:
The critical values for the 0.05 level two-tailed tests are -1.96 and +1.96. If the computed Z value
is in the region between +1.96 and -1.96, the null hypothesis will not be rejected. If it does occur
it is assumed that any difference between the two proportions is due to chance variation.
Two – tailed test, Areas of rejection and Non-rejection 0.05 level of significance.

Step 5: The decision

A total of 100 young women selected at random, and each was given the standard smell test.
Forty of the 100 young women chose the perfume, as they liked best
x1 = 40
n1= 100 and 200 older women were selected at random and each was given the same standard
smell test of the 200 women 100 preferred the perfume.
x2 = 100 x 40
n2=200 P1 = 1 = =0 . 40
n1 100
x 100
P2 = 2 = =0. 50
Stat. for Mgt. II Page 12 n2 200
The pooled or weighted proportion Pc is
x1 + x 2 40+ 100
Pc = n1 +n2 = 100+200 = 140 / 300 = 0.4667

P 1−P2 0 . 40−0. 50
= =−1 .64

Z= √ Pc (1−Pc ) P c (1−P c )
n1
+
n2 √ 0 . 4667(0 . 5333) 0 . 4667+ 0 .5333
100
+
200

The computed value of Z (-1.64) falls in the non-rejection region. Therefore we concluded that
there is no difference in the proportion of younger and older women who prefer the perfume. In
this case we expect the P- value to be greater than the significance level of 0.05, and it is.
for Z = -1.64 probability is 0.4495
P value = 0.5000 – 0.4495 = 0.0505 for one tail only

However the test was two tailed, so we must account for the area beyond 1.64 as well as the area
less than -1.64. Then
The P – value is 2(0.0505) = 0.1010

The end
of
chapter
three!!!

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