Basic Business Statistics: Concepts and

Applications
Fourteenth Edition

Chapter 9
Fundamentals of
Hypothesis
Testing: One-
Sample Tests

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Objectives
1. The basic principles of hypothesis testing.
2. How to use hypothesis testing to test a mean or
proportion.
3. To identify the assumptions of each hypothesis-testing
procedure, how to evaluate them, and the consequences
if they are seriously violated.
4. The pitfalls & ethical issues involved in hypothesis.
testing.
5. How to avoid the pitfalls involved in hypothesis testing.

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Online Topic
• The power of a hypothesis test: Section 9.6.

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What is a Hypothesis?
DCOVA
• A hypothesis is a claim (assertion) about
a population parameter:
– population mean:
Example: The mean monthly cell phone bill
in this city is  $42.
– population proportion:
Example: The proportion of adults in this
city with cell phones is π = 0.88.

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The Null Hypothesis, H Sub 0 (1 of 2)
DCOVA
• States the claim or assertion to be tested.
Example: The mean diameter of a manufactured
bolt is 30mm  H 0 :  30 
• Is always about a population parameter, not
about a sample statistic.

H 0 :  30 H 0 : X 30

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The Null Hypothesis, H Sub 0 (2 of 2)
DCOVA
• Begin with the assumption that the null
hypothesis is true.
– Similar to the notion of innocent until
proven guilty.
• Represents the current belief in a situation.
• Always contains “=”, or “”, or “” sign.
• May or may not be rejected.

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The Alternative Hypothesis, H Sub 1
DCOVA
• Is the opposite of the null hypothesis.
– e.g., The mean diameter of a manufactured bolt
is not equal to 30mm  H1 :  30 .
• Challenges the status quo.
• Never contains the “=“, or " ", or " " sign.
• May or may not be proven.
• Is generally the hypothesis that the researcher
is trying to prove.
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The Hypothesis Testing Process (1 of 3)
DCOVA
• Claim: The population mean age is 50.
– H 0 :  50, H1 :  50
• Sample the population and find the sample mean.

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The Hypothesis Testing Process (2 of 3)
DCOVA
• Suppose the sample mean age was X 20.

• This is significantly lower than the claimed mean

population age of 50.
• If the null hypothesis were true, the probability of getting
such a different sample mean would be very small, so you
reject the null hypothesis.
• In other words, getting a sample mean of 20 is so unlikely
if the population mean was 50, you conclude that the
population mean must not be 50.
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The Hypothesis Testing Process (3 of 3)
DCOVA

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The Test Statistic and Critical
Values (1 of 2)
DCOVA
• If the sample mean is close to the stated population
mean, the null hypothesis is not rejected.
• If the sample mean is far from the stated population
mean, the null hypothesis is rejected.
• How far is “far enough” to reject H 0 ?
• The critical value of a test statistic creates a “line in
the sand” for decision making -- it answers the
question of how far is far enough.
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The Test Statistic and Critical
Values (2 of 2)
DCOVA
Sampling Distribution of the test statistic

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Risks in Decision Making Using
Hypothesis Testing
DCOVA
• Type I Error:
– Reject a true null hypothesis.
– A type I error is a “false alarm.”
– The probability of a Type I Error is α.
▪ Called level of significance of the test.
▪ Set by researcher in advance.
• Type II Error:
– Failure to reject a false null hypothesis.
– Type II error represents a “missed opportunity.”
– The probability of a Type II Error is β.
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Possible Errors in Hypothesis Test
Decision Making (1 of 2)
DCOVA

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Possible Errors in Hypothesis Test
Decision Making (2 of 2)
DCOVA
• The confidence coefficient 1    is the
probability of not rejecting H 0 when it is true.
• The confidence level of a hypothesis test is
1   *100%.
• The power of a statistical test 1    is the
probability of rejecting H 0 when it is false.

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Type I & II Error Relationship
DCOVA
• Type I and Type II errors cannot happen at the
same time.
– A Type I error can only occur if H 0 is true.
– A Type II error can only occur if H 0 is false.

