2002 Prentice-Hall, Inc.

Chap 7-1
Business Statistics: A First
course
4th Edition
Chapter 9
Fundamentals of Hypothesis
Testing: One-Sample Tests
2002 Prentice-Hall, Inc.

Chap 7-2
Chapter Topics
Hypothesis testing methodology
Z test for the mean ( known)
P-value approach to hypothesis testing
Connection to confidence interval estimation
One-tail tests
T test for the mean ( unknown)
Z test for the proportion
Potential hypothesis-testing pitfalls and ethical
considerations
o
o
2002 Prentice-Hall, Inc.

Chap 7-3
What is a Hypothesis?
A hypothesis is a
claim (assumption)
about the population
parameter
Examples of parameters
are population mean
or proportion
The parameter must
be identified before
analysis
I claim the mean GPA of
this class is 3.5!
1984-1994 T/Maker Co.
=
2002 Prentice-Hall, Inc.

Chap 7-4
The Null Hypothesis, H
0
States the assumption (numerical) to be
tested
e.g.: The average number of TV sets in U.S.
Homes is at least three ( )
Is always about a population parameter
( ), not about a sample
statistic ( )
0
: 3 H >
0
: 3 H >
0
: 3 H X >
2002 Prentice-Hall, Inc.

Chap 7-5
The Null Hypothesis, H
0
Begins 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 the = sign
May or may not be rejected
(continued)
2002 Prentice-Hall, Inc.

Chap 7-6
The Alternative Hypothesis, H
1
Is the opposite of the null hypothesis
e.g.: The average number of TV sets in U.S.
homes is less than 3 ( )
Challenges the status quo
Never contains the = sign
May or may not be accepted
Is generally the hypothesis that is
believed (or needed to be proven) to be
true by the researcher
1
: 3 H <
2002 Prentice-Hall, Inc.

Chap 7-7
Hypothesis Testing Process
Identify the Population
Assume the
population
mean age is 50.
( )
REJECT
Take a Sample
Null Hypothesis
No, not likely!
X 20 likely if Is ? = = 50
0
: 50 H =
( )
20 X =
2002 Prentice-Hall, Inc.

Chap 7-8
Sampling Distribution of
= 50
It is unlikely that
we would get a
sample mean of
this value ...
... Therefore,
we reject the
null hypothesis
that = 50.
Reason for Rejecting H
0

20
If H
0
is true

X
... if in fact this were
the population mean.
X
2002 Prentice-Hall, Inc.

Chap 7-9
Filling Process
You are in charge of the filling process for the
one pound jars of Cheese Whiz
You take a random sample of 36 jars each
hour to determine if the filling process is in
control

2002 Prentice-Hall, Inc.

Steps:
State the Null Hypothesis (H
0
: = 16)
State its opposite, the Alternative
Hypothesis (H
1
: = 16)
Hypotheses are mutually exclusive &
exhaustive
Sometimes it is easier to form the
alternative hypothesis first.
Identify the Problem
2002 Prentice-Hall, Inc.

Chap 7-11
Decision Rule
Accept H
0
if 15.8 ozs X s 16.2 oz

Reject H
0
if X < 15.8 oz or X > 16.2 oz

Assume a sample of 36 jars tested each hour
Population standard deviation is .6 oz.
2002 Prentice-Hall, Inc.

Chap 7-12
Possible Results
States of Nature
Correct
Decision
Type II Error
( | )
Correct
Decision
Type I Error
( o )
Do Not
Reject H
o

Reject H
0

A
C
T
I
O
N
S
H
0
is True

= 16

H
0
is False
= 16
2002 Prentice-Hall, Inc.

Chap 7-13
Type I Error
X
Reject H
0

Reject H
0

Do Not
Reject H
0

16.2 16 15.8
- 2 + 2
Z
.0228
.0228
.4772 .4772

Z
=
n
X
o

=
36
15.8
.6
16
= 2
Z
=
36
16.2
.6
16
= + 2
o = .0228 + .0228 = .0456 = 4.56
2002 Prentice-Hall, Inc.

Chap 7-14
Z
1

=
36
15.8
.6
15.9
= 1.00
Z
2

=
36
16.2
.6
15.9
= + 3.00
15.8 15.9 16.2
X
Reject H
0

Reject H
0

Do Not
Reject H
0

.3413
.4987

0 Z
.3413
.4987
.8400 = |
2002 Prentice-Hall, Inc.

o
|
Reduce probability of one error
and the other one goes up.
& Have an
Inverse Relationship
2002 Prentice-Hall, Inc.

True Value of Population Parameter
Increases When Difference Between Hypothesized Parameter
& True Value Decreases
Significance Level o
Increases When o Decreases
Population Standard Deviation o

Increases When o

Increases
Sample Size n
Increases When n Decreases
Factors Affecting
Type II Error,
o
|
|
o
|
n
2002 Prentice-Hall, Inc.

