Hypothesis Testing: Single

Sample Tests
Session 12
BUSINESS STATISTICS
 Module: V of Course Outline

Concept of Hypothesis testing and One-Sample

Tests – Session 12

Two Sample Tests – Session 13 & 14

ANOVA – Session 15

Goodness of fit – session 16

 Learning Objectives
In this session, you learn:
• The basic principles of hypothesis testing
• How to use hypothesis testing to test a mean or proportion
• The assumptions of each hypothesis-testing procedure, how
to evaluate them, and the consequences if they are
seriously violated
• How to avoid the pitfalls involved in hypothesis testing
 What is a Hypothesis?
• A hypothesis is a claim
(assertion) about a Example: The mean monthly cell
population parameter: phone bill in this city is μ = 420
which is to be tested Example: The proportion
• Is always about a population of adults in this city with
parameter, not about a smart phones is π = 0.88
sample statistic
• Begin with the assumption that the
null hypothesis is true: May or may not be rejected
• Alternate Hypothesis: the hypothesis that the
researcher is trying to prove
• Simple & Composite Hypothesis
 The Hypothesis Testing Process
• Claim: The mean age of Ex-MBA students @XIMB (2017-18) is
35.
• H0: μ = 35, H1: μ ≠ 35
• Sample the population and find sample mean.
• Generalize your findings
Population
• key role: difference and a
significant difference

Sample
The Hypothesis Testing Process

Sampling
Distribution of X

X
30 μ = 35
If H0 is true
 The Test Statistic and
Critical Values

• If the sample mean is close to the stated population mean, the null
hypothesis is not rejected [do not have enough evidence].

• If the sample mean is far from the stated population mean, the null
hypothesis is rejected [have enough evidence to reject].

• Quantifying “close” and “far” to reject H0: critical value of a test statistic
 The Test Statistic and
Critical Values
Sampling Distribution of the test statistic

Region of Region of
Rejection Rejection
Region of
Non-Rejection

Critical Values

“Too Far Away” From Mean of Sampling Distribution

Possible Errors in Hypothesis Test Decision Making
* credit default example
Possible Hypothesis Test Outcomes

Actual Situation

Decision H0 True H0 False

Do Not No Error Type II Error

Reject/Acce Probability: 1 – α Probability: β
pt H0 P(Accept|H0=T) P(Accept|H0=F)*
Reject H0 Type I Error No Error
Probability: α Power: 1 – β
P(Reject|H0=T)* P(Reject|H0=F)
Possible Errors in Hypothesis Test
Decision Making

• Type I Error
• Reject a true null hypothesis
• Considered a serious type of error
• The probability of a Type I Error is 
• Called level of significance of the test
• Set by researcher in advance
• Type II Error
• Failure to reject a false null hypothesis
• The probability of a Type II Error is β
 Type I & II Error Relationship

 Type I and Type II errors cannot happen at

the same time
 A Type I error can only occur if H0 is true
 A Type II error can only occur if H0 is false

If Type I error probability () , then

Type II error probability (β)
Example-Type I & Type II error
 Factors Affecting Type II Error
• All else equal,
• β when the difference between hypothesized
parameter and its true value

• β when 
• β when σ
• β when n
 Level of Significance
and the Rejection Region
H0: μ = 30 Level of significance = a
H1: μ ≠ 30
a /2 a /2

30

Critical values

Rejection Region

This is a two-tail test because there is a rejection region in both tails

Hypothesis Tests for the Mean

Hypothesis
Tests for 

 Known  Unknown
(Z test) (t test)

Confidence Interval Based Approach

Test Statistic Based Approach
P-value based Approach
 6 Steps in
Hypothesis Testing

1. State the null hypothesis, H0 and the alternative

hypothesis, H1 [also decide on simple vs.
composite hypothesis]
2. Choose the level of significance, , and the sample
size, n
3. Determine the appropriate test statistic and
sampling distribution
4. Determine the critical values that divide the
rejection and nonrejection regions
 6 Steps in
Hypothesis Testing
(continued)

5. Collect data and compute the value of the test

statistic
6. Make the statistical decision and state the
managerial conclusion. If the test statistic falls into
the nonrejection region, do not reject the null
hypothesis H0.
If the test statistic falls into the rejection region, reject the
null hypothesis. Express the managerial conclusion in the
context of the problem
 Z Test of Hypothesis for the
Mean (σ Known)
• Convert sample statistic ( X ) to a ZSTAT test statistic
Hypothesis
Tests for 

