Amity School of Business

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Amity School of Business
BBA, Semester IV
Research Methodology and Report Preparation
Dr. Deepa Kapoor
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Hypothesis Testing
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Calculates the probability, p, that an
observed difference between two or more
data samples can be explained by random
chance alone, as opposed to any fundamental
difference between the underlying
populations that the sample came from.
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To formulate use The Principle of Parsimony
or economy.
A null hypothesis (H) is a statement made by a researcher at
the beginning of an experiment that says, essentially, that nothing is
happening in the experiment.
The alternative also called the research hypothesis (H/ H) is
the antithesis of the null.







Formulating Hypothesis
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Steps of Hypothesis Testing
1. State the hypothesis
2. Set the criteria for a decision
3. Collect data and compute sample
statistics
4. Make a decision
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1. State the hypothesis
The null hypothesis (H
0
) states that in the general
population there is no change, no difference, or no
relationship (no effect of independent variable on
dependent variable)
The alternative hypothesis (H
1
) states that there is
a change, a difference, or a relationship for the
general population (independent variable has an
effect on the dependent variable.
H
0
and H
1
are mutually exclusive
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2. Set the Criteria for a Decision
Examine all possible sample means that
could be obtained if H
0
was true.
Alpha level or level of significance is a
probability value that is used to define the
very unlikely sample outcomes if the null
hypothesis is true
The critical region is composed of extreme
sample values that are very unlikely to be
obtained if the null hypothesis is true.
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Levels of significance
Critical values of z Level of Significance
1.96 .05
2.58 .01
3.29 .001
Probability of falsely rejecting the true null hypothesis (type I
error / alpha error)
|z| < 1.96 no rejection of H
0
(the difference between the
sample mean and the population mean is not significant, the
difference was probably because of sampling error).
|z| > 1.96 reject H
0
(accept H
1
) (the difference between the
sample mean and the population mean is significant.

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3. Collect data sample statistics
Select random sample
Data is collected after researcher has stated
hypotheses
Compare data (sample mean) with hypothesis
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4. Make a decision
If sample data fall in the critical region of
the distribution we must reject the null
hypothesis
The outcome that was found is very unlikely to
be found if H
0
was true.
If sample data do not fall in the critical
region than we fail to reject H
0
.
The outcome that was found can be found if H
0

is true
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Type I and Type II Errors
Type I Error
Reject the null hypothesis even though it is true
Null hypothesis should not be rejected
Type II Error
Fail to reject the null hypothesis even though it is
false
Null hypothesis should be rejected
Alpha-level: the probability that the test will lead to
a Type I error (probability of obtaining sample data
in the critical region even though H
0
is true)
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Accept null Reject null
Null Hypothesis
is true
Null Hypothesis
is false
Correct-
no error
Type I
error
Type II
error
Correct-
no error
Type I and Type II Errors
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One-tailed vs. Two-tailed Tests
When means are compared and H
1
is:

1

2
it is a non-directional (two-tailed) test.
When H
1
is:

1
<
2
or

1
>
2
it is a directional (one-tailed) test.
In a directional (one-tailed) test one possible
alternative must have been excluded prior to
collecting the data.
Two-tailed tests are more conservative since it is
harder to reject the null-hypothesis.
z = 1.65 vs 1.96; z = 2.33 vs. 2.58; z= 3.09 vs. 3.29