Quantitative Research Methods in Business Administration F1.

Work shop 2 Presented by Taylan Mavruk 01-03-2011 Hypothesis Testing A statistical hypothesis is an assumption about a population parameter. This assumption may or may not be true. The best way to determine whether a statistical hypothesis is true would be to examine the entire population. Since that is often impractical, researchers typically examine a random sample from the population. If sample data are consistent with the statistical hypothesis, the hypothesis is accepted; if not, it is rejected. There are two types of statistical hypotheses. Null hypothesis. The null hypothesis, denoted by H0, is usually the hypothesis that sample observations result purely from chance. Alternative hypothesis. The alternative hypothesis, denoted by H1 or Ha, is the hypothesis that sample observations are influenced by some non-random cause. For example, suppose we wanted to determine whether a coin was fair and balanced. A null hypothesis might be that half the flips would result in Heads and half, in Tails. The alternative hypothesis might be that the number of Heads and Tails would be very different. Symbolically, these hypotheses would be expressed as H0: P = 0.5 Ha: P 0.5

Suppose we flipped the coin 50 times, resulting in 40 Heads and 10 Tails. Given this result, we would be inclined to reject the null hypothesis and accept the alternative hypothesis. Hypothesis Tests Statisticians follow a formal process to determine whether to accept or reject a null hypothesis, based on sample data. This process, called hypothesis testing, consists of four steps. State the hypotheses. This involves stating the null and alternative hypotheses. The hypotheses are stated in such a way that they are mutually exclusive. That is, if one is true, the other must be false. Formulate an analysis plan. The analysis plan describes how to use sample data to accept or reject the null hypothesis. The accept/reject decision often focuses around a single test statistic. Analyze sample data. Find the value of the test statistic (mean score, proportion, tscore, z-score, etc.) described in the analysis plan. Complete other computations, as required by the plan. Interpret results. Apply the decision rule described in the analysis plan. If the test statistic supports the null hypothesis, accept the null hypothesis; otherwise, reject the null hypothesis.

Decision Errors Two types of errors can result from a hypothesis test. Type I error. A Type I error occurs when the researcher rejects a null hypothesis when it is true. The probability of committing a Type I error is called the significance level. This probability is also called alpha, and is often denoted by . Type II error. A Type II error occurs when the researcher accepts a null hypothesis that is false. The probability of committing a Type II error is called Beta, and is often denoted by . The probability of not committing a Type II error is called the Power of the test. Decision Rules

The analysis plan includes decision rules for accepting or rejecting the null hypothesis. In practice, statisticians describe these decision rules in two ways - with reference to a Pvalue or with reference to a region of acceptance. P-value. The strength of evidence in support of a null hypothesis is measured by the Pvalue. Suppose the test statistic is equal to S. The P-value is the probability of observing a test statistic as extreme as S, assuming the null hypotheis is true. If the P-value is less than the significance level, we reject the null hypothesis. Region of acceptance. The region of acceptance is a range of values. If the test statistic falls within the region of acceptance, the null hypothesis is accepted. The region of acceptance is defined so that the chance of making a Type I error is equal to the significance level. The set of values outside the region of acceptance is called the region of rejection. If the test statistic falls within the region of rejection, the null hypothesis is rejected. In such cases, we say that the hypothesis has been rejected at the level of significance. These approaches are equivalent. Some statistics texts use the P-value approach; others use the region of acceptance approach. In subsequent lessons, this tutorial will present examples that illustrate each approach. One-Tailed and Two-Tailed Tests A test of a statistical hypothesis, where the region of rejection is on only one side of the sampling distribution, is called a one-tailed test. For example, suppose the null hypothesis states that the mean is less than or equal to 10. The alternative hypothesis would be that the mean is greater than 10. The region of rejection would consist of a range of numbers located located on the right side of sampling distribution; that is, a set of numbers greater than 10. A test of a statistical hypothesis, where the region of rejection is on both sides of the sampling distribution, is called a two-tailed test. For example, suppose the null hypothesis states that the mean is equal to 10. The alternative hypothesis would be that the mean is less than 10 or greater than 10. The region of rejection would consist of a range of numbers located located on both sides of sampling distribution; that is, the

region of rejection would consist partly of numbers that were less than 10 and partly of numbers that were greater than 10.

