Chapter 11

Introduction to Hypothesis
Testing

1
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.

2
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.

3
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).

4
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.

5
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.

6
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.

7
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.”

8
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.
9
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

10
Concepts of Hypothesis Testing (1)
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

H1: — the ‘alternative’ or ‘research’ hypothesis

The null hypothesis (H0) will always state that the parameter
equals the value specified in the alternative hypothesis (H 1)
11
Concepts of Hypothesis Testing
Consider Example 10.1 (mean demand for computers during
assembly lead time) again. Rather than estimate the mean
demand, our operations manager wants to know whether the
mean is different from 350 units. We can rephrase this
request into a test of the hypothesis:

H0:µ = 350

Thus, our research hypothesis becomes:

H1:µ ≠ 350 This is what we are interested
in determining…

12
Concepts of Hypothesis Testing (2)
The testing procedure begins with the assumption that the
null hypothesis is true.

Thus, until we have further statistical evidence, we will

assume:

H0: = 350 (assumed to be TRUE)

13
Concepts of Hypothesis Testing (3)
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 ≠ 350

This is what we are interested

in determining…

14
Concepts of Hypothesis Testing (4)
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…
15
 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.

16
Concepts of Hypothesis Testing
For example, if we’re trying to decide whether the mean is
not equal to 350, a large value of x (say, 600) would
provide enough evidence.

If x is close to 350 (say, 355) we could not say that this

provides a great deal of evidence to infer that the population
mean is different than 350.

17
Concepts of Hypothesis Testing (5)
Two possible errors can be made in any test:
A Type I error occurs when we reject a true null hypothesis
and
A Type II error occurs when we don’t reject a false null
hypothesis.

There are probabilities associated with each type of error:

P(Type I error) = α
P(Type II error ) = β
α is called the significance level.

18
Types of Errors
A Type I error occurs when we reject a true null hypothesis
(i.e. Reject H0 when it is TRUE)

H0 T F

Reject I

Reject II

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

hypothesis (i.e. Do NOT reject H0 when it is FALSE)
19
Example 11.1
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?

20
 Example 11.1 IDENTIFY

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 specifies a single value for the

parameter of interest)
21
 Example 11.1 IDENTIFY

What we want to show:

H0: µ = 170 (we’ll assume this is true)
H1: µ > 170

We know:
n = 400,
= 178, and
σ = 65

What to do next?!
22
Example 11.1 COMPUTE

To test our hypotheses, 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…

23
 COMPUTE
Example 11.1 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 > .

α = P(Type I error)

= P( reject H0 given that H0 is true)

α = P( > )

24
Example 11.1 COMPUTE

All that’s left to do is calculate and compare it to 170.

we can calculate this based on any level of

significance ( ) we want…

25
Example 11.1 COMPUTE

At a 5% significance level (i.e. =0.05), we get

Solving we compute = 175.34

Since our sample mean (178) is greater than the critical value we
calculated (175.34), we reject the null hypothesis in favor of H1, i.e.
that: µ > 170 and that it is cost effective to install the new billing
system
26
Example 11.1 The Big Picture

H0: = 170
H1: > 170 =175.34
=178
Reject H0 in favor of
27
Standardized Test Statistic
An easier method is to use the standardized test statistic:

and compare its result to : (rejection region: z > )

Since z = 2.46 > 1.645 (z.05), we reject H0 in favor of H1…

28
Example 11.1… The Big Picture Again

.05

0 Z
H0: = 170
H1: > 170
Z.05=1.645
z = 2.46
Reject H0 in favor of
29
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

30
P-Value of a Test
p-value = P(Z > 2.46)

p-value =.0069

z =2.46

31
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: > 170.

32
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
33
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

34
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.

35
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.

36
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.

37
Right-Tail Testing

38
Left-Tail Testing

39
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

40
Example 11.2
In recent years, a number of companies have been formed that
offer competition to AT&T in long-distance calls.

