 # 1 1 Slide STATISTICS FOR BUSINESS AND ECONOMICS Seventh Edition AndersonSweeneyWilliams Slides Prepared by John Loucks © 1999 ITP/South-Western College.

## Presentation on theme: "1 1 Slide STATISTICS FOR BUSINESS AND ECONOMICS Seventh Edition AndersonSweeneyWilliams Slides Prepared by John Loucks © 1999 ITP/South-Western College."— Presentation transcript:

1 1 Slide STATISTICS FOR BUSINESS AND ECONOMICS Seventh Edition AndersonSweeneyWilliams Slides Prepared by John Loucks © 1999 ITP/South-Western College Publishing

2 2 Slide Chapter 9 Hypothesis Testing n Developing Null and Alternative Hypotheses n Type I and Type II Errors n Tests About a Population Mean: Large-Sample Case Large-Sample Case n Tests About a Population Mean: Small-Sample Case Small-Sample Case n Tests About a Population Proportion n Hypothesis Testing and Decision Making n Calculating the Probability of Type II Errors n Determining the Sample Size for a Hypothesis Test About a Population Mean Test About a Population Mean

3 3 Slide Developing Null and Alternative Hypotheses n Hypothesis testing can be used to determine whether a statement about the value of a population parameter should or should not be rejected. n The null hypothesis, denoted by H 0, is a tentative assumption about a population parameter. n The alternative hypothesis, denoted by H a, is the opposite of what is stated in the null hypothesis. n Hypothesis testing is similar to a criminal trial. The hypotheses are: H 0 : The defendant is innocent H a : The defendant is guilty

4 4 Slide n Testing Research Hypotheses The research hypothesis should be expressed as the alternative hypothesis. The research hypothesis should be expressed as the alternative hypothesis. The conclusion that the research hypothesis is true comes from sample data that contradict the null hypothesis. The conclusion that the research hypothesis is true comes from sample data that contradict the null hypothesis. n Testing the Validity of a Claim Manufacturers’ claims are usually given the benefit of the doubt and stated as the null hypothesis. Manufacturers’ claims are usually given the benefit of the doubt and stated as the null hypothesis. The conclusion that the claim is false comes from sample data that contradict the null hypothesis. The conclusion that the claim is false comes from sample data that contradict the null hypothesis. Developing Null and Alternative Hypotheses

5 5 Slide n Testing in Decision-Making Situations A decision maker might have to choose between two courses of action, one associated with the null hypothesis and another associated with the alternative hypothesis. A decision maker might have to choose between two courses of action, one associated with the null hypothesis and another associated with the alternative hypothesis. Example: Accepting a shipment of goods from a supplier or returning the shipment of goods to the supplier. Example: Accepting a shipment of goods from a supplier or returning the shipment of goods to the supplier. Developing Null and Alternative Hypotheses

6 6 Slide A Summary of Forms for Null and Alternative Hypotheses about a Population Mean n The equality part of the hypotheses always appears in the null hypothesis. In general, a hypothesis test about the value of a population mean  must take one of the following three forms (where  0 is the hypothesized value of the population mean). In general, a hypothesis test about the value of a population mean  must take one of the following three forms (where  0 is the hypothesized value of the population mean). H 0 :  >  0 H 0 :   0 H 0 :  <  0 H 0 :  =  0 H a :   0 H a :   0 H a :   0 H a :   0

7 7 Slide Example: Metro EMS A major west coast city provides one of the most comprehensive emergency medical services in the world. Operating in a multiple hospital system with approximately 20 mobile medical units, the service goal is to respond to medical emergencies with a mean time of 12 minutes or less. The director of medical services wants to formulate a hypothesis test that could use a sample of emergency response times to determine whether or not the service goal of 12 minutes or less is being achieved.

8 8 Slide Example: Metro EMS Hypotheses Conclusion and Action H 0 :  The emergency service is meeting the response goal; no follow-up the response goal; no follow-up action is necessary. action is necessary. H a :  The emergency service is not H a :  The emergency service is not meeting the response goal; meeting the response goal; appropriate follow-up action is appropriate follow-up action is necessary. necessary.where  = mean response time for the population of medical emergency requests. of medical emergency requests.

9 9 Slide Type I and Type II Errors n Since hypothesis tests are based on sample data, we must allow for the possibility of errors. n A Type I error is rejecting H 0 when it is true. n A Type II error is accepting H 0 when it is false. n The person conducting the hypothesis test specifies the maximum allowable probability of making a Type I error, denoted by  and called the level of significance. Generally, we cannot control for the probability of making a Type II error, denoted by . Generally, we cannot control for the probability of making a Type II error, denoted by . n Statisticians avoid the risk of making a Type II error by using “do not reject H 0 ” and not “accept H 0 ”.

