Hypothesis Testing

Data Analysis

Null and Alternate Hypothesis

A hypothesis as a statement can be rejected but can never be accepted since further evidence can prove it wrong. So a rule of thumb as for marketing oriented situations are concerned the treatment is done accordingly. The tentative conclusion is in the form of reject or do not reject hypothesis but not terms of acceptance. Anything that we want to conclude or check always become a part of alternate hypothesis, H1 And whatever the situation is in the original form (be it true or false) is a part of null hypothesis, H0 In research oriented situations we tend to go for one tailed tests and not two tailed tests since in marketing research the scenario is of launching or not launching the product, feasibilities and product development situations etc.

That is why we do not go for inequalities but notions like less than or greater than or less than and equal to etc.

Type I and Type II errors

Type I error rejecting a true null hypothesis Type II error failing to reject a false null hypothesis
True situation: null hypothesis Research conclusion Do not reject Ho Reject Ho True
Correct decision = 1 a Confidence level Error = a

False
Error = B Correct decision = 1 B Power of the test

Judicial Analogy Illustrating Decision Error

True situation: Defendant is Verdict Innocent Guilty Innocent
Correct decision = 1 - a Error: probability= a

Guilty
Error: probability = B Correct decision = 1 B

Example
In the judgment of management procedure a product would not be introduced unless at least 20% of the population would not be accepting the product. The research calls for 625 respondents to be interviewed for their preferences Step 1: the null and the alternate hypothesis Step 2: the appropriate sample statistic z = p- / p p = ( 1 ) / n Determine the significance level a = 0.05 Compute the value of the test statistic Determining the probability of the test statistic Compare the value with the specified significance level

 For committing a Type 1 error

Costs associated with it

Good will Resource cost Real cost, investment costs

For committing type 2 error

Costs associated with it

Opportunity costs Had he launched the product could have attained success