Agua, Dorothy Enid M.

Basic Statistics February 28, 2018

MWF 3:00-4:00 Prof. Montenegro

THE SEVEN-STEP PROCESS OF STATISTICAL HYPOTHESIS TESTING

Statistical Inference. The process of making judgments about a large group (population) on the basis of
a small subset of that group (sample.)

Hypothesis Testing. Allows us to objectively assess the probability that statements about a population
are true.

STEPS:

1. State the null hypothesis and the alternative hypothesis.

The null hypothesis denoted as H0 is a statement about the value of a population parameter and
is put up for testing in the face of numerical evidence. In hypothesis testing, the null hypothesis is
assumed to be true unless we have statistically overwhelming evidence to the contrary.

The alternative hypothesis denoted as Ha or H1 is an assertion that holds if the null hypothesis is
false.

There are three different ways on how to formulate a hypothesis.

1. H0: μ = x versus Ha: μ ≠ x
2. H0: μ ≤ x versus Ha: μ > x
3. H0: μ ≥ x versus Ha: μ < x

A directional claim or assertion holds that a population parameter is greater than, at least, no
more than, or less than some quantity. This leads to what are called one-tail tests, where a null
hypothesis can be rejected by an extreme result in one direction only.

A nondirectional claim or assertion states that a parameter is equal to some quantity. A

nondirectional assertion involves a two-tail test, in which a null hypothesis can be rejected by an
extreme result occurring in either direction.

ERRORS IN HYPOTHESIS TESTING

Whenever we reject a null hypothesis, there is a chance that we have made a mistake — i.e.,
that we have rejected a true statement. Rejecting a true null hypothesis is referred to as a Type I error,
and our probability of making such an error is represented by the Greek letter alpha (a).

We can also make the mistake of failing to reject a false null hypothesis — this is a Type II error.
Our probability of making it is represented by the Greek letter beta (β).

Naturally, if we either fail to reject a true null hypothesis or reject a false null hypothesis, we’ve acted
correctly.
EXPLANATION: The null hypothesis is what is thought to be true and the alternative hypothesis is what
the researcher is trying to prove or confirm and is usually the opposite of the null hypothesis.

1. H0: μ = x versus Ha: μ ≠ x {implies that the μ is x or it is not}

2. H0: μ ≤ x versus Ha: μ > x {implies that μ is less than or equal to x or it is more than x}
3. H0: μ ≥ x versus Ha: μ < x {implies that μ is at least x or it is less than x}

From what I have researched, there is this example about the light bulbs. The bulbs are advertised to
have an average useful life of 2000 hours and the researcher is trying to prove, because there was a
prior reason to believe, that the bulbs would be capable to last for more than 2000 hours.

In this example, the null hypothesis (H0): μ = 2000 and the alternative hypothesis (Ha): μ > 2000.

Illustration:

2. Specifying the significance level.

The level of significance is the desired standard of proof against which we measure the evidence
contained in the test statistic. This is also identical to the Type 1 error or a.
 The most commonly used significance level and its description are represented by the table
below:

Significance Level Description

0.1 “some evidence”
0.05 “strong evidence”
0.01 “very strong evidence”

EXPLANATION: The level of significance is set according to the need of the researcher to achieve a
credible and confident result from the test. When the researcher has set the confidence level at 95%, it
is also the same as setting the significance level at 5%, that is, the researcher would allow a 5% chance
of committing a mistake.

3. Identifying the appropriate test statistic and its probability distribution.

The test statistic will be either z or t, according to the normal and t-distribution. An important
consideration in tests involving a sample mean is whether the population standard deviation (σ) is
known. The z-test (normal distribution and test statistic, z) will be used for hypothesis tests involving a
sample proportion.

EXPLANATION: The table below shows an overview of the process of selecting a test statistic. The test
statistic will help determine the critical values to be used in the experiment as a basis of the treatment
to the null hypothesis and will be the heart of the study.
4. State the decision rule.

The decision rule uses the significance level and the probability distribution of the test statistic
to determine the value above (below) which the null hypothesis is rejected.

The critical value (CV) or rejection point of the test statistic is the value above (below) which the
null hypothesis is rejected.
 In a one-tail test, there will be one critical value since H0 can be rejected by an extreme result in
just one direction. Two-tail tests will require two critical values since H0 can be rejected by an extreme
result in either direction.

EXPLANATION: In determining whether or not to reject a null hypothesis, we have to refer to the
corresponding distribution that is appropriate to be used in the test we are conducting to identify the
critical values. Whether the test is one-tailed or two-tailed, the distribution table will be able to provide
a level of significance for each and then the degree of freedom is also needed which can be computed
by (n-1) where n is the sample size, the equivalent of these two variables will be determined by the
intersection of its row and column on a certain value and that is the critical value. The decision rule can
be stated in a way like “Reject H0 is t > CV…”

5. Calculate the value of the test statistic.

Depending on the calculated value of the test statistic, it will fall into either a rejection region or
the nonrejection region. If the calculated value is in a rejection region, the null hypothesis will be
rejected. Otherwise, the null hypothesis cannot be rejected. Failure to reject a null hypothesis does not
constitute proof that it is true, but rather that we are unable to reject it at the level of significance being
used for the test.

EXPLANATION: Use the sample data to calculate the value of the test statistic and use this calculated
value to reach a conclusion about the null hypothesis.

6. Use the test statistic to make a decision.

Decide, based on a comparison of the calculated value of the test statistic and the critical value
of the test, whether to reject the null hypothesis in favor of the alternative.

EXPLANATION: This will revolve around the decision rule previously established on step # 4. Based on
the calculated value, decide what to do with the null hypothesis. Will it be rejected or not? Will it be
better to choose the alternative hypothesis or go with the null hypothesis? This is where the rejection
or acceptance of null hypothesis takes place.

7. Interpret the decision in the context of the original question.

After rejecting or failing to reject the null hypothesis, the results are applied to the decision
situation that precipitated the test in the first place.

EXPLANATION: After gathering all the results of the test and treating the hypotheses, the one
conducting the experiment needs to understand what the results imply in the original situation being
tested and use this result as a guide on how to decide on one particular major decision he is making.

REFERENCES:
INTRODUCTION TO BUSINESS STATISTICS by Ronald M. Weiers
HYPOTHESIS TESTING by CFA Institute