# Introduction to Hypothesis Testing

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1 I. Terms, Concepts. Introduction to Hypothesis Testing A. In general, we do not know the true value of population parameters - they must be estimated. However, we do have hypotheses about what the true values are. B. The major purpose of hypothesis testing is to choose between two competing hypotheses about the value of a population parameter. For example, one hypothesis might claim that the wages of men and women are equal, while the alternative might claim that men make more than women. C. The hypothesis actually to be tested is usually given the symbol H 0, and is commonly referred to as the null hypothesis. As is explained more below, the null hypothesis is assumed to be true unless there is strong evidence to the contrary similar to how a person is assumed to be innocent until proven guilty. D. The other hypothesis, which is assumed to be true when the null hypothesis is false, is referred to as the alternative hypothesis, and is often symbolized by H A or H 1. Both the null and alternative hypothesis should be stated before any statistical test of significance is conducted. In other words, you technically are not supposed to do the data analysis first and then decide on the hypotheses afterwards. E. In general, it is most convenient to always have the null hypothesis contain an equals sign, e.g. H 0 : µ = 100 H A : µ > 100 F. The true value of the population parameter should be included in the set specified by H 0 or in the set specified by H A. Hence, in the above example, we are presumably sure µ is at least 100. G. A statistical test in which the alternative hypothesis specifies that the population parameter lies entirely above or below the value specified in H 0 is a one-sided (or one-tailed) test, e.g. H 0 : µ = 100 H A : µ > 100 H. An alternative hypothesis that specified that the parameter can lie on either side of the value specified by H 0 is called a two-sided (or two-tailed) test, e.g. H 0 : µ = 100 H A : µ <> 100 I. Whether you use a 1-tailed or 2-tailed test depends on the nature of the problem. Usually we use a 2-tailed test. A 1-tailed test typically requires a little more theory. Introduction to Hypothesis Testing - Page 1

2 For example, suppose the null hypothesis is that the wages of men and women are equal. A two-tailed alternative would simply state that the wages are not equal implying that men could make more than women, or they could make less. A one-tailed alternative would be that men make more than women. The latter is a stronger statement and requires more theory, in that not only are you claiming that there is a difference, you are stating what direction the difference is in. J. In practice, a 1-tailed test such as H 0 : µ = 100 H A : µ > 100 is tested the same way as H 0 : µ # 100 H A : µ > 100 For example, if we conclude that µ > 100, we must also conclude that µ > 90, µ > 80, etc. II. The decision problem. A. How do we choose between H 0 and H A? The standard procedure is to assume H 0 is true - just as we presume innocent until proven guilty. Using probability theory, we try to determine whether there is sufficient evidence to declare H 0 false. B. We reject H 0 only when the chance is small that H 0 is true. Since our decisions are based on probability rather than certainty, we can make errors. C. Type I error - We reject the null hypothesis when the null is true. The probability of Type I error = α. Put another way, α = Probability of Type I error = P(rejecting H 0 H 0 is true) Typical values chosen for α are.05 or.01. So, for example, if α =.05, there is a 5% chance that, when the null hypothesis is true, we will erroneously reject it. D. Type II error - we accept the null hypothesis when it is not true. Probability of Type II error = ß. Put another way, ß = Probability of Type II error = P(accepting H 0 H 0 is false) E. EXAMPLES of type I and type II error: H 0 : µ = 100 H A : µ <> 100 Introduction to Hypothesis Testing - Page 2

