HYPOTHESIS TESTING AND ESTIMATION
Meaning Hypothesis Testing
A statistical hypothesis is an assumption about a population parameter. This assumption may or
may not be true. Hypothesis testing refers to the formal procedures used by statisticians to
accept or reject statistical hypotheses.
Statistical Hypotheses
The best way to determine whether a statistical hypothesis is true would be to examine the entire
population. Since that is often impractical, researchers typically examine a random sample from
the population. If sample data are not consistent with the statistical hypothesis, the hypothesis is
rejected.
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 H1 or Ha, is the hypothesis
that sample observations are influenced by some non-random cause.
For example, suppose we wanted to determine whether a coin was fair and balanced. A null
hypothesis might be that half the flips would result in Heads and half, in Tails. The alternative
hypothesis might be that the number of Heads and Tails would be very different. Symbolically,
these hypotheses would be expressed as
H0: P = 0.5
Ha: P ≠ 0.5
Suppose we flipped the coin 50 times, resulting in 40 Heads and 10 Tails. Given this result, we
would be inclined to reject the null hypothesis. We would conclude, based on the evidence, that
the coin was probably not fair and balanced.
Hypothesis Tests
Statisticians follow a formal process to determine whether to reject a null hypothesis, based on
sample data. This process, called hypothesis testing, consists of four steps.
State the hypotheses. This involves stating the null and alternative hypotheses. The hypotheses
are stated in such a way that they are mutually exclusive. That is, if one is true, the other must be
false.
Formulate an analysis plan. The analysis plan describes how to use sample data to evaluate the
null hypothesis. The evaluation often focuses around a single test statistic.
Analyze sample data. Find the value of the test statistic (mean score, proportion, t statistic, z-
score, etc.) described in the analysis plan.
Interpret results. Apply the decision rule described in the analysis plan. If the value of the test
statistic is unlikely, based on the null hypothesis, reject the null hypothesis.
Decision Errors
Two types of errors can result from a hypothesis test.
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.
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.
Decision Rules
The analysis plan includes decision rules for rejecting the null hypothesis. In practice,
statisticians describe these decision rules in two ways - with reference to a P-value or with
reference to a region of acceptance.
P-value. The strength of evidence in support of a null hypothesis is measured by the P-value.
Suppose the test statistic is equal to S. The P-value is the probability of observing a test statistic
as extreme as S, assuming the null hypothesis is true. If the P-value is less than the significance
level, we reject the null hypothesis.
Region of acceptance. The region of acceptance is a range of values. If the test statistic falls
within the region of acceptance, the null hypothesis is not rejected. The region of acceptance is
defined so that the chance of making a Type I error is equal to the significance level.
The set of values outside the region of acceptance is called the region of rejection. If the test
statistic falls within the region of rejection, the null hypothesis is rejected. In such cases, we say
that the hypothesis has been rejected at the α level of significance. These approaches are
equivalent.
One-Tailed and Two-Tailed Tests
A test of a statistical hypothesis, where the region of rejection is on only one side of the sampling
distribution, is called a one-tailed test. For example, suppose the null hypothesis states that the
mean is less than or equal to 10. The alternative hypothesis would be that the mean is greater
than 10. The region of rejection would consist of a range of numbers located on the right side of
sampling distribution; that is, a set of numbers greater than 10.
A test of a statistical hypothesis, where the region of rejection is on both sides of the sampling
distribution, is called a two-tailed test. For example, suppose the null hypothesis states that the
mean is equal to 10. The alternative hypothesis would be that the mean is less than 10 or greater
than 10. The region of rejection would consist of a range of numbers located on both sides of
sampling distribution; that is, the region of rejection would consist partly of numbers that were
less than 10 and partly of numbers that were greater than 10.
Testing Hypotheses
This lesson describes a general procedure that can be used to test statistical hypotheses.
How to Conduct Hypothesis Tests
All hypothesis tests are conducted the same way. The researcher states a hypothesis to be tested,
formulates an analysis plan, analyzes sample data according to the plan, and accepts or rejects
the null hypothesis, based on results of the analysis.
State the hypotheses. Every hypothesis test requires the analyst to state a null hypothesis and
an alternative hypothesis. The hypotheses are stated in such a way that they are mutually
exclusive. That is, if one is true, the other must be false; and vice versa.