If Type I error probability (α) , then

Type II error probability (β)

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Factors Affecting Type II Error
DCOVA
• All else equal,

– when the difference between

hypothesized parameter and its true value

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Level of Significance and the
Rejection Region
DCOVA

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

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Hypothesis Tests for the Mean
DCOVA

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Z Test of Hypothesis for the Mean
(σ Known)
DCOVA
• Convert sample statistic  X  to a Z STAT test statistic.

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Critical Value Approach to Testing
DCOVA
• For a two-tail test for the mean, σ known:
• Convert sample statistic  X  to test statistic
Z STAT . 
• Determine the critical Z values for a specified
level of significance α from a table or by using
computer software.
• Decision Rule: If the test statistic falls in the
rejection region, reject H 0 otherwise do not
reject H 0 .
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Two-Tail Tests
DCOVA
• There are two
cutoff values
(critical values),
defining the
regions of
rejection.

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Steps in the Critical Value Approach
to Hypothesis Testing (1 of 2)
DCOVA
1. State the null hypothesis, H 0 and the alternative hypothesis,
H1 .
2. Choose the level of significance,   and the sample size, n.
The level of significance is based on the relative
importance of Type I and Type II errors in the situtation.
3. Determine the appropriate test statistic and sampling
distribution.
4. Determine the critical values that divide the rejection and
nonrejection regions.

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Steps in the Critical Value Approach
to Hypothesis Testing (2 of 2)
DCOVA
5. Collect the sample data, organize the results, and
compute the value of the test statistic.
6. Make the statistical decision, determine whether the
assumptions are valid, and state the managerial
conclusion in the context of the theory, claim, or
assertion being tested. If the test statistic falls into
the nonrejection region, you do not reject the null
hypothesis H 0 . If the test statistic falls into the rejection
region, reject the null hypothesis.

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Hypothesis Testing Example (1 of 4)
DCOVA
Test the claim that the true mean diameter of a
manufactured bolt is 30mm.
(Assume  0.8)
1. State the appropriate null and alternative hypotheses:
– H :   H :   (This is a two-tail test).
0 1

2. Specify the desired level of significance and the sample

size:
– Suppose that   and n = 100 are chosen
for this test.
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Hypothesis Testing Example (2 of 4)
DCOVA
3. Determine the appropriate technique:
–  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  0.8 is assumed known).
So the test statistic is:
X   29.84  30  0.16
Z STAT     2.0
 0.8 0.08
n 100
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Hypothesis Testing Example (3 of 4)
DCOVA
6. Is the test statistic in the rejection region?

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Hypothesis Testing Example (4 of 4)
DCOVA
6. (continued). Reach a decision and interpret the result.

Since Z STAT  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.
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p-Value Approach to Testing
DCOVA
• p-value: Probability of obtaining a test statistic equal to
or more extreme than the observed sample value given
H 0 is true.
– The p-value is also called the observed level of
significance.
– It is the smallest value of α for which H 0 can be rejected.

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p-Value Approach to Testing:
Interpreting the p-value
DCOVA
• Compare the p-value with α:
– If p-value < α , reject H 0 .
– If p-value  , do not reject H 0 .

• Remember
– If the p-value is low then H 0 must go.

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The 5 Step p-Value approach to
Hypothesis Testing
DCOVA
1. State the null hypothesis, H 0 and the alternative hypothesis, H1.
2. Choose the level of significance, α, and the sample size, n. The level
of significance is based on the relative importance of the risks of a
type I and a type II error.
3. Determine the appropriate test statistic and sampling distribution.
4. Collect the sample data, compute the value of the test statistic and
the p-value.
5. Make the statistical decision and state the managerial conclusion
in the context of the theory, claim, or assertion being tested. If the
p-value is < α reject H 0 .

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p-Value Hypothesis Testing
Example (1 of 2)
DCOVA
Test the claim that the true mean diameter of a
manufactured bolt is 30mm. (Assume  0.8)

1. State the appropriate null and alternative hypotheses:

– H 0 :   H1 :   (This is a two-tail test).

2. Specify the desired level of significance and the sample

size:
– Suppose that   and n = 100 are chosen for
this test.
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p-Value Hypothesis Testing
Example (2 of 2)
DCOVA
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  0.8 is assumed known.)
So the test statistic is:
X  29.84  30  0.16
Z STAT     2.0
 0.8 0.08
n 100
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p-Value Hypothesis Testing Example:
Calculating the p-Value
DCOVA
4. (continued) Calculate the p-value.
– How likely is it to get a Z STAT of  2 (or something further from the
mean (0), in either direction) if H 0 is true?