10 Slide Example: Metro EMS n Type I and Type II Errors Population Condition Population Condition H 0 True H a True H 0 True H a True Conclusion (  ) (  ) Accept H 0 Correct Type II Accept H 0 Correct Type II (Conclude  Conclusion Error (Conclude  Conclusion Error Reject H 0 Type I Correct Reject H 0 Type I Correct (Conclude  rror Conclusion (Conclude  rror Conclusion

11 Slide One-Tailed Tests About a Population Mean: Large-Sample Case ( n > 30) Hypotheses: H 0 :   or H 0 :   Hypotheses: H 0 :   or H 0 :   H a :   H a :   Test Statistic:  Known  Unknown Test Statistic:  Known  Unknown n Rejection Rule: Reject H 0 if z > z  Reject H 0 if z z  Reject H 0 if z < - z 

12 Slide Example: Metro EMS n One-Tailed Test about a Population Mean Let  = P (Type I Error) =.05 Let  = P (Type I Error) =.05  Sampling distribution of (assuming H 0 is true and  = 12) Sampling distribution of (assuming H 0 is true and  = 12) 12 c c Reject H 0 Do Not Reject H 0 1.645  (Critical value)

13 Slide Example: Metro EMS n One-Tailed Test about a Population Mean Let n = 40, = 13.25 minutes, s = 3.2 minutes Let n = 40, = 13.25 minutes, s = 3.2 minutes (The sample standard deviation s can be used to (The sample standard deviation s can be used to estimate the population standard deviation .) estimate the population standard deviation .) Since 2.47 > 1.645, we reject H 0. Since 2.47 > 1.645, we reject H 0. Conclusion : We are 95% confident that Metro EMS Conclusion : We are 95% confident that Metro EMS is not meeting the response goal of 12 minutes; is not meeting the response goal of 12 minutes; appropriate action should be taken to improve appropriate action should be taken to improve service. service.

14 Slide The Use of p -Values n The p -value is the probability of obtaining a sample result that is at least as unlikely as what is observed. n The p -value can be used to make the decision in a hypothesis test by noting that: if the p -value is less than the level of significance , the value of the test statistic is in the rejection region. if the p -value is less than the level of significance , the value of the test statistic is in the rejection region. if the p -value is greater than or equal to , the value of the test statistic is not in the rejection region. if the p -value is greater than or equal to , the value of the test statistic is not in the rejection region. Reject H 0 if the p -value < . Reject H 0 if the p -value < .

15 Slide Example: Metro EMS n Using the p -value to Test the Hypothesis Recall that z = 2.47 for = 13.25. Then p -value =.0068. Since p -value < , that is.0068 <.05, we reject H 0 Recall that z = 2.47 for = 13.25. Then p -value =.0068. Since p -value < , that is.0068 <.05, we reject H 0. n Using the p -value to Test the Hypothesis Recall that z = 2.47 for = 13.25. Then p -value =.0068. Since p -value < , that is.0068 <.05, we reject H 0 Recall that z = 2.47 for = 13.25. Then p -value =.0068. Since p -value < , that is.0068 <.05, we reject H 0. p -value  0 0 1.645 Do Not Reject H 0 Reject H 0 z z 2.47

16 Slide The Steps of Hypothesis Testing n Determine the appropriate hypotheses. n Select the test statistic for deciding whether or not to reject the null hypothesis. Specify the level of significance  for the test. Specify the level of significance  for the test. Use  to develop the rule for rejecting H 0. Use  to develop the rule for rejecting H 0. n Collect the sample data and compute the value of the test statistic. (a) Compare the test statistic to the critical value(s) in the rejection rule, or (b) Compute the p -value based on the test statistic and compare it to  to determine whether or not to reject H 0. (a) Compare the test statistic to the critical value(s) in the rejection rule, or (b) Compute the p -value based on the test statistic and compare it to  to determine whether or not to reject H 0.

17 Slide Two-Tailed Tests About a Population Mean: Large-Sample Case ( n > 30) Hypotheses: H 0 :   Hypotheses: H 0 :   H a :   Test Statistic:  Known  Unknown Test Statistic:  Known  Unknown n Rejection Rule: Reject H 0 if | z | > z 

18 Slide Example: Glow Toothpaste The production line for Glow toothpaste is designed to fill tubes of toothpaste with a mean weight of 6 ounces. Data available show that the weight has a standard deviation of.2 ounces. Periodically, a sample of 30 tubes will be selected in order to check the filling process. Quality assurance procedures call for the continuation of the filling process if the sample results are consistent with the assumption that the mean filling weight for the population of toothpaste tubes is 6 ounces; otherwise the filling process will be stopped and adjusted.

19 Slide Example: Glow Toothpaste A hypothesis test about the population mean can be used to help determine when the filling process should continue operating and when it should be stopped and corrected. The hypotheses are: H 0 :   H 0 :    H a :  With a.05 level of significance, the decision rule is: Reject H 0 if z 1.96 Reject H 0 if z 1.96

20 Slide Example: Glow Toothpaste n Two-Tailed Test about a Population Mean  Sampling distribution of (assuming H 0 is true and  = 6) Sampling distribution of (assuming H 0 is true and  = 6) 0 0 1.96 Reject H 0 Do Not Reject H 0 z z Reject H 0 -1.96

21 Slide Example: Glow Toothpaste n Two-Tailed Test about a Population Mean Assume that a sample of 30 toothpaste tubes provides a sample mean of 6.1 ounces. Let n = 30, = 6.1 ounces,  =.2 ounces Since 2.74 > 1.96, we reject H 0. Conclusion: We are 95% confident that the mean filling weight of the toothpaste tubes is not 6 ounces. The filling process should be stopped and the filling mechanism adjusted. n Two-Tailed Test about a Population Mean Assume that a sample of 30 toothpaste tubes provides a sample mean of 6.1 ounces. Let n = 30, = 6.1 ounces,  =.2 ounces Since 2.74 > 1.96, we reject H 0. Conclusion: We are 95% confident that the mean filling weight of the toothpaste tubes is not 6 ounces. The filling process should be stopped and the filling mechanism adjusted.