3 Suppose µ really does equal 100. But, suppose the researcher accepts H A instead. A type I error has occurred. Or, suppose µ = but the researcher accepts H 0. A type II error has occurred. The following tables from Harnett help to illustrate the different types of error. F. α and ß are not independent of each other - as one increases, the other decreases. However, increases in N cause both to decrease, since sampling error is reduced. G. In this class, we will primarily focus on Type I error. But, you should be aware that Type II error is also important. A small sample size, for example, might lead to frequent Type II errors, i.e. it could be that your (alternative) hypotheses are right, but because your sample is so small, you fail to reject the null even though you should. III. Hypothesis testing procedures. The following 5 steps are followed when testing hypotheses. 1. Specify H 0 and H A - the null and alternative hypotheses. Examples: (a) H 0 : E(X) = 10 H A : E(X) <> 10 (b) H 0 : E(X) = 10 H A : E(X) < 10 (c) H 0 : E(X) = 10 H A : E(X) > 10 Note that, in example (a), the alternative values for E(X) can be either above or below the value specified in H 0. Hence, a two-tailed test is called for - that is, values for H A lie in both the upper and lower halves of the normal distribution. In example (b), the alternative values are below those specified in H 0, while in example (c) the alternative values are above those specified in H 0. Hence, for (b) and (c), a one-tailed test is called for. Introduction to Hypothesis Testing - Page 3

4 When working with binomially distributed variables, it is often common to use the proportion of successes, p, in the hypotheses. So, for example, if X has a binomial distribution and N = 20, the above hypotheses are equivalent to: (a) H 0 : p =.5 H A : p <>.5 (b) H 0 : p =.5 H A : p <.5 (c) H 0 : p =.5 H A : p >.5 2. Determine the appropriate test statistic. A test statistic is a random variable used to determine how close a specific sample result falls to one of the hypotheses being tested. That is, the test statistic tells us, if H 0 is true, how likely it is that we would obtain the given sample result. Often, a Z score is used as the test statistic. For example, when using the normal approximation to the binomial distribution, an appropriate test statistic is z = # of successes ±.5 - Np Np 0 q 0 0 where p 0 and q 0 are the probabilities of success and failure as implied or stated in the null hypothesis. When the Null hypothesis is true, Z has a N(0,1) distribution. Note that, since X is not actually continuous, it is sometimes argued that a correction for continuity should be applied. To do this, add.5 to x when x < Np 0, and subtract.5 from x when x > Np 0. Note that the correction for continuity reduces the magnitude of z. That is, failing to correct for continuity will result in a z-score that is too high. In practice, especially when N is large, the correction for continuity tends to get ignored, but for small N or borderline cases the correction can be important. Warning (added September 2004): As was noted earlier, the correction for continuity can sometimes make things worse rather than better. Especially if it is a close decision, it is best to use a computer program that can make a more exact calculation, such as Stata can with its bitest and bitesti routines. We will discuss this more later. Intuitively, what we are doing is comparing what we actually observed with what the null hypotheses predicted would happen; that is, # of successes is the observed empirical result, i.e. what actually happened, while Np 0 is the result that was predicted by the null hypothesis. Now, we know that, because of sampling variability, these numbers will probably not be exactly equal; e.g. the null hypotheses might have predicted 15 successes and we actually got 17. But, if the difference between what was observed and what was predicted gets to be too great, we will conclude that the values specified in the null hypotheses are probably not correct and hence the null should be rejected. Introduction to Hypothesis Testing - Page 4

5 If, instead, we work with the proportion p, the test statistic is z = pˆ ±.5/N - p0 pˆ ±.5/N - p = p q 0 0 N p0q N 0 0 where p^ = the observed value of p in the sample. Note that the only difference between this and the prior equation is that both numerator and denominator are divided by N. To correct for continuity, add.5/n to pˆ when p^ < p0, and subtract.5/n from p^ when p^ > p Determine the critical region (this is sometimes referred to as designing a decision rule ). The following table summarizes the most crucial points. Acceptance region: Choose critical values for a such that When used Example Decision rule when α =.05 P(-a # Z # a) = 1 α Or, equivalently, F(-a) = α/2 F(a) = 1 α/2 for a two-tailed alternative hypothesis H 0 : p =.5 H A : p <>.5 Reject the null hypothesis if the computed test statistic is less than or more than 1.96 P(Z # a) = α, i.e., F(a) = α for a one-tailed alternative that involves a < sign. Note that a is a negative number. H 0 : p =.5 H A : p <.5 Reject the null hypothesis if the computed test statistic is less than Introduction to Hypothesis Testing - Page 5