All advertise that their rates are lower than AT&T's, and as a
result their bills will be lower.

AT&T has responded by arguing that for the average consumer

there will be no difference in billing.

Suppose that a statistics practitioner working for AT&T

determines that the mean and standard deviation of monthly long-
distance bills for all its residential customers are $17.09 and
$3.87, respectively.
41
Example 11.2
He then takes a random sample of 100 customers and
recalculates their last month's bill using the rates quoted by a
leading competitor.

Assuming that the standard deviation of this population is

the same as for AT&T, can we conclude at the 5%
significance level that there is a difference between AT&T's
bills and those of the leading competitor?

42
Example 11.2 IDENTIFY

The parameter to be tested is the mean of the population of

AT&T’s customers’ bills based on competitor’s rates.

What we want to determine whether this mean differs from

$17.09. Thus, the alternative hypothesis is

H1: µ ≠ 17.09

The null hypothesis automatically follows.

H0: µ = 17.09
43
Example 11.2 IDENTIFY

The rejection region is set up so we can reject the null

hypothesis when the test statistic is large or when it is small.

stat is “small” stat is “large”

That is, we set up a two-tail rejection region. The total area
in the rejection region must sum to , so we divide this
probability by 2.
44
 Example 11.2 IDENTIFY

At a 5% significance level (i.e. α = .05), we have

α/2 = .025. Thus, z.025 = 1.96 and our rejection region is:

z < –1.96 -or- z > 1.96

-z.025 +z.025 z
0

45
Example 11.2 COMPUTE

From the data (Xm11-02), we calculate = 17.55

Using our standardized test statistic:

We find that:

Since z = 1.19 is not greater than 1.96, nor less than –1.96
we cannot reject the null hypothesis in favor of H 1. That is
“there is insufficient evidence to infer that there is a
difference between the bills of AT&T and the competitor.”
46
Two-Tail Test p-value COMPUTE

In general, the p-value in a two-tail test is determined by

p-value = 2P(Z > |z|)
where z is the actual value of the test statistic and |z| is its
absolute value.

For Example 11.2 we find

p-value = 2P(Z > 1.19)
= 2(.1170)
= .2340

47
Summary of One- and Two-Tail Tests…

One-Tail Test Two-Tail Test One-Tail Test

(left tail) (right tail)

48
Probability of a Type II Error –
It is important that we understand the relationship between
Type I and Type II errors; that is, how the probability of a
Type II error is calculated and its interpretation.

Recall example 11.1…

H0: = 170
H1: > 170
At a significance level of 5% we rejected H0 in favor of H1
since our sample mean (178) was greater than the critical
value of (175.34)

49
Probability of a Type II Error –
A Type II error occurs when a false null hypothesis is not
rejected.

In example 11.1, this means that if is less than 175.34 (our

critical value) we will not reject our null hypothesis, which
means that we will not install the new billing system.

Thus, we can see that:

= P( < 175.34 given that the null hypothesis is false)

50
Example 11.1 (revisited)…
Our original hypothesis…

our new assumption…

51
Effects on of Changing
Decreasing the significance level , increases the value of
and vice versa.

Consider this diagram again. Shifting the critical value line

to the right (to decrease ) will mean a larger area under the
lower curve for … (and vice versa)

52
Judging the Test…
A statistical test of hypothesis is effectively defined by the
significance level ( ) and the sample size (n), both of
which are selected by the statistics practitioner.

Therefore, if the probability of a Type II error ( ) is judged

to be too large, we can reduce it by
increasing , and/or
increasing the sample size, n.

53
Judging the Test…
The power of a test is defined as 1– .
It represents the probability of rejecting the null
hypothesis when it is false.

i.e. when more than one test can be performed in a given

situation, its is preferable to use the test that is correct
more often. If one test has a higher power than a second
test, the first test is said to be more powerful than the
second test.

54