Hypothesis Testing

Sampling Distributions
A sampling distribution is created by, as the name suggests,
sampling.

The method we will employ on the rules of probability and
the laws of expected value and variance to derive the
sampling distribution.

For example, consider the roll of one and two dice
x 1 2 3 4 5 6
P(x) 1/6 1/6 1/6 1/6 1/6 1/6
Sampling Distribution of the Mean
A fair die is thrown infinitely many times,
with the random variable X = # of spots on any throw.

The probability distribution of X is:



and the mean and variance are calculated as well:
Sampling Distribution of Two Dice
A sampling distribution is created by looking at
all samples of size n=2 (i.e. two dice) and their means






While there are 36 possible samples of size 2, there are only
11 values for , and some (e.g. =3.5) occur more
frequently than others (e.g. =1).
Sampling Distribution of Two Dice
The sampling distribution of is shown below:
1.0 1/36
1.5 2/36
2.0 3/36
2.5 4/36
3.0 5/36
3.5 6/36
4.0 5/36
4.5 4/36
5.0 3/36
5.5 2/36
6.0 1/36
P( )
1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0
6/36

5/36

4/36

3/36

2/36

1/36
P
(




)

Compare
Compare the distribution of X






with the sampling distribution of .

As well, note that:
1 2 3 4 5 6 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0
Generalize
We can generalize the mean and variance of the sampling of
two dice:



to n-dice:
The standard deviation of the
sampling distribution is
called the standard error:
Central Limit Theorem
The sampling distribution of the mean of a random sample
drawn from any population is approximately normal for a
sufficiently large sample size.

The larger the sample size, the more closely the sampling
distribution of X will resemble a normal distribution.
Central Limit Theorem[Most important theorem in statistics]
The sampling distribution of the sample mean will be
approximately normal as the sample size increases.



In many practical situations, a sample size of 30 may be
sufficiently large to allow us to use the normal distribution
as an approximation for the sampling distribution of X.
Steps Involved in Hypothesis Testing
Draw Marketing Research Conclusion
Formulate H
0
and H
1
Select Appropriate Test
Choose Level of Significance
Determine Probability
Associated with Test
Statistic
Determine Critical
Value of Test Statistic
TSCR
Determine if TSCR
falls into (Non)
Rejection Region
Compare with Level
of Significance, o
Reject or Do not Reject H
0
Collect Data and Calculate Test Statistic
A General Procedure for Hypothesis Testing
Step 1: Formulate the Hypothesis
A null hypothesis is a statement of the status quo,
one of no difference or no effect. If the null
hypothesis is not rejected, no changes will be made.
An alternative hypothesis is one in which some
difference or effect is expected. Accepting the
alternative hypothesis will lead to changes in opinions
or actions.
The null hypothesis refers to a specified value of the
population parameter (e.g., ), not a sample
statistic (e.g., ).


, o, t

X
In marketing research, the null hypothesis is
formulated in such a way that its rejection leads to
the acceptance of the desired conclusion. The
alternative hypothesis represents the conclusion for
which evidence is sought.
An example of hypothesis testing. In which a
Departmental store wants to test what proportion of
the people attracted to the new package design


H
0
: t s 0.40
H
1
: t > 0 . 40
A General Procedure for Hypothesis Testing
Step 1: Formulate the Hypothesis
The test of the null hypothesis is a one-tailed test,
because the alternative hypothesis is expressed
directionally. If that is not the case, then a two-
tailed test would be required, and the hypotheses
would be expressed as:
H
0
:
t
= 0 . 4 0
H
1
: t = 0 . 4 0
A General Procedure for Hypothesis Testing
Step 1: Formulate the Hypothesis
The test statistic measures how close the sample
has come to the null hypothesis.
The test statistic often follows a well-known
distribution, such as the normal, t, or chi-square
distribution.
In our example, the z statistic, which follows the
standard normal distribution, would be appropriate.
A General Procedure for Hypothesis Testing
Step 2: Select an Appropriate Test
z =
p - t
o
p
where
o
p
=
t (1 t)
n
Type I Error
Type I error occurs when the sample results lead to
the rejection of the null hypothesis when it is in fact
true.
The probability of type I error ( ) is also called the
level of significance.

Type II Error
Type II error occurs when, based on the sample
results, the null hypothesis is not rejected when it is
in fact false.
The probability of type II error is denoted by .
Unlike , which is specified by the researcher, the
magnitude of depends on the actual value of the
population parameter (proportion).
A General Procedure for Hypothesis Testing
Step 3: Choose a Level of Significance

o

o
|

o
|
Power of a Test
The power of a test is the probability (1 - ) of
rejecting the null hypothesis when it is false and
should be rejected.
Although is unknown, it is related to . An
extremely low value of (e.g., = 0.001) will result in
intolerably high errors.
So it is necessary to balance the two types of errors.
A General Procedure for Hypothesis Testing
Step 3: Choose a Level of Significance

o
|
|

o

o
|
The required data are collected and the value of the
test statistic computed.
In our example, the value of the sample proportion is
= 17/30 = 0.567.
The value of can be determined as follows:
A General Procedure for Hypothesis Testing
Step 4: Collect Data and Calculate Test Statistic
p
o
p
o
p

=
t(1 - t)
n
=

(0.40)(0.6)
30
= 0.089

The test statistic z can be calculated as follows:

o
t
p
p
z

=

= 0.567-0.40
0.089

= 1.88
A General Procedure for Hypothesis Testing
Step 4: Collect Data and Calculate Test Statistic
Using standard normal tables , the probability of
obtaining a z value of 1.88 can be calculated .

The shaded area between - and 1.88 is 0.9699.
Therefore, the area to the right of z = 1.88 is 1.0000
- 0.9699 = 0.0301.
Alternatively, the critical value of z, which will give an
area to the right side of the critical value of 0.05, is
between 1.64 and 1.65 and equals 1.645.
Note, in determining the critical value of the test
statistic, the area to the right of the critical value is
either or . It is for a one-tail test and
for a two-tail test.
A General Procedure for Hypothesis Testing
Step 5: Determine the Probability (Critical Value)

o

o o/2
o/2
If the probability associated with the calculated or
observed value of the test statistic ( )is less
than the level of significance ( ), the null hypothesis
is rejected.
The probability associated with the calculated or
observed value of the test statistic is 0.0301. This is
the probability of getting a p value of 0.567 when
= 0.40. This is less than the level of significance of
0.05. Hence, the null hypothesis is rejected.
Alternatively, if the calculated value of the test
statistic is greater than the critical value of the test
statistic ( ), the null hypothesis is rejected.
A General Procedure for Hypothesis Testing
Steps 6 & 7: Compare the Probability (Critical Value) and Making
the Decision
TS
CR
TS
CAL

o
[
The calculated value of the test statistic z = 1.88 lies
in the rejection region, beyond the value of 1.645.
Again, the same conclusion to reject the null
hypothesis is reached.
Note that the two ways of testing the null hypothesis
are equivalent but mathematically opposite in the
direction of comparison.
If the probability of < significance level ( )
then reject H
0
but if > then reject H
0
.


A General Procedure for Hypothesis Testing
Steps 6 & 7: Compare the Probability (Critical Value) and Making
the Decision
TS
CAL

o
TS
CAL
TS
CR
The conclusion reached by hypothesis testing must
be expressed in terms of the marketing research
problem.
In our example, we conclude that there is evidence
that the proportion of customers attracted towards
the new package design is greater than 0.40.
Hence, the recommendation to the department store
would be to introduce the new design.
A General Procedure for Hypothesis Testing
Step 8: Marketing Research Conclusion