Business Statistics: A Decision-Making

Download Report

Transcript Business Statistics: A Decision-Making

Chapter 8

Introduction to Hypothesis Testing

Fall 2006 – Fundamentals of Business Statistics 1

Chapter Goals

After completing this chapter, you should be able to:

 Formulate null and alternative hypotheses for applications involving a single population mean  Formulate a decision rule for testing a hypothesis  Know how to use the test statistic, critical value, and p-value approaches to test the null hypothesis Fall 2006 – Fundamentals of Business Statistics 2

Testing Theories

Hypotheses

theories as Competing theories that we want to test about a population are called

Null Hypothesis

(

H Hypotheses

0 ) and in statistics. Specifically, we label these competing

Alternative Hypothesis

(

H

1 or

H A

).

H

0

:

The null hypothesis is the status quo or the prevailing viewpoint.

H A

:

The alternative hypothesis is the competing belief. It is the statement that the researcher is hoping to prove.

Fall 2006 – Fundamentals of Business Statistics 3

The Null Hypothesis, H

0 (continued)  Begin with the assumption that the null hypothesis is true   Refers to the status quo Always contains “=” , “≤” or “  ” sign  May or may not be rejected Fall 2006 – Fundamentals of Business Statistics 4

The Alternative Hypothesis, H

A   Challenges the status quo Never contains the “=” , “≤” or “  ” sign   Is generally the hypothesis that is believed (or needs to be supported) by the researcher Provides the “direction of extreme” Fall 2006 – Fundamentals of Business Statistics 5

Hypothesis Testing Process

Claim: the population mean age is 50.

(Null Hypothesis: H 0 :

= 50 ) Population

Now select a random sample

Is

x = 20 likely if  = 50?

If not likely, REJECT Null Hypothesis

Fall 2006 – Fundamentals of Business Statistics

Suppose the sample mean age is 20: x = 20 Sample

Deciding Which Theory to Support

Decision making is based on the “rare event” concept. Since the null hypothesis is the status quo, we assume that it is true unless the observed result is extremely unlikely (rare) under the null hypothesis.

Definition

:

If the data were indeed unlikely to be observed under the assumption that H

0

is true, and therefore we reject H

0

in favor of H A , then we say that the data are statistically significant.

Fall 2006 – Fundamentals of Business Statistics 7

Reason for Rejecting H

0 Sampling Distribution of x Fall 2006 – Fundamentals of Business Statistics 

= 50 If H 0 is true x

8

Level of Significance,

 

Defines unlikely values of sample statistic if null hypothesis is true

 Defines rejection region of the sampling distribution  Is designated by  , (level of significance)  Is selected by the researcher at the beginning  Provides the critical value(s) of the test Fall 2006 – Fundamentals of Business Statistics 9

Level of Significance and the Rejection Region

Level of significance =  H 0 : μ ≥ 3 H A : μ < 3 Lower tail test  H 0 : μ H A : μ ≤ 3 > 3 Upper tail test H 0 : μ H A : μ = 3 ≠ 3 Two tailed test  /2 Fall 2006 – Fundamentals of Business Statistics

0 0 0

 /2

Represents critical value

Rejection region is shaded

10

Critical Value Approach to Testing

 statistic (

Z* or t* s

tatistic )  Determine the critical value(s) for a specified level of significance  from a table or computer  If the test statistic falls in the rejection region, reject H 0 ; otherwise do not reject H 0 Fall 2006 – Fundamentals of Business Statistics 11

Critical Value Approach to Testing  Convert sample statistic ( ) to a test statistic (

Z* or t* s

tatistic ) Yes Is X ~ N?

No Sample Size?

Small Large (n ≥ 100) Is s known?

Yes No, use sample standard deviation

s

2. Use T~t (n-1) 1. Use Z~N(0,1)

  

Calculating the Test Statistic: Z

Two-Sided: H

0

μ 0

:

μ

=

μ 0

; H

A

:

μ

One-Sided Upper Tail: H

μ 0

Reject

H 0

if

Z*

>

Z (0.5

α

/2) or

Z*

< −

Z (0.5

α

/2) , otherwise do not reject

H 0

; H

A

:

μ > μ 0 0

:

μ

≤ 

One-Sided Lower Tail: H

μ 0

Reject

H 0

if

Z*

do not reject

H 0

>

Z (0.5

α

) , otherwise

; H

A

:

μ < μ 0 0

:

μ

≥  Reject

H 0

if

Z*

do not reject

H 0

< -

Z (0.5

α

) , otherwise z * = x  μ σ n Fall 2006 – Fundamentals of Business Statistics 13

T test Statistic   

Two-Sided: H

  Reject

H 0

reject

H 0

Reject

H 0

if

0

t

: * *

μ

  =

μ

t

   1   / 

t

0

2 

; H One-Sided Upper Tail: H

0

*  Reject

H 0

if

t

t

   1   

One-Sided Lower Tail: H

   1   

0 A

: :

μ

μ 0

t

μ

   1   / ≤ 2

μ 0

; H

, otherwise do not reject

H 0

:

μ

μ 0

; H

A

:

μ < μ 0

, otherwise

A

:

μ > μ 0

do not reject

H 0

t * = x  μ s n Fall 2006 – Fundamentals of Business Statistics 14

Review: Steps in Hypothesis Testing

1.