Hypothesis Testing Examples 1. Suppose we would like to determine if the typical amount spent per customer for dinner at a new restaurant in town is more than $20.00. A sample of 49 customers over a three-week period was randomly selected and the average amount spent was $22.60. Assume that the standard deviation is known to be $2.50. Using a 0.02 level of significance, would we conclude the typical amount spent per customer is more than $20.00? Suppose an editor of a publishing company claims that the mean time to write a textbook is at most 15 months. A sample of 16 textbook authors is randomly selected and it is found that the mean time taken by them to write a textbook was 12.5. Assume also that the standard deviation is known to be 3.6 months. Assuming the time to write a textbook is normally distributed and using a 0.025 level of significance, would you conclude the editors claim is true? Suppose, according to a 1990 demographic report, the average U. S. household spends $90 per day. Suppose you recently took a random sample of 30 households in Huntsville and the results revealed a mean of $84.50. Suppose the standard deviation is known to be $14.50. Using a 0.05 level of significance, can it be concluded that the average amount spent per day by U.S. households has decreased? Suppose the mean salary for full professors in the United States is believed to be $61,650. A sample of 36 full professors revealed a mean salary of $69,800. Assuming the standard deviation is $5,000, can it be concluded that the average salary has increased using a 0.02 level of significance? Historically, evening long-distance calls from a particular city have averaged 15.2 minutes per call. In a random sample of 35 calls, the sample mean time was 14.3 minutes. Assume the standard deviation is known to be 5 minutes. Using a 0.05 level of significance, is there sufficient evidence to conclude that the average evening long-distance call has decreased? Suppose a production line operates with a mean filling weight of 16 ounces per container. Since over- or under-filling can be dangerous, a quality control inspector samples 30 items to determine whether or not the filling weight has to be adjusted. The sample revealed a mean of 16.32 ounces. From past data, the standard deviation is known to be .8 ounces. Using a 0.10 level of 4

2.

3.

4.

5.

6.

significance, can it be concluded that the process is out of control (not equal to 16 ounces)? Answers: 1. Ho: = 20 Ha: > 20
Z x

22.60 20 7.28 2.50 49

Reject Ho if Z > 2.06 Reject Ho There is sufficient evidence to conclude the typical amount spent per customer is more than $20.00, = 0.02. 2. Ho: = 15 Ha: < 15
Z x

12.5 15 -2.78 3.6 16

Reject Ho if Z < -1.96 Reject Ho There is sufficient evidence to conclude the editors claim is true, = 0.025. 3. Ho: Ha:
x

= 90 < 90
84.50 90 -2.078 14.50 30

Reject Ho if Z < -1.65 Reject Ho There is sufficient evidence to conclude the average amount spent per day by U.S. households has decreased, = 0.05.

4.

Ho: Ha:

= 61,650 > 61,650

69,800 61,650 9.78 5,000 36

Reject Ho if Z > 2.06 Reject Ho There is sufficient evidence to conclude the average salary has increased, = 0.02. 5. Ho: Ha:
Z x

= 15.2 < 15.2

14.3 15.2 1.065 5 30

Reject Ho if Z < -1.65 Fail to Reject Ho There is insufficient evidence to conclude the average evening long-distance call has decreased, = 0.05. 6. Ho: Ha: = 16 16

16.32 16 2.19 0.8 30

Reject Ho if Z < - 1.65 OR Z > 1.65 Reject Ho There is sufficient evidence to conclude the process is out of control, = 0.10.