BT10403

Statistik Perniagaan dan Ekonomi

(Statistics for Business and
Economics)
Week 13, Semester II, 2016/2017
School of Business & Economics,
Universiti Malaysia Sabah
Dr. Qaiser Munir

1
Business Statistics: Communicating with Numbers
Chapter 9 Learning Objectives (LOs)
LO 9.1: Define the null hypothesis and the alternative
hypothesis.
LO 9.2: Distinguish between Type I and Type II errors.
LO 9.3: Explain the steps of a hypothesis test using
the p-value approach.
LO 9.4: Explain the steps of a hypothesis test using
the critical value approach.
LO 9.5: Differentiate between the test statistics for the
population mean.

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Undergraduate Study Habits
Are todays college students studying hard or
hardly studying?
A recent study asserts that over the past five
decades the number of hours that the average
college student studies each week has been
steadily dropping (The Boston Globe, July 4, 2010).
In 1961, students invested 24 hours per week in
their academic pursuits, whereas todays students
study an average of 14 hours per week.

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Undergraduate Study Habits
As dean of a large university in California, Susan
Knight wonders if the study trend is reflective of
students at her university.
Susan randomly selected 35 students to ask about
their average study time per week. Using these
results, Susan wants to
1. Determine if the mean study time of students at her
university is below the 1961 national average of 24 hours
per week.
2. Determine if the mean study time of students at her
university differs from todays national average of 14
hours per week.

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LO 9.1 Define the null hypothesis and the alternative
hypothesis.
Hypothesis and Hypothesis Testing

HYPOTHESIS A statement about the value of a population parameter

developed for the purpose of testing.

HYPOTHESIS TESTING A procedure based on sample evidence and

probability theory to determine whether the hypothesis is a
reasonable statement.

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The Null and Alternate Hypotheses

NULL HYPOTHESIS (H0) A statement about the value of a population parameter

developed for the purpose of testing numerical evidence.

ALTERNATE HYPOTHESIS (H1) A statement that is accepted if the sample data

provide sufficient evidence that the null hypothesis is false.

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The Null Hypothesis, H0
States the claim or assertion to be tested
Example: The average diameter of a manufactured
bolt is 30mm ( H 0 : 30 )
Is always about a population parameter,
not about a sample statistic

H 0 : 30 H0 : X 30
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 The Null Hypothesis, H0
Begin with the assumption that the null
hypothesis is true
Similar to the notion of innocent until
proven guilty

Refers to the status quo

Always contains =, or , or sign
May or may not be rejected

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The Alternative Hypothesis, H1
Is the opposite of the null hypothesis
e.g., The average 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
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
Sampling
Distribution of X

X
20 = 50
If H0 is true ... then you reject
If it is unlikely that you
the null hypothesis
would get a sample
that = 50.
mean of this value ... ... When in fact this were
the population mean
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 The Test Statistic and Critical Values
Sampling Distribution of the test statistic

Region of Region of
Rejection Rejection
Region of
Non-Rejection

If the sample mean is

far from the stated
population mean, the
Critical Values If the sample mean is close to
the stated population mean, the
null hypothesis is null hypothesis is not rejected.
rejected.

Too Far Away From Mean of Sampling Distribution

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 Level of Significance and the Rejection Region
H0: = 30 H1:
Level of significance = a
30

a /2 a /2

TEST STATISTIC
A value,
30 determined from
CRITICAL VALUE sample
The dividing point information, used
between the region Critical values
to determine
where the null whether to reject
hypothesis is rejected the null
and the region where Rejection Region
hypothesis.
it is not rejected.

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

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LO 9.1 9.1 Point Estimators and Their Properties
Three Steps to Formulate Hypotheses
1. Identify the relevant population parameter of
interest (e.g., m or p).
H0 HA Test Type
2. Determine whether = Two-tail
it is a one- or a > < One-tail, Left-tail
two-tailed test.
< > One-tail, Right-tail

3. Include some form of the equality sign in H0

and use HA to establish a claim.

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LO 9.1 9.1 Point Estimators and Their Properties
Example: A trade group predicts that back-to-school
spending will average $606.40 per family this year.
A different economic model is needed if the
prediction is wrong.
1. Parameter of interest is m since we are interested
in the average back-to-school spending.
2. Since we want to determine if the population
mean differs from $606.4 (i.e, ), it is a two-tail
test.
3. H0: m = 606.4
HA: m 606.4

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LO 9.1 9.1 Point Estimators and Their Properties
Example: An advertisement for a popular weight-loss clinic
suggests that participants in its diet program lose, on
average, more than 10 pounds. A consumer activist wants to
determine if the advertisements claim is valid. Specify the
null and the alternative hypotheses to validate the claim.
1. Parameter of interest is population mean m since we are
interested in the average wait loss.
2. Since wants to determine whether mean wait loss is
more than 10 pounds (m > 10), it is a one-tail test.
3. H0: m < 10 pounds
HA: m > 10 pounds

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9.1 Point Estimators and Their Properties
LO 9.2 Distinguish between Type I and Type II errors.