6 P(Z a) = α i.e. F(a) = 1 - α for a one-tailed alternative that involves a > sign. Note that a is a positive number. H 0 : p =.5 H A : p >.5 Reject the null hypothesis if the computed test statistic is more than Values of the test statistic that do not fall within the specified range are said to be in the critical region - H 0 will be rejected for such values. Values of the test statistic that fall within the specified range are in the acceptance region (although a more precise, albeit much more awkward name would be the do not reject region). Typically, α (often referred to as the level of significance ) is set equal to.05 or.01. If, for example, α =.05, we would erroneously reject H 0 when H 0 is true 5% of the time. Rejecting H 0 when H 0 is true is referred to as a Type I error, and α = probability of a Type I error. Accepting H 0 when H 0 is false is referred to as a Type II error, and ß = probability of a Type II error. Put another way - if α =.05 and H 0 is true, there is only a 5% chance that we will falsely reject the null hypothesis. 4. Compute the value of the test statistic. A value of z calculated on the basis of a sample result is called a computed z-value, and is denoted by the symbols z c or simply z. 5. Make decision. If the calculated value of the test statistic falls in the critical region, then H 0 is rejected. When the calculated value lies in the acceptance region, H 0 is not rejected. ADDITIONAL COMMENTS: 1. For now, we will concentrate on variables that have a binomial distribution (see examples below). After the first exam, we will show how to compute test statistics for other sorts of variables. 2. Researchers often report the values of their test statistics (or provide enough information so that others can compute the test statistics). Hence, if someone else wants to use a different decision rule (that is, use a different value for α) they can do so. Introduction to Hypothesis Testing - Page 6

7 SAMPLE PROBLEMS: 1. One researcher believes a coin is fair, the other believes the coin is biased toward heads. The coin is tossed 20 times, yielding 15 heads. Indicate whether or not the first researcher s position is supported by the results. Use α =.05. Solution. If the coin is fair, p =.5, and X ~ N(10, 5). Step 1. The null and alternative hypotheses are H 0 : E(X) = 10 heads (or, p =.5) H A : E(X) > 10 heads (or, p >.5) (Note: a one-tailed test is appropriate, since the second researcher believes the coin is biased toward heads.) Step 2. Z = (Number of heads ".5-10) / %5 is an appropriate test statistic. Recall that Z ~ N(0, 1). To apply the correction for continuity, subtract.5 from X if the observed number of heads is greater than 10, add.5 to X if the observed number of heads is less than 10. Alternatively, Z = (p^ ".5/20 -.5)/.1118 (since the square root of.5 *.5 / 20 =.1118). Step 3. Since P(Z # 1.65) =.95 = 1 - α, reject H 0 if Z > Equivalently, reject H 0 if X > (since X = (Z * %5) ). Or, equivalently, reject H 0 if p >.709 (since X = (Z *.1118) +.5/20 +.5). Step 4. z = ( ) / %5 = 2.01; or, z = ( / )/.1118 = 2.01 (NOTE: If we did not apply the correction for continuity, we would get z = (15-10) / %5 = This does not change our conclusion in Step 5. In practice, corrections for continuity tend not to be made, especially when N is large, but it is still a good idea to do it.) Step 5. Since the computed z value is greater than 1.65, we reject H 0. Question: Suppose we used α =.01. Would we still reject H 0? 2. Design a decision rule to test the hypothesis that a coin is fair if a sample of 64 tosses of the coin is taken and if a level of significance of (a).05 and (b).01 is used. Step 1. The null and alternative hypotheses are: H 0 : E(X) = 32 (or, p =.5) H A : E(X) <> 32 (or, p <>.5) Introduction to Hypothesis Testing - Page 7