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p-Value Hypothesis Testing Example
DCOVA
5. Is the p-value < α?
– Since p-value = 0.0456 < α = 0.05 Reject H 0 .

5. (continued) State the managerial conclusion in

the context of the situation.
– There is sufficient evidence to conclude the mean diameter of a
manufactured bolt is not equal to 30mm.

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Connection Between Two Tail Tests
and Confidence Intervals
DCOVA
• For X 29.84,   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  29.9968
• Since this interval does not contain the hypothesized mean
(30), we reject the null hypothesis at  

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Approach – p value
Explanation of the p-Value Approach to
Hypothesis Testing
The p-value is the probability of obtaining a test
statistic as extreme as (or more extreme than) the
one observed, assuming the null hypothesis (H0)
is true. It helps us determine whether we have
enough evidence to reject H0.
Decision Rule Based on p-Value:
• If p-value<a (significance level), reject H0 →
There is sufficient evidence to support Ha.
• If p-value≥αα, fail to reject H0​→ There is not
enoughCopyright
evidence to2012
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How to Calculate the p-Value for a
Two-Tailed Test at a 95% Confidence
Level

A two-tailed test checks for deviations in both

directions from the hypothesized mean (μ). The
p-value represents the probability of obtaining a
test statistic as extreme as the one observed,
assuming H0 is true.

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Steps to Calculate the p-Value

1.Find the Test Statistic

1.If the population standard deviation (σ\
sigma) is known, use the Z-test
2.If σ\sigmaσ is unknown, use the t-test

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Determine P value
1.Determine the p-Value
1.Find the p-value for one tail using statistical
tables or a calculator: p=P
2.Multiply by 2 to account for both tails: p-
value=2×P
2.Compare the p-Value with α
3.If p<0.05, reject H0 (statistically significant).
1.If p≥0.05, fail to reject Ho

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Hypothesis Testing for the Mean: σ
Unknown
DCOVA
• 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.

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t Test of Hypothesis for the Mean
(σ Unknown)
DCOVA
• Convert sample statistic  X  to a tSTAT test statistic

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Example 1: Two-Tail Test (σ Unknown)
DCOVA
The mean cost of a hotel room
in New York is said to be $168
per night. To determine if this is
H 0 :  168
true, a random sample of 25
H 1 :  168
hotels is taken and resulted in
an X of $172.50 and an S of
$15.40. Test the appropriate
hypotheses at  0.05.
(Assume the population distribution is normal)

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Example Solution: Two-Tail t Test
H 0 :  168 DCOVA
H 1 :  168
• α = 0.05.
• n = 25, df = 25 − 1 = 24.

• Critical Value: t 24,0.025 2.0639.

Do not reject H 0 : insufficient evidence that true mean
cost is different from $168.
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To Use the t-test Must Assume the
Population Is Normal
DCOVA
• As long as the sample size is not very small and
the population is not very skewed, the t-test can
be used.
• To evaluate the normality assumption:
– Determine how closely sample statistics match the
normal distribution’s theoretical properties.
– Construct a histogram or stem-and-leaf display or
boxplot or a normal probability plot.
– Section 6.3 has more details on evaluating normality.
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Connection of Two Tail Tests to
Confidence Intervals
DCOVA
• For X 172.5, S = 15.40 and n = 25, the 95%
confidence interval for μ is:
172.5  2.0639 15.4 172.5  2.0639 15.4
to
25 25

166.14  178.86
• Since this interval contains the Hypothesized mean (168),
we do not reject the null hypothesis at α = 0.05.

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One-Tail Tests
DCOVA
• In many cases, the alternative hypothesis focuses
on a particular direction:
This is a lower-tail test since the
H0 :   3 alternative hypothesis is focused on
H1 :   3 the lower tail below the mean of 3.

H0 :   3 This is an upper-tail test since the

alternative hypothesis is focused on
H1 :   3 the upper tail above the mean of 3.

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Lower-Tail Tests
DCOVA
• There is only one critical
value, since the rejection
area is in only one tail.