2.

3.

Specify the population value of interest Formulate the appropriate null and alternative hypotheses Specify the desired level of significance 4.

5.

Determine the rejection region Obtain sample evidence and compute the test statistic 6.

Reach a decision and interpret the result Fall 2006 – Fundamentals of Business Statistics 15

Hypothesis Testing Example

Test the claim that the true mean # of TV sets in US homes is less than 3. Assume that s = 0.8

1.

Specify the population value of interest 2.

Formulate the appropriate null and alternative hypotheses 3.

Specify the desired level of significance

Hypothesis Testing Example

 4. Determine the rejection region (continued)  = Reject H 0 Do not reject H 0 0 Reject H 0 if Z* test statistic < otherwise do not reject H 0 Fall 2006 – Fundamentals of Business Statistics 17

Hypothesis Testing Example

 5. Obtain sample evidence and compute the test statistic A sample is taken with the following results: n = 100, x = 2.84

( s = 0.8 is assumed known)  Then the test statistic is: Z * = x  σ μ = n Fall 2006 – Fundamentals of Business Statistics 18

Hypothesis Testing Example

(continued) 6. Reach a decision and interpret the result  = Reject H 0 Do not reject H 0

0

Since Z* = -2.0 < , Fall 2006 – Fundamentals of Business Statistics

z

19

p-Value Approach to Testing

 p-value: Probability of obtaining a test statistic more extreme than the observed sample value given H 0 is true  Also called observed level of significance  Smallest value of 

rejected

for which H 0

can be

Fall 2006 – Fundamentals of Business Statistics 20

p-Value Approach to Testing

 Convert Sample Statistic to Test Statistic (

Z* or t*

statistic )  Obtain the p-value from a table or computer  Compare the p-value with   If p-value <  , reject H 0  If p-value   , do not reject H 0 Fall 2006 – Fundamentals of Business Statistics 21

P-Value Calculation

Z test statistic  Two-Sided: 2 ×min {P(Z ≥ Z*,Z ≤ Z*)}   One Sided Upper Tail P(Z ≥ Z*) One-Sided Lower Tail

P

(

Z

Z

*) T test statistic  Two-Sided: 2 ×min {P(t ≥ t*,t ≤ t*)}   One Sided Upper Tail P(t ≥ t*) One-Sided Lower Tail

P

(

t

t

*) Fall 2006 – Fundamentals of Business Statistics 22

p-value example

Fall 2006 – Fundamentals of Business Statistics 23

Example: Upper Tail z Test for Mean (

s

Known)

A phone industry manager thinks that customer monthly cell phone bill have increased, and now average over $52 per month. The company wishes to test this claim. (Assume s = 10 is known) Form hypothesis test: H 0 : μ ≤ 52 the average is not over $52 per month H A : μ > 52 the average

is

greater than $52 per month (i.e., sufficient evidence exists to support the manager’s claim) Fall 2006 – Fundamentals of Business Statistics 24

Example: Find Rejection Region

(continued) Do not reject H 0 0

Reject H 0

=

Reject H 0 Fall 2006 – Fundamentals of Business Statistics 25

Example: Test Statistic

(continued) Obtain sample evidence and compute the test statistic A sample is taken with the following results: n = 64, x = 53.1 ( s =10 was assumed known)  Then the test statistic is: Z * = x  σ μ n = Fall 2006 – Fundamentals of Business Statistics 26

Example: Decision

(continued) Reach a decision and interpret the result:

Reject H 0

=

Do not reject H 0 0 Reject H 0 Fall 2006 – Fundamentals of Business Statistics 27

p -Value Solution

Calculate the p-value and compare to  (continued) 0 Do not reject H 0 Reject H 0 Fall 2006 – Fundamentals of Business Statistics 28

Example: Two-Tail Test (

s

Unknown)

The average cost of a hotel room in New York is said to be $168 per night. A random sample of 25 hotels s = $15.40. Test at the  = 0.05 level.

(Assume the population distribution is normal)

H 0 : H A : μ = 168 μ

168

Fall 2006 – Fundamentals of Business Statistics 29

Outcomes and Probabilities

Key: Outcome (Probability) Possible Hypothesis Test Outcomes Decision

Do Not Reject

H 0

Reject

H 0 State of Nature

H 0 True H 0 False

No error (1 -

) Type I Error

Type II Error ( β ) No Error ( 1 β )

Fall 2006 – Fundamentals of Business Statistics 30