Formulate an analysis plan. The analysis plan describes how to use sample data to accept or
reject the null hypothesis. It should specify the following elements.
Significance level. Often, researchers choose significance levels equal to 0.01, 0.05, or
0.10; but any value between 0 and 1 can be used.
Test method. Typically, the test method involves a test statistic and a sampling
distribution. Computed from sample data, the test statistic might be a mean score,
proportion, difference between means, difference between proportions, z-score, t statistic,
chi-square, etc. Given a test statistic and its sampling distribution, a researcher can assess
probabilities associated with the test statistic. If the test statistics probability is less than
the significance level, the null hypothesis is rejected.
Analyze sample data. Using sample data, perform computations called for in the analysis
plan.
o Test statistic. When the null hypothesis involves a mean or proportion, use either of the
following equations to compute the test statistic.
Test statistic = (Statistic - Parameter) / (Standard deviation of statistic)
Test statistic = (Statistic - Parameter) / (Standard error of statistic)
where Parameter is the value appearing in the null hypothesis, and Statistic is the point estimate
of Parameter. As part of the analysis, you may need to compute the standard deviation or
standard error of the statistic.
When the parameter in the null hypothesis involves categorical data, you may use a chi-square
statistic as the test statistic. Instructions for computing a chi-square test statistic are presented in
the lesson on the chi-square goodness of fit test.
P-value. The P-value is the probability of observing a sample statistic as extreme as the
test statistic, assuming the null hypothesis is true.
Interpret the results. If the sample findings are unlikely, given the null hypothesis, the
researcher rejects the null hypothesis. Typically, this involves comparing the P-value to the
significance level, and rejecting the null hypothesis when the P-value is less than the significance
level.
Applications of the General Hypothesis Testing Procedure
Proportions
Difference between proportions
Proportions from small samples
Regression slope
Means
Difference between means
Difference between matched pairs
Goodness of fit
Homogeneity
Independence
Example 1
In hypothesis testing, which of the following statements is always true?
I. The P-value is greater than the significance level.
II. The P-value is computed from the significance level.
III. The P-value is the parameter in the null hypothesis.
IV. The P-value is a test statistic.
V. The P-value is a probability.
(A) I only
(B) II only
(C) III only
(D) IV only
(E) V only
Solution
The correct answer is (E). The P-value is the probability of observing a sample statistic as
extreme as the test statistic. It can be greater than the significance level, but it can also be smaller
than the significance level. It is not computed from the significance level, it is not the parameter
in the null hypothesis, and it is not a test statistic.
CHI-SQUARE GOODNESS OF FIT TEST
The test is applied when you have one categorical variable from a single population. It is used to
determine whether sample data are consistent with a hypothesized distribution.
For example, suppose a company printed baseball cards. It claimed that 30% of its cards were
rookies; 60%, veterans; and 10%, All-Stars. We could gather a random sample of baseball cards
and use a chi-square goodness of fit test to see whether our sample distribution differed
significantly from the distribution claimed by the company.
When to Use the Chi-Square Goodness of Fit Test
The chi-square goodness of fit test is appropriate when the following conditions are met:
The sampling method is simple random sampling.
The variable under study is categorical.
The expected value of the number of sample observations in each level of the variable is at
least 5.
This approach consists of four steps: (1) state the hypotheses, (2) formulate an analysis plan, (3)
analyze sample data, and (4) interpret results.
State the Hypotheses
Every hypothesis test requires the analyst to state a null hypothesis (H 0) and an alternative
hypothesis (Ha). The hypotheses are stated in such a way that they are mutually exclusive. That
is, if one is true, the other must be false; and vice versa.
For a chi-square goodness of fit test, the hypotheses take the following form.
H0: The data are consistent with a specified distribution.
Ha: The data are not consistent with a specified distribution.
Typically, the null hypothesis (H0) specifies the proportion of observations at each level of the
categorical variable. The alternative hypothesis (H a) is that at least one of the specified
proportions is not true.
Formulate an Analysis Plan
The analysis plan describes how to use sample data to accept or reject the null hypothesis. The
plan should specify the following elements.
Significance level. Often, researchers choose significance levels equal to 0.01, 0.05, or 0.10;
but any value between 0 and 1 can be used.