8 Note that a two-tailed test is appropriate, since a coin is not fair if it is biased toward either heads or tails. Step 2. If H 0 is true, then X ~ N(32, 4 2 ). Hence, an appropriate test statistic is Z = (number of heads ".5-32) / 4 Step 3. For α =.05, do not reject H 0 if # Z # That is, do not reject H 0 if # X # For α =.01, do not reject H 0 if # Z # That is, do not reject H 0 if # X # For example, if you tossed a coin 64 times and got 22 heads, you would reject H 0 if you used α =.05, but you would not reject H 0 if α = The mayor claims that blacks account for 25% of all city employees. A civil rights group disputes this claim, and argues that the city discriminates against blacks. A random sample of 120 city employees has 18 blacks. Test the mayor s claim at the.05 level of significance. SOLUTION. If the mayor is correct, X ~ N(30, 22.5) a. H 0 : p =.25 (or E(X) = 30) H A : p <.25 (or E(X) < 30) A one tailed test is called for - the civil rights group thinks the city discriminates, hence it believes there will be fewer blacks than the mayor claims. b. The appropriate test statistic is Z = (# blacks in sample ".5 - Np 0 )/ %(Np 0 q 0 ) = (# blacks in sample ".5-30)/%22.5 c. As we have previously proven, P(Z \$ -1.65) = Hence, we will accept H 0 if z c \$ -1.65, otherwise we will reject H 0. Or, equivalently, accept H 0 if X \$ 21.7, reject H 0 otherwise. d. z c = (18-30)/%22.5 = Or, to be more precise and apply the correction for continuity, z c = ( )/%22.5 = e. Reject H 0, because z c does not lie in the acceptance region. Introduction to Hypothesis Testing - Page 8

9 NOTE: If you just wanted the probability that the sample would contain 18 or fewer blacks, given that the mayor is correct, you would compute z c as shown in step d. Then, F(-2.53) = 1 - F(2.53) =.0057 (or, with correction for continuity, F(-2.42) =.0078). Hence, there is less than a 1% chance that the mayor could be correct and the sample only contain 18 or fewer supporters. IV. Additional comments on one-tailed tests. Warning: In a one-tailed test, do not reject the null hypothesis unless the alternative hypothesis is better! It is not enough for the test statistic to be large in magnitude -- it must also have the correct sign! Examples: For each of the following, indicate whether you should reject or not reject the null hypothesis: a. A parts manufacturer claims that only 10% of its parts are defective (i.e. p =.10). Critics claim the defect rate is higher (i.e. p >.10). Testing of 500 randomly selected parts yields a Z statistic of Solution. Do not reject! The null and alternative hypotheses are: H 0 : p =.10 H A : p >.10 The fact that the test statistic was negative means that the defect rate in the sample was less than.10 that is, the product did better than the manufacturer claimed! (Remember, the formula for the test statistic involves taking the observed number of defects and subtracting the hypothesized number so a negative test statistic means the hypothesized number was greater than the observed number.) The alternative hypothesis is clearly unreasonable in this case. In fact, you wouldn t even need to bother computing the test statistic once you saw that the sample p was less than.10. In looking at this problem, it may be helpful to realize that a test of the above hypotheses is also a test of H 0 : p #.10 H A : p >.10 If p >.10, that also means it is greater than.09,.08, etc. Conversely, the null hypothesis is automatically a winner whenever the sample p is less than or equal to.10. Incidentally, note that a one-tailed test makes a great deal of sense here. Nobody is going to be upset if the product performs better than claimed. By saying that the defect rate is.10, the manufacturer is really claiming that the defect rate is.10 or less. Introduction to Hypothesis Testing - Page 9

10 b. A researcher hypothesized that women are more likely to be religious than are men. In her study, she found that Male Female Religious Not religious Solution. Do not reject! The null and alternative hypotheses are H 0 : H A : p F = p M p F > p M You may think this is an unfair question, since I haven t told you how to work this kind of problem yet, but you already know everything you need to know. She hypothesized that women were more likely to be religious, when in reality her sample shows that men are (70% of the men are religious, as opposed to 50% of the women). If instead she had hypothesized that men and women differed in how religious they were, without specifying which was more religious, a two-tailed test would be called for, and we would need to calculate the test statistic. Introduction to Hypothesis Testing - Page 10

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