Topic & Structure of the lesson

 Introduction
 Hypothesis Testing

Slide 2 (of 40)

 Learning Outcomes

 At the end of this section, You should be

able to:
 Explain the principles underlying hypothesis
testing
 Structure a business decision situation about
means or proportions into the form of a test of a
hypothesis
 Apply systematic testing procedures.
 Interpret hypothesis test results and draw
conclusions

Slide 56 (of 113)

 Key Terms you must be able to use

If you have mastered this topic, you should be able to use the
following terms correctly in your in-course assessments and final
exam:

 Significance testing
 Null hypothesis
 Alternative hypothesis
 Significance level
 Test statistics
 One-tailed test
 Two-tailed test
 Chi-square distribution
 Hypothesis Testing

Introduction
 Alternatively called significance testing.
 Is testing a belief or opinion by statistical
methods.
 In decision making, we make an assumption, called
hypothesis, then we collect some sample data,
produce sample statistics and use this information to
decide how likely it is that our hypothesized population
parameter is true.
 Commonly used for testing sample means &
proportion

Slide 58 (of 113)

 ANSWER PRACTICAL QUESTIONS SUCH AS:

1. A physician might want to know whether a new

medication will lower a person’s blood pressure.

2. An educator might wish to see whether a new teaching

techniques is better than a traditional one.

3. Automobile manufacturers are interested in determining

whether seat belts will reduce the severity of injuries
caused by accidents.
 In hypothesis testing, we must stated the
assumed or hypothesized value of the
population before we begin sampling.This
assumption is called the null hypothesis.
 The Null hypothesis (Ho) usually assumes there is
no difference between the observed and
believed values.
 If our sample results fail to support the null
hypothesis, then the conclusion that we do
accept is called the alternative hypothesis, H1.

Slide 59 (of 113)

 One-tailed Test
 Is a significance test in which the null
hypothesis can be rejected by values well
above or below the mean but not both.
 Two-tailed Test
 Is a significance test in which it will reject the
null hypothesis if the sample mean is
significantly higher or lower than
hypothesized population mean.(i.e. there
are two rejection region)

Slide 7 (of 113)

 Types of Statistical Hypotheses

There are two types of statistical hypotheses

for each situation:
1. Null Hypothesis, H0
• Statistical hypothesis that states that there is no
difference between a parameter and a specific
value.
2. Alternative Hypothesis, H1
• Statistical hypothesis that states the existence of
a difference between a parameter and a specific
value.
 Situation 1

A psychologist feels that playing a soft music

during a test will change the results of the test. The
psychologist is not sure whether the grades will be
higher or lower. In the past, the mean of the scores
was 73.

Two-tailed Test
 Situation 2

A researcher think that if expectant mothers use

vitamin pills, the birth weight of the babies will
increase. The average birth weight of the
population is 8.6 pounds.

Right-tailed Test
 Situation 3

A contractor wishes to lower heating bills by using

a special type of insulation on houses. He found
that the average of the monthly heating bills is $78.

Left-tailed Test
 Situation 4

Over the years the proportion of faulty goods has

been quite steady at 3% but a recent sample of 50
items had 4% faulty. At 5% significance level, can
we conclude that a change has occurred ?

Two-tailed Test
 Procedures for Hypothesis Testing
Before any sample readings are considered:
1) State the null hypothesis, H0, and the alternative hypothesis H1.

2) Decide on the level of the test.

3) Decide on the rejection criteria.
Now consider the sample values. When n < 30
4) Calculate the value of the test statistics.
x x p 
for mean: Z =
 or t = s for proportion: Z =  1   
n n n
5) Make conclusion: If the value of test statistic lies in the critical region,
reject H0
If the value of test statistic does not lie in the critical
region, do not reject H0.
 Required to know:

 Hypothesis testing for one sample

 Proportion
 Two-tailed test
 One tailed test

 Mean
 Two-tailed test
 One tailed test
 Note that when sample size is 30 or less and the
population standard deviation is not known, t-
distribution is used.

