HYPOTHESIS TESTING

Class: M.Com (I)

Email ID: nomiqureshi@ymail.com

Instructor: Noman Qureshi

1. Hypothesis:
A tentative statement about something is called hypothesis.
Or
Any statement or claim about something is called hypothesis i.e.
For example when we hear thunder of clouds outside the room we draw a statement that it may
be rain today outside. Our this statement is hypothesis
2. Statistical Hypothesis:
Any statement or claim about unknown population parameter is called statistical hypothesis i.e.
For example
i.

Average height of students in the Eastern College is 5.5

= 5.5

ii.

First teaching method is better than Second teaching method

>

3. Types of Statistical Hypothesis:

There are two types of statistical hypothesis:
i.

Null Hypothesis

It is any hypothesis which is assumed to be true. It is denoted by

equality.
ii.

and it always shows

Alternative Hypothesis

It is any hypothesis which is accepted when null hypothesis is rejected. It is denoted by

and it always shows inequality.

HYPOTHESIS TESTING | QUANTITATIVE TECHNIQUES IN BUSINESS

or

Formulation of Null and Alternative Hypothesis:

There are three possible choices for the set of null hypothesis and alternative hypothesis to be
used for a given test described in the terms of an unknown population parameter that might be as
follow:
Null Hypothesis
: = 15
: 15
: 15

Alternative Hypothesis
: 15
: < 15
: > 15

4. Errors of Testing of Hypothesis:

Decision

True
Correct Decision
Type I Error / Alpha Error

Accept
Reject

i.

False
Type II Error / Beta Error
Correct Decision

Type One Error / Alpha Error

Alpha error occurs when decision maker reject the null hypothesis when it is true.

ii.

Type Two Error / Beta Error

Beta error occurs when decision maker accepts the alternative hypothesis when it is
false.
5. Test Statistic:
Any statistic or any function of sample values which is used for testing purpose is called test
statistic.
Or
A test statistic is a quantity calculated from our sample of data. Its value is used to decide
whether or not the null hypothesis should be rejected in our hypothesis test.
6. Level of Significance:
It is defined as probability of rejecting the null hypothesis when it is true. It is denoted by
Greek letter .

HYPOTHESIS TESTING | QUANTITATIVE TECHNIQUES IN BUSINESS

7. Level of Confidence:
It is defined as probability of accepting the null hypothesis when it is true. It is denoted by
Greek letter (1 ).
8. Rejection Region / Critical Region:
A rejection region specifies a set of values of the test statistic for which null hypothesis is
rejected. It is also called critical region.
9. Acceptance Region / Non-Critical Region:
An acceptance region specifies a set of values of the test statistic for which null hypothesis is not
rejected. It is also called non-critical region.
10. Critical Values:
The values of the test statistic which bound rejection and acceptance region for the null
hypothesis are called critical values.
11. Two Tailed Test:
If the critical region is located equally in both tails of the sampling distribution of test statistic,
the test is called two tailed test.
12. One Tailed Test:
If the critical region is located in only one tail of the sampling distribution of test statistic, the
test is called two tailed test.
It may be left tailed as well as right tailed.

HYPOTHESIS TESTING | QUANTITATIVE TECHNIQUES IN BUSINESS

PROCEDURE FOR TESTING HYPOTHESIS

Following steps are performed to apply for testing hypothesis
1. FORMULATION OF HYPOTHESIS

2.

H:

Null Hypothesis

H1:

Alternative Hypothesis

SIGNIFICANCE LEVEL

The commonly used levels are at = 0.05, 0.01

3. THE TEST STATISTIC TO USE
Select the most appropriate test statistic to be used for testing the hypothesis
(We will discuss here only Z-Test and T-Test in Detail)
4. COMPUTATION
Calculate the value of Test-Statistic.
5. CRITICAL REGION
Identify the critical region that depends upon:
i.
Sampling distribution of test statistic
ii.
Level of Significance
iii.
Type of test (One tailed or Two Tailed)
6. INFERENCE:
Make a conclusion after comparison of critical values and calculated values.

HYPOTHESIS TESTING | QUANTITATIVE TECHNIQUES IN BUSINESS