Test method. Use the chi-square goodness of fit test to determine whether observed sample
frequencies differ significantly from expected frequencies specified in the null hypothesis.
Analyze Sample Data
Using sample data, find the degrees of freedom, expected frequency counts, test statistic, and the
P- value associated with the test statistic.
Degrees of freedom. The degrees of freedom (DF) are equal to the number of levels (k) of the
categorical variable minus 1: DF = k - 1.
Expected frequency counts. The expected frequency counts at each level of the categorical
variable are equal to the sample size times the hypothesized proportion from the null hypothesis
Ei = npi
where Ei is the expected frequency count for the ith level of the categorical variable, n is the total
sample size, and pi is the hypothesized proportion of observations in level i.
Test statistic. The test statistic is a chi-square random variable (Χ 2) defined by the following
equation.
Χ2 = Σ [ (Oi - Ei)2 / Ei]
where Oi is the observed frequency count for the ith level of the categorical variable, and Ei is
the expected frequency count for the ith level of the categorical variable.
P-value. The P-value is the probability of observing a sample statistic as extreme as the test
statistic. Since the test statistic is a chi-square, use the Chi-Square Distribution Calculator to
assess the probability associated with the test statistic. Use the degrees of freedom computed
above.
Interpret Results
If the sample findings are unlikely, given the null hypothesis, the researcher rejects the null
hypothesis. Typically, this involves comparing the P-value to the significance level, and rejecting
the null hypothesis when the P-value is less than the significance level.
Example 2
Acme Toy Company prints baseball cards. The company claims that 30% of the cards are
rookies, 60% veterans, and 10% are All-Stars.
Suppose a random sample of 100 cards has 50 rookies, 45 veterans, and 5 All-Stars. Is this
consistent with Acme's claim? Use a 0.05 level of significance.
Solution
The solution to this problem takes four steps: (1) state the hypotheses, (2) formulate an analysis
plan, (3) analyze sample data, and (4) interpret results. We work through those steps below:
State the hypotheses. The first step is to state the null hypothesis and an alternative
hypothesis.
Null hypothesis: The proportion of rookies, veterans, and All-Stars is 30%, 60% and
10%, respectively.
Alternative hypothesis: At least one of the proportions in the null hypothesis is false.
Formulate an analysis plan. For this analysis, the significance level is 0.05. Using sample
data, we will conduct a chi-square goodness of fit test of the null hypothesis.
Analyze sample data. Applying the chi-square goodness of fit test to sample data, we
compute the degrees of freedom, the expected frequency counts, and the chi-square test statistic.
Based on the chi-square statistic and the degrees of freedom, we determine the P- value.
where DF is the degrees of freedom, k is the number of levels of the categorical variable, n is the
number of observations in the sample, E i is the expected frequency count for level i, O i is the
observed frequency count for level i, and Χ2 is the chi-square test statistic.
The P-value is the probability that a chi-square statistic having 2 degrees of freedom is more
extreme than 19.58.
We use the Chi-Square Distribution Calculator to find P (Χ2 > 19.58) = 0.0001.
Interpret results. Since the P-value (0.0001) is less than the significance level (0.05), we
cannot accept the null hypothesis.
HYPOTHESIS TEST ON A MEAN
This lesson explains how to conduct a hypothesis test of a mean, when the following conditions
are met:
The sampling method is simple random sampling.
The sampling distribution is normal or nearly normal.
Generally, the sampling distribution will be approximately normally distributed if any of the
following conditions apply.
The population distribution is normal.
The population distribution is symmetric, unimodal, without outliers, and the sample size is 15
or less.
The population distribution is moderately skewed, unimodal, without outliers, and the sample
size is between 16 and 40.
The sample size is greater than 40, without outliers.
This approach consists of four steps: (1) state the hypotheses, (2) formulate an analysis plan, (3)
analyze sample data, and (4) interpret results.
State the Hypotheses
Every hypothesis test requires the analyst to state a null hypothesis and an alternative hypothesis.
The hypotheses are stated in such a way that they are mutually exclusive. That is, if one is true,
the other must be false; and vice versa.
The table below shows three sets of hypotheses. Each makes a statement about how the
population mean μ is related to a specified value M. (In the table, the symbol ≠ means " not equal
to ".)