Type I and Type II Errors

Type I Error: Committed when we reject H0
when H0 is actually true.
Occurs with probability a. a is chosen a priori.
Type II Error: Committed when we do not
reject H0 and H0 is actually false.
Occurs with probability b. Power of the test = 1b
For a given sample size n, a decrease in a will
increase b and vice versa.
Both a and b decrease as n increases.

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LO 9.2 9.1 Point Estimators and Their Properties
This table illustrates the decisions that may be made when
hypothesis testing:

Correct Decisions:
Reject H0 when H0 is false.
Do not reject H0 when H0 is true.
Incorrect Decisions:
Reject H0 when H0 is true (Type I Error).
Do not reject H0 when H0 is false (Type II Error).
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
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LO 9.2 9.1 Point Estimators and Their Properties
Example: Consider the following competing
hypotheses that relate to the court of law.
H0: An accused person is innocent
HA: An accused person is guilty
Consequences of Type I and Type II errors:
Type I error: Conclude that the accused is
guilty when in reality, she is innocent.
Type II error: Conclude that the accused is
innocent when in reality, she is guilty.

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Hypothesis Tests for the Mean

Hypothesis
Tests for m

Known Unknown

(Z test) (t test)

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 9.2 Hypothesis Test of the Population
Mean When Is Known
LO 9.3 Explain the steps of a hypothesis test using the p-value approach.
Hypothesis testing enables us to determine whether
the sample evidence is inconsistent with what is
hypothesized under the null hypothesis (H0).
Basic principle: First assume that H0 is true and
then determine if sample evidence contradicts this
assumption.
Two approaches to hypothesis testing:
The p-value approach.
The critical value approach.

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

The p-value Approach
The value of the test statistic for the hypothesis test of
the population mean m when the population standard
deviation is known is computed as
x m0
z
n

where m0 is the hypothesized mean value.

p-value: the likelihood of obtaining a sample mean that is
at least as extreme as the one derived from the given
sample, under the assumption that the null hypothesis is
true.

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

The p-value Approach
Under the assumption that m = m0, the p-value is the
likelihood of observing a sample mean that is at least as
extreme as the one derived from the given sample.
The calculation of the p-value depends on the
specification of the alternative hypothesis:

Decision rule: Reject H0 if p-value < a.

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

The p-value Approach
Determining the p-value depending on the
specification of the competing hypotheses.

Reject H0 if p-value < a

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

Example: The p-value Approach
Consider the following: n 25, x 71, 9
Step 1. State the hypotheses: H0 : m 67

H A : m 67
Thus, m0 = 67
Step 2. Given that the population is normally
distributed with a known standard deviation,
= 9, we compute the value of the test statistic
as x m0 71 67
z 2.22
n 9 25

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

Example: The p-value Approach
Unstandardized Normal Distribution: x 71 m0 67
Standardized Normal Distribution: z 2.22 m 0
Step 3. Now compute the p-value:
Note that since HA: m > 67,
this is a right-tail test.
Thus, P ( X 71) P (Z 2.22)
1 0.9868
0.0132

p-value = 0.0132
or 1.32%

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 9.2 Hypothesis Test of the Population
LO 9.3

Mean When Is Known

Example: The p-value Approach
p-value = 0.0132 or 1.32%
Typically, before implementing a hypothesis test,
we choose a value for a = 0.01, 0.05, or 0.1 and
reject H0 when the p-value < a.
Lets say, before conducting the study, we chose
a = 0.05.
Step 4. Since p-value = 0.0132 < a = 0.05, we
reject H0 and conclude that the sample data
support the alternative claim that m > 67.

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What Does it Mean When p-value < a?

(a) .10, we have some evidence that H0 is not true.

(b) .05, we have strong evidence that H0 is not true.

(c) .01, we have very strong evidence that H0 is not true.

(d) .001, we have extremely strong evidence that H0 is not

true.

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 9.2 Hypothesis Test of the Population
Mean When Is Known
LO 9.4 Explain the steps of a hypothesis test using the critical value approach.

The Critical Value Approach

Rejection region: a region of values such that if
the test statistic falls into this region, then we
reject H0.
The location of this region is determined
by HA.
Critical value: a point that separates the
rejection region from the nonrejection region.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

The Critical Value Approach
The critical value approach specifies a region such that if
the value of the test statistic falls into the region, the null
hypothesis is rejected.
The critical value depends on the alternative hypothesis.

Decision Rule: Reject H0 if:

z > za for a right-tailed test
z < za for a left-tailed test
z > za/2 or z < za/2 for a two-tailed test

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

The Critical Value Approach
Determining the critical value(s) depending on the
specification of the competing hypotheses.