Slide 64 (of 113)

Chi-square (2) Distribution
 used when it is wished to compare an
actual, observed distribution with a
hypothesized, or expected distribution.
 Often referred to as a ‘goodness of fit’
test
 = 
2 
OE
2

E
 where O = the observed frequency of any value
E = the expected frequency of any value

Slide 70 (of 113)

 The obtained value from the formula is
compared with the value from 2 table for a
given significance level and the number of
degrees of freedom.
 Degrees of freedom = (Rows-1)(Columns –1)
 If 2 calculated is > 2 from table, the null
hypothesis is rejected.

Slide 71 (of 113)

 Use broadly for
 Test of goodness of fit (for one way classification or for
one variable only)
 Can also be used to determine how well empirical
distributions I.e. those obtained from sample data fit
theoretical distributions such as the Normal, Poisson
and Binomial
 Test of independence (for more than one row or
column in the form of a contingency table covering
several attributes.)

Slide 72 (of 113)

 Quick Review Question

 Example:
 Are technical support calls equal across all days of the week? (i.e., do calls
follow a uniform distribution?)
 Sample data for 10 days per day of week:

Sum of calls for this day:

Monday 290
Tuesday 250
Wednesday 238
Thursday 257
Friday 265
Saturday 230
Sunday 192
 = 1722
Slide 75 (of 113)
Logic of Goodness-of-Fit Test
 If calls are uniformly distributed, the 1722 calls would be
expected to be equally divided across the 7 days:
1722
 246 expected calls per day if uniform
7
 Chi-Square Goodness-of-Fit Test: test to see if the
sample results are consistent with the expected results

Slide 76 (of 113)

Observed & Expected Frequencies
Observed Expected
oi ei
Monday 290 246
Tuesday 250 246
Wednesday 238 246
Thursday 257 246
Friday 265 246
Saturday 230 246
Sunday 192 246

TOTAL 1722 1722

Slide 77 (of 113)

Chi-Square Test Statistic
H0: The distribution of calls is uniform over days of the week
HA: The distribution of calls is not uniform

 The test statistic is

(oi  ei )2
 
2
(where df  k  1)
ei
where:
k = number of categories
oi = observed cell frequency for category i
ei = expected cell frequency for category i

Slide 78 (of 113)

 The Rejection Region
H0: The distribution of calls is uniform over days of the week
HA: The distribution of calls is not uniform

( o  e ) 2
2   i i
ei
• Reject H0 if  
2 2
α

(with k – 1 degrees of
freedom) 0 2
Do not Reject H0
reject H0 2 
Slide 79 (of 113)
Chi-Square Test Statistic

Slide 80 (of 113)

 Chi-square Test of Independence

Contingency Tables
 Situations involving multiple population
proportions
 Used to classify sample observations
according to two or more characteristics
 Also called a cross-tabulation table.

Slide 87 (of 113)

 Example 5.7
 The following data concerning industrial accidents and
absentees classified according to the types of employee.

 Is there any evidence to suggest that the severity of

accident is associated with type of employee ?

Slide 88 (of 113)

Logic of the test
H0: Severity of accident is independent of type of employees
HA: Severity of accident is not independent of type of employees

 If H0 is true, then the proportion of severity of

accidents should be the same as the proportion
of type of employees

Slide 89 (of 113)

Finding Expected Frequencies

(row total)(column total )

Expected frequency =
grand total

Slide 90 (of 113)

Observed vs. expected Frequencies

Slide 91 (of 113)

The Chi-square contingency test statistic is:

χ 
2 O  E 
2
with d.f.  (r  1)(c  1)
E
 where:
O = observed frequency
E = expected frequency
r = number of rows
c = number of columns

Slide 92 (of 113)

Slide 93 (of 113)
Contingency Analysis

Slide 94 (of 113)

Yate’s Correction
Used when there is only ONE degree of freedom.

χ 
2  O  E  0.5
2

Slide 95 (of 113)