σKnown
Known σUnknown
Unknown
(Z test) (t test)
The test statistic is:
X μ
ZSTAT 
σ
n
 APPROACH I - Critical Value
Approach to Testing
• For a two-tail test for the mean, σ known:
• Convert sample statistic ( X ) to test statistic (ZSTAT)
• Determine the critical Z values for a specified
level of significance  from a table or computer
• Decision Rule: If the test statistic falls in the rejection
region, reject H0 ; otherwise do not reject H0
 Two-Tail Tests: Simple Hypothesis Test

H0: μ = 30
 There are two
cutoff values H1: μ ¹
(critical values), 30
defining the
regions of /2 /2
rejection
30 X
Reject H0 Do not reject H0 Reject H0

-Zα/2 0 +Zα/2 Z

Lower Upper
critical critical
value value
 Hypothesis Testing Example
Test the claim that the true mean diameter
of a manufactured bolt is 30mm.
(Assume σ = 0.8)
1. State the appropriate null and alternative
hypotheses
 H : μ = 30 H1: μ ≠ 30 (This is a two-tail test)
0

2. Specify the desired level of significance and the

sample size
 Suppose that  = 0.05 and n = 100 are chosen

for this test

 Hypothesis Testing Example
3. Determine the appropriate technique (continued)
 σ is assumed (known) so this is a Z test.

4. Determine the critical values

 For  = 0.05 the critical Z values are ±1.96

5. Collect the data and compute the test statistic

 Suppose the sample results are
n = 100, X = 29.84 (σ = 0.8 is assumed known)
So the test statistic is:
X  μ 29.84  30  .16
ZSTAT     2.0
σ 0.8 0.08
n 100
 Hypothesis Testing Example
(continued)
• 6. Is the test statistic in the rejection region?

/2 = 0.025 /2 = 0.025

Reject H0 if Reject H0 Do not reject H0 Reject H0

ZSTAT < -1.96 or -Zα/2 = -1.96 0 +Zα/2 = +1.96

ZSTAT > 1.96;
otherwise do
not reject H0 Here, ZSTAT = -2.0 < -1.96, so the
test statistic is in the rejection
region
 Hypothesis Testing Example
(continued)
6 (continued). Reach a decision and interpret the result

 = 0.05/2  = 0.05/2

Reject H0 Do not reject H0 Reject H0

-Zα/2 = -1.96 0 +Zα/2= +1.96

-2.0
Since ZSTAT = -2.0 < -1.96, reject the null hypothesis
and conclude there is sufficient evidence that the mean
diameter of a manufactured bolt is not equal to 30
 APPROACH II -- p-Value Approach to
Testing

• p-value: Probability of obtaining a test statistic equal

to or more extreme than the observed sample value
given H0 is true
• The p-value is also called the observed level of
significance
• It is the smallest value of  for which H0 can be rejected

• Need for second approach: to know the intensity of

rejection criteria
 p-Value Approach to Testing:
Interpreting the p-value

• Compare the p-value with 

• If p-value <  , reject H0
• If p-value   , do not reject H0

• Remember
• If the p-value is low then H0 must go
 The 5 Step p-value approach to
Hypothesis Testing

1. State the null hypothesis, H0 and the alternative hypothesis, H1

2. Choose the level of significance, , and the sample size, n

3. Determine the appropriate test statistic and sampling

distribution

4. Collect data and compute the value of the test statistic and the
p-value

5. Make the statistical decision and state the managerial

conclusion. If the p-value is < α then reject H0, otherwise do not
reject H0. State the managerial conclusion in the context of the
problem
 p-value Hypothesis Testing Example

Test the claim that the true mean

diameter of a manufactured bolt is 30mm.
(Assume σ = 0.8)
1. State the appropriate null and alternative
hypotheses
 H : μ = 30 H1: μ ≠ 30 (This is a two-tail test)
0

2. Specify the desired level of significance and the

sample size
 Suppose that  = 0.05 and n = 100 are chosen

for this test

 p-value Hypothesis Testing Example
(continued)

3. Determine the appropriate technique

 σ is assumed known so this is a Z test.

4. Collect the data, compute the test statistic and the

p-value
 Suppose the sample results are
n = 100, X = 29.84 (σ = 0.8 is assumed known)
So the test statistic is:

X  μ 29.84  30  0.16
Z STAT     2.0
σ 0.8 0.08
n 100
p-Value Hypothesis Testing Example:
Calculating the p-value
4. (continued) Calculate the p-value.
• How likely is it to get a ZSTAT of -2 (or something further from the mean
(0), in either direction) if H0 is true?