Chap 7-17
Hypothesis Testing: Steps
1. State H
0
and H
1

2. Choose o - level of significance
3. Use Information in Steps 1 and 2 to Design a
Decision Rule
4. Collect Data
5. Compare Sample Data to Decision Rule and State
Conclusion.
2002 Prentice-Hall, Inc.

Chap 7-18
Setting Up H
0
and H
1

H
0
must contain the equality (=)
Either H
0
or H
1
must precisely represent what
is being tested
H
0
and H
1
must be mutually exhaustive (must
cover all possible outcomes)
2002 Prentice-Hall, Inc.

Chap 7-19
Level of Significance,
Defines unlikely values of sample statistic if
null hypothesis is true
Called rejection region of the sampling distribution
Is designated by , (level of significance)
Typical values are .01, .05, .10
Is selected by the researcher at the beginning
Provides the critical value(s) of the test
o
o
2002 Prentice-Hall, Inc.

Chap 7-20
Level of Significance
and the Rejection Region
H
0
: > 3
H
1
: < 3
0
0
0
H
0
: s 3
H
1
: > 3
H
0
: = 3
H
1
: = 3
o
o
o/2
Critical
Value(s)
Rejection
Regions
2002 Prentice-Hall, Inc.

Chap 7-21
Example: One Tail Test
Q. Does an average box of
cereal contain more than
368 grams of cereal? A
random sample of 25
boxes showed = 372.5.
The company has
specified o to be 15 grams.
Test at the o = 0.05 level.
368 gm.
H
0
: s 368
H
1
: > 368
X
2002 Prentice-Hall, Inc.

Chap 7-22
Finding Critical Value: One Tail
Z .04 .06
1.6 .9495 .9505 .9515
1.7 .9591 .9599 .9608
1.8 .9671 .9678 .9686
.9738 .9750
Z
0 1.645
.05
1.9 .9744
Standardized Cumulative
Normal Distribution Table
(Portion)
What is Z given o = 0.05?
o = .05
Critical Value
= 1.645
.95
1
Z
o =
2002 Prentice-Hall, Inc.

Chap 7-23
Example Solution: One Tail Test
o = 0.5
n = 25
Critical Value: 1.645
Test Statistic:
Decision:
Conclusion:

Do Not Reject at o = .05
No evidence that true
mean is more than 368
Z
0 1.645
.05
Reject
H
0
: s 368
H
1
: > 368
1.50
X
Z
n

= =
1.50
2002 Prentice-Hall, Inc.

Chap 7-24
p -Value Solution
Z
0
1.50
P-Value =.0668
Z Value of Sample
Statistic
From Z Table:
Lookup 1.50 to
Obtain .9332
Use the
alternative
hypothesis
to find the
direction of
the rejection
region.
1.0000
- .9332
.0668
p-Value is P(Z > 1.50) = 0.0668
2002 Prentice-Hall, Inc.

Chap 7-25
p -Value Solution
(continued)
0
1.50
Z
Reject
(p-Value = 0.0668) > (o = 0.05)
Do Not Reject.
p Value = 0.0668
o = 0.05
Test Statistic 1.50 is in the Do Not Reject Region
1.645
2002 Prentice-Hall, Inc.

Chap 7-26
Example: Two-Tail Test
Q. Does an average box
of cereal contain 368
grams of cereal? A
random sample of 25
boxes showed =
372.5. The company
has specified o to be
15 grams. Test at the
o = 0.05 level.
368 gm.
H
0
: = 368
H
1
: = 368
X
2002 Prentice-Hall, Inc.

Chap 7-27
372.5 368
1.50
15
25
X
Z
n

o

= = =
o = 0.05
n = 25
Critical Value: 1.96
Example Solution: Two-Tail Test
Test Statistic:
Decision:

Conclusion:

Do Not Reject at o = .05
No Evidence that True
Mean is Not 368 Z
0
1.96
.025
Reject
-1.96
.025
H
0
: = 368
H
1
: = 368
1.50
2002 Prentice-Hall, Inc.

Chap 7-28
p-Value Solution
(p Value = 0.1336) > (o = 0.05)
Do Not Reject.
0
1.50
Z
Reject
o = 0.05
1.96
p Value = 2 x 0.0668
Test Statistic 1.50 is in the Do Not Reject Region
Reject
2002 Prentice-Hall, Inc.

Chap 7-29
( ) ( )
For 372.5, 15 and 25,
the 95% confidence interval is:
372.5 1.96 15/ 25 372.5 1.96 15/ 25
or
366.62 378.38
If this interval contains the hypothesized mean (368),
we do not reject the null hypothesis.
I
X n o

= = =
s s +
s s
t does. Do not reject.
Connection to
Confidence Intervals
2002 Prentice-Hall, Inc.

Chap 7-30
t Test: Unknown
Assumption
Population is normally distributed
If not normal, requires a large sample
T test statistic with n-1 degrees of freedom


o
/
X
t
S n

=
2002 Prentice-Hall, Inc.