22 Slide Example: Glow Toothpaste n Using the p -Value for a Two-Tailed Hypothesis Test Suppose we define the p -value for a two-tailed test as double the area found in the tail of the distribution. With z = 2.74, the standard normal probability table shows there is a.5000 -.4969 =.0031 probability of a difference larger than.1 in the upper tail of the distribution. Considering the same probability of a larger difference in the lower tail of the distribution, we have p -value = 2(.0031) =.0062 p -value = 2(.0031) =.0062 The p -value.0062 is less than  =.05, so H 0 is rejected.

23 Slide Confidence Interval Approach to a Two-Tailed Test about a Population Mean Select a simple random sample from the population and use the value of the sample mean to develop the confidence interval for the population mean . Select a simple random sample from the population and use the value of the sample mean to develop the confidence interval for the population mean . If the confidence interval contains the hypothesized value  0, do not reject H 0. Otherwise, reject H 0. If the confidence interval contains the hypothesized value  0, do not reject H 0. Otherwise, reject H 0.

24 Slide Example: Glow Toothpaste n Confidence Interval Approach to a Two-Tailed Hypothesis Test The 95% confidence interval for  is or 6.0284 to 6.1716 Since the hypothesized value for the population mean,  0 = 6, is not in this interval, the hypothesis- testing conclusion is that the null hypothesis, H 0 :  = 6, can be rejected.

25 Slide Tests About a Population Mean: Small-Sample Case ( n < 30) Test Statistic:  Known  Unknown Test Statistic:  Known  Unknown This test statistic has a t distribution with n - 1 degrees of freedom. n Rejection Rule: One-Tailed Two-Tailed H 0 :   Reject H 0 if t > t  H 0 :   Reject H 0 if t > t  H 0 :   Reject H 0 if t < - t  H 0 :   Reject H 0 if t < - t  H 0 :   Reject H 0 if | t | > t  H 0 :   Reject H 0 if | t | > t 

26 Slide p -Values and the t Distribution n The format of the t distribution table provided in most statistics textbooks does not have sufficient detail to determine the exact p -value for a hypothesis test. n However, we can still use the t distribution table to identify a range for the p -value. n An advantage of computer software packages is that the computer output will provide the p -value for the t distribution.

27 Slide A Summary of Forms for Null and Alternative Hypotheses about a Population Proportion n The equality part of the hypotheses always appears in the null hypothesis. n In general, a hypothesis test about the value of a population proportion p must take one of the following three forms (where p 0 is the hypothesized value of the population proportion). H 0 : p > p 0 H 0 : p p 0 H 0 : p < p 0 H 0 : p = p 0 H a : p p 0 H a : p p 0 H a : p p 0 H a : p p 0

28 Slide Tests About a Population Proportion: Large-Sample Case ( np > 5 and n (1 - p ) > 5) n Test Statistic: where n Rejection Rule: One-Tailed Two-Tailed H 0 : p  p  Reject H 0 if z > z  H 0 : p  p  Reject H 0 if z > z  H 0 : p  p  Reject H 0 if z < -z  H 0 : p  p  Reject H 0 if z < -z  H 0 : p  p  Reject H 0 if |z| > z  H 0 : p  p  Reject H 0 if |z| > z 

29 Slide Hypothesis Testing and Decision Making n In many decision-making situations the decision maker may want, and in some cases may be forced, to take action with both the conclusion do not reject H 0 and the conclusion reject H 0. n In such situations, it is recommended that the hypothesis-testing procedure be extended to include consideration of making a Type II error.

30 Slide Calculating the Probability of a Type II Error in Hypothesis Tests about a Population Mean 1. Formulate the null and alternative hypotheses. 2. Use the level of significance  to establish a rejection rule based on the test statistic. 3. Using the rejection rule, solve for the value of the sample mean that identifies the rejection region. 4. Use the results from step 3 to state the values of the sample mean that lead to the acceptance of H 0 ; this defines the acceptance region. 5. Using the sampling distribution of for any value of  from the alternative hypothesis, and the acceptance region from step 4, compute the probability that the sample mean will be in the acceptance region.

31 Slide Determining the Sample Size for a Hypothesis Test About a Population Mean where z  = z value providing an area of  in the tail z  = z value providing an area of  in the tail  = population standard deviation  = population standard deviation  0 = value of the population mean in H 0  a = value of the population mean used for the Type II error Note: In a two-tailed hypothesis test, use z  /2 not z 

32 Slide The End of Chapter 9