P(Z < -2.0) = 0.0228 P(Z > 2.0) = 0.0228

0 Z

-2.0 2.0
p-value = 0.0228 + 0.0228 = 0.0456
 p-value Hypothesis Testing Example
(continued)
• 5. Is the p-value < α?
• Since p-value = 0.0456 < α = 0.05 Reject H0
• 5. (continued) State the managerial conclusion in
the context of the situation.
• There is sufficient evidence to conclude the average diameter of a
manufactured bolt is not equal to 30mm.
 Connection Between Two Tail
Tests and Confidence Intervals
 For X = 29.84, σ = 0.8 and n = 100, the 95%
confidence interval is:
0.8 0.8
29.84 - (1.96) to 29.84  (1.96)
100 100

29.6832 ≤ μ ≤ 29.9968

 Since this interval does not contain the hypothesized

mean (30), we reject the null hypothesis at  = 0.05
 Do You Ever Truly Know σ?
• Probably not! In virtually all real world business situations, σ
is not known.

• If there is a situation where σ is known then µ is also known

(since to calculate σ you need to know µ.)

• If you truly know µ there would be no need to gather a

sample to estimate it.
 Hypothesis Testing: σ Unknown

• If the population standard deviation is unknown, you instead

use the sample standard deviation S.

• Because of this change, you use the t distribution instead of the

Z distribution to test the null hypothesis about the mean.

• When using the t distribution you must assume the population

you are sampling from follows a normal distribution.

• All other steps, concepts, and conclusions are the same.

 t Test of Hypothesis for the Mean
(σ Unknown)
 Convert sample statistic ( X ) to a tSTAT test statistic
Hypothesis
Tests for 

σKnown
Known σUnknown
Unknown
(Z test) (t test)
The test statistic is:

X μ
t STAT 
S
n
 Example: Two-Tail Test
( Unknown)
The average cost of an unskilled labor
in Odisha is said to be Rs. 168 per day.
To determine if this is true, a random
sample of 25 labour/district is taken
and resulted in an X of Rs. 172.50 and
an S of Rs. 15.40. Test the appropriate
hypotheses at  = 0.05.

(Assume the population distribution is

H0: μ = 168
normal) H1: μ ¹
168
 Example Solution: Two-Tail t-test

H0: μ = 168 a/2=.025 a/2=.025

H1: μ ¹ 168
• a = 0.05 Reject H0 Do not reject H0 Reject H0
t 24,0.025
-t 24,0.025 0
• n = 25, df = 25-1=24 -2.0639 2.0639
1.46
•  is unknown, so
Xμ 172.50  168
use a t statistic t STAT    1.46
S 15.40
• Critical Value: n 25

±t24,0.025 = ± 2.0639
Do not reject H0: insufficient evidence that
true labor cost is different from Rs.168
 Connection of Two Tail Tests to
Confidence Intervals
 For X = 172.5, S = 15.40 and n = 25, the 95%
confidence interval for µ is:

172.5 - (2.0639) 15.4/ 25 to 172.5 + (2.0639) 15.4/ 25

166.14 ≤ μ ≤ 178.86

 Since this interval contains the Hypothesized mean (168),

we do not reject the null hypothesis at  = 0.05
 One-Tail Tests: Composite Test of Hypothesis

• In many cases, the alternative hypothesis

focuses on a particular direction

This is a lower-tail test since the

H0: μ ≥ 3
alternative hypothesis is focused on
the lower tail below the mean of 3
H1: μ < 3
H0: μ ≤ 3 This is an upper-tail test since the
alternative hypothesis is focused on
H1: μ > 3 the upper tail above the mean of 3
 Lower-Tail Tests
H0: μ ≥ 3
 There is only one
critical value, since H1: μ < 3
the rejection area is
a
in only one tail

Reject H0 Do not reject H0

0
Z or t
-Zα or -tα
μ X

Critical value
 Upper-Tail Tests

H0: μ ≤ 3
 There is only one
critical value, since H1: μ > 3
the rejection area is
in only one tail a

Do not reject H0 Reject H0

Z or t 0 Zα or tα
_
X μ

Critical value
 Example: Upper-Tail t Test
for Mean ( unknown)
A phone industry manager thinks that customer
monthly cell phone bills have increased, and now
average over $52 per month. The company
wishes to test this claim. (Assume a normal
population)

Form hypothesis test:

H0: μ ≤ 52 the average is not over $52 per month
H1: μ > 52 the average is greater than $52 per month
(i.e., sufficient evidence exists to support the
manager’s claim)
 Example: Find Rejection Region
(continued)
• Suppose that  = 0.10 is chosen for this test and n =
25.
Find the rejection region: Reject H0

