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1 Introduction
The purpose of hypothesis testing is to determine whether there is enough statistical evidence in favor of a certain belief about a parameter. Examples
Is there statistical evidence in a random sample of potential customers, that support the hypothesis that more than 10% of the potential customers will purchase a new products? Is a new drug effective in curing a certain disease? A sample of patients is randomly selected. Half of them are given the drug while the other half are given a placebo. The improvement in the patients conditions is then measured and compared.
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What is a hypothesis?
A tentative statement about a population parameter that might be true or wrong
Types of hypotheses
Null hypothesis Research/alternative hypothesis
m = 350
Sample from the demand population, and build a test statistic related to the parameter hypothesized (the sample mean). Decide, is the value obtained big enough to reject the null hypothesis?
x 355
m = 350
x 450
Since the x is much larger than 350, the mean m is likely to be greater than 350. Reject the null hypothesis. In this case the mean m is not likely to be greater than 350. Do not reject the null hypothesis.
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Types of Errors
Two types of errors may occur when deciding whether to reject H0 based on the statistic value. Type I error: Reject H0 while the truth is, it is true. Type II error: Do not reject H0 while the truth is, it is false. Example continued Type I error: Reject H0 (m = 350) in favor of H1 (m > 350) while the truth is, the real value of m is 350. Type II error: Do not reject H0 (m = 350) while the truth 8 is, the real value of m is greater than 350.
Thus, a type I error is made if x critical value when m = 350. By properly selecting the critical value we can limit the probability of conducting a type I error to an acceptable level. Critical value
m = 350
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3 Testing the Population Mean When the Population Standard Deviation is Known
The manager of a department store is thinking about establishing a new billing system for the stores credit customer. After a through financial analysis, 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 account is drawn, for which the sample mean is $178. The manager knows that the accounts are approximately normally distributed with standard deviation $65. Can the manager conclude from this available information that the new system will be cost-effective?
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3 Testing the Population Mean When the Population Standard Deviation is Known
Example 1
A new billing system for a department store will be costeffective only if the mean monthly account is more than $170. A sample of 400 accounts has a mean of $178. If accounts are approximately normally distributed with s = $65, can we conclude that the new system will be cost effective?
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Approaches to Testing
There are two approaches to test whether the sample mean supports the alternative hypothesis (H1)
The rejection region method is mandatory for manual testing (but can be used when testing is supported by a statistical software) The p-value method which is mostly used when a statistical software is available.
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Recall:
therefore,
It seems reasonable to reject the null hypothesis and believe that m > 170 if the sample mean is sufficiently large.
Reject H0 here Critical value of the sample mean
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x xL
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za
x L 170 65 400
a
m x 170
xL
P(commit a Type I error) = P(reject H0 given that H0 is true) = P( x xL given that H0 is true) is allowed to be a.
Since P( Z Z a ) a we have:
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a = 0.05
m x 170
xL
za
x L 170 65 400
65 x L 170 z a . 400 If we select a 0.05, z .05 1.645. 65 x L 170 1.645 175.34. 400
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x m s n
One tail test
z za
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Conclusion
Since Z = 2.46 > 1.645, reject the null hypothesis in favor of the alternative hypothesis.
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P-value Method
The p-value provides information about the amount of statistical evidence that supports the alternative hypothesis.
The p-value of a test is the probability of observing a test statistic at least as extreme as (greater or equal) the one computed, given the null hypothesis is true. Let us demonstrate the concept on Example 11.1
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P-value Method
The probability of observing a test statistic at least as extreme as 178, given that m = 170 is
x 178
The p-value
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H0 : m x 170 H1 : m x 170
x 178
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H0 : m x 170 H1 : m x 170
x 178
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a = 0.05
The p-value
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m x 170
x L 175.34
x 178
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x xS
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Left-tail test
z za z.10 1.28
Since -.91 > 1.28 do not reject the null hypothesis. The p value = P(Z<-.91) = .1814 Since .1814 > .10, do not reject the null hypothesis
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z za / 2 or z za / 2
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x
We want this erroneous rejection of H0 to be a rare event, say 5% chance.
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If H0 is true (m =17.09), x can still fall far above or far below 17.09, in which case we erroneously reject H0 in favor of H1
(m 17.09)
1.19
17.09
a/2 0.025
a/2 0.025
a/2 0.025
0 za/2 = 1.96
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-za/2 = -1.96
Rejection region
Two-tail test
There is insufficient evidence to infer that there is a difference between the bills of AT&T and the competitor.
Also, by the p value approach: The p-value = P(Z< -1.19)+P(Z >1.19) = 2(.1173) = .2346 > .05 a/2 0.025
-1.19 0 1.19
a/2 0.025
xm
1.19
-za/2 = -1.96
za/2 = 1.96
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