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Upper-Tail Tests
DCOVA
• There is only one critical
value, since the rejection
area is in only one tail.

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Example 2: Upper-Tail t Test for Mean
(σ Unknown)
DCOVA
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:
H 0 :   52 the mean is not over $52 per month
H1 :   52 the mean is greater than $52 per month
(i.e., sufficient evidence exists to support the
manager’s claim)
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Example 3: Find Rejection Region
DCOVA
• Suppose that   is chosen for this test and n = 25.
Find the rejection region:

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Example 4: Test Statistic
DCOVA
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   53.1  52
tSTAT    0.55
S 10
n 25

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Example 5: Decision
DCOVA
Reach a decision and interpret the result.

Do not reject H 0 since t STAT 0.55  1.318.

There is not sufficient evidence that the
mean bill is over $52.
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Example 6: Utilizing the p-Value for
the Upper Tail t-Test
DCOVA
• Calculate the p-value and compare to α (p-value below
calculated using Excel spreadsheet on next page)

Do not reject H 0 since p-value .2937   

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Hypothesis Tests for Proportions (1 of 2)
DCOVA
• 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 

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Proportions
DCOVA
• Sample proportion in the category of interest
is denoted by p.
X number in category of interest in sample
– p= 
n sample size
• When both n and n 1    are at least 5, p can be
approximated by a normal distribution with mean
and standard deviation:
 1   
–  p  p 
n
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Hypothesis Tests for Proportions (2 of 2)
DCOVA
• The sampling
distribution of p is
approximately normal,
so the test statistic is a
Z STAT value :

p 
Z STAT 
 (1   )
n
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Z Test for Proportion in Terms of
Number in Category of Interest
DCOVA
• An equivalent form to the
last slide, but in terms of
the number in the
category of interest, X:

X  n
Z STAT 
n (1   )

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Example 7: Z Test for Proportion
DCOVA
• A marketing company
claims that it receives
8% responses from its
mailing. To test this
claim, a random sample
of 500 were surveyed
with 25 responses. Test
at the  
significance level.

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Z Test for Proportion: Solution
DCOVA
H 0   0.08 Test Statistic:
H 1   0.08

n = 500, p = 0.05
Critical Values: 1.96 Decision:
Reject H 0 at  
Conclusion:
There is sufficient
evidence to reject the
company’s claim of 8%
response rate.
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p-Value Solution
DCOVA
Calculate the p-value and compare to α
(For a two-tail test the p-value is always two-tail.)

Reject H 0 since p-value 0.0136   

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Questions to Address in the Planning
Stage
• What is the goal of the survey, study, or experiment?
• How can you translate this goal into a null and an alternative
hypothesis?
• Is the hypothesis test one or two tailed?
• Can a random sample be selected?
• What types of data will be collected? Numerical? Categorical?
• What level of significance should be used?
• Is the intended sample size large enough to achieve the desired
power?
• What statistical test procedure should be used and why?
• What conclusions & interpretations can you reach from the results of
the planned hypothesis test?
Failing to consider these questions can lead to bias or incomplete results.
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Statistical Significance vs Practical
Significance
• Statistically significant results (rejecting the null
hypothesis) are not always of practical
significance.
– This is more likely to happen when the sample size
gets very large.
• Practically important results might be found to be
statistically insignificant (failing to reject the null
hypothesis.)
– This is more likely to happen when the sample size is
relatively small.

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Reporting Findings & Ethical Issues
• Should document & report both good & bad results.
• Should not just report statistically significant results.
• Reports should distinguish between poor research
methodology and unethical behavior.
• Ethical issues can arise in:
– The use of human subjects.
– The data collection method.
– The type of test being used.
– The level of significance being used.
– The cleansing and discarding of data.
– The failure to report pertinent findings.
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Chapter Summary
In this chapter we discussed:
• The basic principles of hypothesis testing.
• How to use hypothesis testing to test a mean or proportion.
• Identifying the assumptions of each hypothesis-testing
procedure, how to evaluate them, and the consequences if
they are seriously violated.
• The Pitfalls & ethical issues involved in hypothesis. testing.
• How to avoid the pitfalls involved in hypothesis testing.

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