 = 0.10

Do not reject H0 Reject H0

0 1.318

Reject H0 if tSTAT > 1.318

Example: Test Statistic
(continued)
Obtain sample and compute the test statistic

Suppose a sample is taken with the following results:

n = 25, X = 53.1, and S = 10
• Then the test statistic is:

Xμ 53.1  52
t STAT    0.55
S 10
n 25
 Example: Decision
Reach a decision and interpret the result: (continued)

Reject H0

 = 0.10

Do not reject H0 Reject H0

0
1.318
tSTAT = 0.55

Do not reject H0 since tSTAT = 0.55 ≤ 1.318

there is not sufficient evidence that the
mean bill is over $52
Example: Utilizing The p-value for The Test

• Calculate the p-value and compare to  (p-value below

calculated using excel spreadsheet on next page)
p-value = .2937

Reject H0
 = .10

0
Do not reject Reject H0
H0 1.318
tSTAT = .55

Do not reject H0 since p-value = .2937 >  = .10

[refer z-table for approximation-don’t use in
exams-only as a narrative in class]
 Hypothesis Tests for Proportions

• Involves categorical variables

• Two possible outcomes
• Possesses characteristic of interest
• Does not possess characteristic of interest
• Fraction or proportion of the population in the
category of interest is denoted by π
 Proportions
(continued)
• Sample proportion in the category of interest is
denoted by p

•p  X  numberin categoryof interest in sample

n samplesize

• When both nπ and n(1-π) are at least 5, p can be

approximated by a normal distribution with mean
and standard deviation
•

μp    (1   )
σp 
n
 Hypothesis Tests for Proportions

• The sampling
distribution of p is Hypothesis
approximately normal,
so the test statistic is a Tests for p
ZSTAT value:
nπ  5 nπ < 5
and or
pπ
ZSTAT  n(1-π)  5 n(1-π) < 5
π (1  π )
Not in scope
n of this course
 Z Test for Proportion in Terms of Number in Category of
Interest

• An equivalent form to
the last slide, but in
terms of the number Hypothesis
in the category of Tests for X
interest, X:

X5 X<5
and or
n-X  5 n-X < 5
X  n
ZSTAT 
n (1   )
Not in scope
of this course
 Example: Z Test for Proportion

A marketing company
claims that it receives 8%
responses from its mailing.
To test this claim, a random
sample of 500 were mailed
out of which 25 turned to
purchases. Test at the  = Check:
0.05 significance level.
n π = (500)(.08) = 40
n(1-π) = (500)(.92) = 460

Z Test for Proportion: Solution
Test Statistic:
H0: π = 0.08
p π .05  .08
H1: π ¹ ZSTAT    2.47
π (1  π ) .08(1 .08)
a0.08
= 0.05
n 500
n = 500, p = 0.05
Critical Values: ± 1.96 Decision:
Reject Reject Reject H0 at  = 0.05
Conclusion:
.025 .025
There is sufficient
-1.96 0 1.96 z evidence to reject the
-2.47 company’s claim of 8%
response rate.
 p-Value Solution
(continued)
Calculate the p-value and compare to 
(For a two-tail test the p-value is always two-tail)

Do not reject H0
Reject H0 Reject H0 p-value = 0.0136:
/2 = .025 /2 = .025
P(Z  2.47)  P(Z  2.47)

0.0068 0.0068  2(0.0068)  0.0136

-1.96 0 1.96

Z = -2.47 Z = 2.47

Reject H0 since p-value = 0.0136 <  = 0.05

Additional concept(s)
 Chi-Square Test for a Variance or Standard
Deviation
• A χ2 test statistic is used to test whether or not the
population variance or standard deviation is equal to
a specified value:
H0: σ2 = σ02 2 (n - 1)S 2
χ STAT 
Ha: σ2 ≠ σ02 σ2

Where n = sample size

2 S2 = sample variance
χ STAT 2
σ = hypothesized population variance

1
0  STAT   / 2
Reject H if 2 follows
> 2 or  STAT  1 / 2
a chi-square 2
if 2 < distribution with d.f. = n-
Hypothesis Test for Variance or Standard Deviation:
Example using Chi-Square Table
Suppose you have gathered a random sample of size 25 and
obtained a sample standard deviation of s = 7 and want to
do the following hypothesis test:
H0: σ2 = 81
Ha: σ2 ≠ 81

(n - 1)S 2 24 * 49
2
χ STAT  2
  14.185
σ 81

Since  0.975  12.401 < 14.185 <  0.025  39.364 you fail to reject H0
2 2