Reject H0 if
z > za/2 or z < za/2
Reject H0 if z < za Reject H0 if z > za

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Example: The Critical Value Approach
Step 1. H0: m < 67, HA: m > 67
Step 2. From previous example, z 2.22
Step 3. Based on HA, this is a
right-tail test and for
a = 0.05, the critical value
is za = z0.05 = 1.645.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Example: The Critical Value Approach
Step 4. Reject H0 if z > 1.645.
Since z = 2.22 > za = 1.645, the test statistic
falls in the rejection region. Therefore, we reject
H0 and conclude that the
sample data support the
alternative claim m > 67. z= 2.22
falls in the
rejection
region.
This conclusion is the
same as that from the
p-value approach.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Example: The Critical Value Approach
If z falls in the rejection region, then the p-value
must be less than a.
If z does not fall in the
rejection region, then the
p-value must be greater
than a.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Confidence Intervals and Two-Tailed
Hypothesis Tests
Given the significance level a, we can use the
sample data to construct a 100(1 a)%
confidence interval for the population mean m.
Decision Rule
Reject H0 if the confidence interval does not
contain the value of the hypothesized mean m0.
Do not reject H0 if the confidence interval does
contain the value of the hypothesized mean m0.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Implementing a Two-Tailed Test Using a Confidence
Interval
The general specification for a 100(1 a)% confidence
interval of the population mean m when the population
standard deviation is known is computed as

x za /2 n or x za /2 n , x za /2 n

Decision rule: Reject H0 if m0 x za /2 n

or if m0 x za /2 n

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

Example: Recall that a research analyst wishes to
determine if average back-to-school spending
differs from $606.40.
Out of 30 randomly drawn households from a normally
distributed population, the standard deviation is $65 and
sample mean is $622.85.
Step 1. H0: m = 606.4, HA: m 606.4
Step 2. z = 1.39
Step 3. Based on HA, this
is a two-tail test and for
a = 0.05, the critical value
is za/2 = z0.025 = 1.96.

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 9.2 Hypothesis Test of the Population
LO 9.4

Mean When Is Known

622.85 1.96 x 65/30 622.85 + 1.96 x 65/30

[599.59, 646.11]

Since the hypothesized value

of the population mean m0 = 606.4
Falls within the 95% confidence
Interval, we do not reject H0.
Same conclusion with P-value
And critical value approaches.

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9.3 Hypothesis Test of the Population
Mean When Is Unknown
LO 9.5 Differentiate between the test statistics for the population mean.

Test Statistic for m When is Unknown

When the population standard deviation
is unknown, the test statistic for
testing the population mean m is assumed
to follow the tdf distribution with (n 1)
degrees of freedom (df).
x m0
The value of tdf is computed as: tdf
s n

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example
Consider the following: n 35, x 16.37, s 7.22
Step 1. State the hypotheses: H0 : m 24

H A : m 24
Thus, m0 = 24
Step 2. Because n = 35 (i.e, n > 30), we can
assume that the sample mean is normally
distributed and thus compute the value of the test
statistic as t x m0 16.37 24 6.25
34
s n 7.22 35

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example: The Critical Value Approach
n 35, x 16.37, s 7.22, t34 6.25
a
H0: m > 24, HA: m < 24
Step 3. Based on HA,
this is a left-tail test.
For a = 0.05 and
n1 = 34 df, the
critical value is
ta,df = t0.05,34 = 1.691
(1.691 due to symmetry).

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example: The Critical Value Approach
Step 4. State the conclusion and interpret the
results.
Reject H0 if t34 < t0.05,34 = 1.691.
Since t34 = 6.25 is less than t0.05,34 = 1.691,
we reject H0 and conclude that the sample data
support the alternative claim that m < 24.

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example: The p-value Approach
n 35, x 16.37, s 7.22
a
Step 1. H0: m = 14, HA: m 14
Step 2. Compute the value of the test statistic as:
x m0 16.37 14
t34 1.94
s n 7.22 35

Step 3. Compute the p-value.

Since t34=1.94 > 0, the p-value for a two-tailed test is
2P(T34 > t34). Referencing the tdf table for df = 34, we
find that the exact probability P(T34 > 1.94) cannot be
determined.

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example: The p-value Approach
Step 3. Compute the p-value (continued).
Look up t34 = 1.94 in the t-table to find the p-value.

Note that t34 = 1.94 lies between 1.691 and 2.032.

Thus, 0.025 < P(T34 > 1.94) < 0.05.
However, because this is a two-tail test, we multiply by
two to get 0.05 < p-value < 0.10.

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 9.3 Hypothesis Test of the Population
LO 9.5

Mean When Is Unknown

Example: The p-value Approach
0.05 < p-value < 0.10
a = 0.05.
Step 4. State the conclusion and interpret the
results.
Since the p-value satisfies 0.05 < p-value < 0.10, it
must be greater than a = 0.05.
Thus, we do not reject H0 and conclude that the mean
study time of students at the university is not statistically
different from todays national average of 14 hours per
week.

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THANK YOU!

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