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Hypothesis Testing

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20 views23 pages

Hypothesis Testing

Uploaded by

siddhart2468
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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HYPOTHESIS TESTING

SOME BASIC CONCEPTS


POINT ESTIMATION

If the estimation provides a unique single value of population


parameter, then it is known as point estimator.

e.g. if I say that Ȳ = 50 represents true population mean then it is a case


of point estimation because we are given a single unique point as the
estimator

2
SOME BASIC CONCEPTS
INTERVAL ESTIMATION

Instead of obtaining only a single estimate of Ȳ, suppose we obtain two estimates of Ȳ by


constructing two estimators Y1^ and Y2^, and say with some confidence (i.e.,
probability) that the interval between Y1^ and Y2^, includes the true Ȳ. Thus, in interval
estimation, in contrast with point estimation, we provide a range of possible values
within which the true Ȳ may lie.

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Procedure for Hypothesis Testing
• Setting up of a hypothesis
• Setting up of a suitable significance level
• Determination of a test statistic
• Determination of critical region
• Computing the value of test-statistic
• Making decision

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WHAT IS A HYPOTHESIS?
• A supposition or proposed explanation made on the basis of
limited evidence as a starting point for further investigation.
• In econometrics, for example we can assume that the value of
population mean is equal to 67.

So, we may write it down like µ=67


SOME BASIC CONCEPTS
NULL HYPOTHESIS

Null hypothesis is a typical statistical theory which suggests that no


statistical relationship and significance exists in a set of given single
observed variable, between two sets of observed data and measured
phenomena.

The word “null” can be thought of as “no change”. With the null
hypothesis, you get what you expect, from a historical point of view.

Denoted by H0

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SOME BASIC CONCEPTS
ALTERNATIVE HYPOTHESIS

In many cases, the alternate hypothesis will just be


the opposite of the null hypothesis.

For example, the null hypothesis might be “There was no


change in the water level this Spring,” and the alternative
hypothesis would be “There was a change in the water level
this Spring.”

Denoted by H1

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Type I and Type II error
It is important to note that in deciding to reject or not
reject H0, we are likely to commit two types of errors:

(1) we may reject H0 when it is, in fact, true; this is called


a type I error

8
Type I and Type II error
(2) We may not reject H0 when it is, in fact, false; this is
called a type II error.

Therefore, a hypothesis test does not establish the value


of true μ. It merely provides a means of deciding whether
we may act as if μ = μ*.
TYPE I AND TYPE II ERROR

10
TYPE I AND TYPE II ERROR
Ideally, we would like to minimize both type I and
type II errors. But unfortunately, for any given
sample size, it is not possible to minimize both
the errors simultaneously.

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TYPE I AND TYPE II ERROR
The classical approach to this problem, embodied in the
work of Neyman and Pearson, is to assume that a type I
error is likely to be more serious in practice than a type II
error.

Therefore, one should try to keep the probability of


committing a type I error at a fairly low level, such as
0.01 or 0.05, and then try to minimize the probability of
having a type II error as much as possible.
TYPE I AND TYPE II ERROR
In the literature, the probability of a type I error is
designated as α and is called the level of
significance, and the probability of a type II error
is designated as β. The probability of not
committing a type II error is called the power of
the test (1- β)

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Level of Significance
• The level of significance is defined as the fixed
probability of wrong elimination of null hypothesis when
in fact, it is true.

• The level of significance is stated to be the probability


of type I error and is preset by the researcher with the
outcomes of error.
Level of Significance
• The level of significance is the measurement of the
statistical significance. It defines whether the null
hypothesis is assumed to be accepted or rejected.

• It is expected to identify if the result is statistically


significant for the null hypothesis to be false or rejected.
Level of Significance
• The level of significance is denoted by the Greek
symbol α (alpha). Therefore, the level of significance is
defined as follows:

• Significance Level = p (type I error) = α


Confidence Level

• Confidence level: 1- α is called as the confidence level.


As the total probability is one so 1 minus the probability of the first
type of error is called as the confidence level

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Confidence Level
• In statistics, the confidence level indicates
the probability, with which the estimation of the
location of a statistical parameter (e.g. an arithmetic
mean) in a sample survey is also true for
the population.
Confidence Level
• When conducting a survey, confidence levels must be
established in advance, as the margin of error as well as
the necessary scope of the survey depends on them. In
surveys, confidence levels of 90/95/99% are frequently
used.
One- tailed and two- tailed tests
One-tailed and two-tailed test
• The main difference between one-tailed and two-tailed tests is
that one-tailed tests will only have one critical region
whereas two-tailed tests will have two critical regions.
Two-tailed Test
H0: =  is divided equally between
the two tails of the critical


region
H1:
Means less than or greater than
Right-tailed Test
H0: =
H1: >
Points Right
Left-tailed Test
H0: =
H1: <
Points Left

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