Chap 7-31
Example: One-Tail t Test
Does an average box of
cereal contain more than
368 grams of cereal? A
random sample of 36
boxes showed X = 372.5,
and s = 15. Test at the o =
0.01 level.
368 gm.
H
0
: s 368
H
1
: > 368
o is not given
2002 Prentice-Hall, Inc.

Chap 7-32
Example Solution: One-Tail
o = 0.01
n = 36, df = 35
Critical Value: 2.4377
Test Statistic:
Decision:

Conclusion:

Do Not Reject at o = .01
No evidence that true
mean is more than 368
t
35

0
2.437
7
.01
Reject
H
0
: s 368
H
1
: > 368
372.5 368
1.80
15
36
X
t
S
n

= = =
1.80
2002 Prentice-Hall, Inc.

Chap 7-33
p -Value Solution
0
1.80
t
35

Reject
(p Value is between .025 and .05) > (o = 0.01).
Do Not Reject.
p Value = [.025, .05]
o = 0.01
Test Statistic 1.80 is in the Do Not Reject Region
2.4377
2002 Prentice-Hall, Inc.

Chap 7-34
PHStat | one-sample tests | t test for the
mean, sigma known
Example in excel spreadsheet

t Test: Unknown in PHStat
o
2002 Prentice-Hall, Inc.

Chap 7-35
Involves categorical variables
Fraction or % of population in a category
If two categorical outcomes, binomial
distribution
Either possesses or doesnt possess the characteristic
Sample proportion ( p )
Proportions
size sample
successes of number
n
X
p = =
2002 Prentice-Hall, Inc.

Chap 7-36
Example: Z Test for Proportion
Problem: AstraZeneca claims that less
than 5% of patients taking Nexium
experience an upset stomach.
Approach: To test this claim, a random
sample of 500 patients were interviewed.
15 of the patients experienced stomach
pain.

Solution: Test at the o = .05 significance level.

2002 Prentice-Hall, Inc.

Chap 7-37
o = .05
n = 500
p = 15/500 = .03
Z Test for Proportion:
Solution
H
0
: t > .05
H
1
: t < .05
Critical Value: 1.645
Reject at o = .05
Decision:
Conclusion:
We do have sufficient evidence to
support the claim that less than
5% of patients experience an
upset stomach.
Z 0
Reject
.05
Test Statistic:
Z ~
p - t
t (1 - t)
n
=
.03 -.05
.05 (1 - .05)
500
= -2.05
2002 Prentice-Hall, Inc.

Chap 7-38
o = .05
n = 500
p = 15/500 = .03
Z Test for Proportion:
Solution
H
0
: t > .05
H
1
: t < .05
Critical Value: 1.645
Reject at o = .05
Decision:
Conclusion:
We do have sufficient evidence to
support the claim that less than
5% of patients experience an
upset stomach.
Z 0
Reject
Ho
.05
Test Statistic:
Z ~
p - t
t (1 - t)
n
=
.03 -.05
.05 (1 - .05)
500
= -2.05
2002 Prentice-Hall, Inc.

Chap 7-39
Z Test for Proportion in PHStat
PHStat | one-sample tests | z test for the
proportion
Example in excel spreadsheet

2002 Prentice-Hall, Inc.

Chap 7-40
Controlling o and |
A bank wishes to open a new branch if average monthly income is
at least 4,000. It does not want to open the branch if average monthly
income is less than or equal to 3,800.
Assume that o = 500
If the bank wants:
o = .05
| = .01
What sample size should be used?
What should the Decision Rule be?
2002 Prentice-Hall, Inc.

Chap 7-41
H
0
:

> 4,000
H
1
:

3,800
n = 99
Do not Reject H
0
if X
c
>$ 3,917
Reject H
0
if X
c
< $3,917
2.33
=
X
c
- 3,800
500 n
-1.645
=
X
c
- 4,000
500 n
3,800
4,000
X
Z
X
Z
X
c

-1.645
X
c

2.33
0
0
Do not reject H
o

Do not reject H
0

Reject H
0

reject H
0

.05 = o
.01 = |
2002 Prentice-Hall, Inc.

Chap 7-42
Potential Pitfalls and
Ethical Considerations
Randomize data collection method to reduce
selection biases
Do not manipulate the treatment of human
subjects without informed consent
Do not employ data snooping to choose
between one-tail and two-tail test, or to
determine the level of significance
2002 Prentice-Hall, Inc.

Chap 7-43
Potential Pitfalls
and Ethical Considerations
Do not practice data cleansing to hide
observations that do not support a stated
hypothesis
Report all pertinent findings
(continued)
2002 Prentice-Hall, Inc.

Chap 7-44
Chapter Summary
Addressed hypothesis testing methodology
Performed Z Test for the mean ( Known)
Discussed p Value approach to hypothesis
testing
Made connection to confidence interval
estimation
o
2002 Prentice-Hall, Inc.

Chap 7-45
Chapter Summary
Performed one-tail and two-tail tests
Performed t test for the mean ( unknown)
Performed Z test for the proportion
Discussed potential pitfalls and ethical
considerations
(continued)
o