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A hypothesis is a claim (assumption) about a population

parameter
Example: The mean monthly cell phone bill of this city is
= $42
Example: The proportion of adults in this city with cell
phones is p = .68.
Null Hypothesis H : A maintained hypothesis that is held to be
true unless sufficient evidence to the contrary is obtained. Null
hypothesis: Always contains = , or sign, it may or may
not be rejected
0

Alternative Hypothesis H : A hypothesis against which the null

hypothesis is tested and which will be held to be true if the null is
held false.
Alternative hypothesis: is the opposite of the null
hypothesis, e.g., The average number of TV sets in BD
homes is not equal to 1 ( H1: 1 ), it never contains the
= , or sign, is generally the hypothesis that the
researcher is trying to support
a

p-value: Probability of obtaining a test statistic more extreme (

or ) than the observed sample value given H0 is true
Simple Hypothesis: A hypothesis that specifies a single value for a
population parameter of interest.
Composite Hypothesis: A hypothesis that specifies a range of
values for a population parameter.

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One-Sided Alternative: An alternative hypothesis involving all

possible values of a population parameter on either one side or the
other of (that is, either greater than or less than) the value
specified by a simple null hypothesis.
Two-Sided Alternative: An alternative hypothesis involving all
possible values of a population parameter other than the value
specified by a simple null hypothesis.
Hypothesis Test Decisions: A decision rule is formulated, leading
the investigator to either reject or fail to reject the null hypothesis
on the basis of sample evidence.
Type I Error: The rejection of a true null hypothesis.
Type II Error: The failure to reject a false null hypothesis.
Significance Level: The probability of rejecting a null hypothesis
that is true. This probability is sometimes expressed as a
percentage, so a test of significance level a is referred to as a
100a%-level test.
Power: The probability of rejecting a null hypothesis that is false.
Critical value: The boundary point(s) between the acceptance region and critical region.

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Steps of Hypothesis Testing

1. Evaluation of data.
2. Review of assumptions.
3. Determine the null and alternative hypotheses that are
appropriate for the application.
4. Select the test statistic that will be used to decide whether
or not to reject the null hypothesis.
5. Specify the level of significance for the test.
6. Use the level of significance to develop the rejection rule
that indicates the values of the test statistic that will lead
to the rejection of H .
7. Collect the sample data and compute the value of the test
statistic.
8. a. Compare the value of the test statistic to the critical
value(s) specified in the rejection rule to determine
whether or not H should be rejected or
b. Compute the p-value based on the test statistic in step
5. Use the p-value to determine whether or not H should
be rejected.
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General description:
Testing single mean
Null hypothesis: H0 : 0
x 0
~ N (0,1). (when is known).
Case1. Test statistic z
n
Alternative Hypothesis
Rejection region for level test
z z
Ha : 0
z z
Ha : 0
Ha : 0
either z z /2 or z z /2
Case2. When unknown and n 30, z

x 0
~ N (0,1).
s n

Testing two population means

Null hypothesis: H0 : 1 2
x x
z 1 2 ~ N (0,1).
s12 s22
Case1. Test statistic
(Both samples need to be at least 30).

n1 n2
Alternative Hypothesis
Rejection region for level test
z z
Ha : 1 2
z z
Ha : 1 2
Ha : 1 2
either z z /2 or z z /2
Testing about proportion:
Null hypothesis: H0 : 0
p
z
~ N (0,1).
Test statistic
(when is known).
(1 )
n
Testing two proportion:
Null hypothesis: H0 : 1 2
Case1. Test statistic

Small sample cases

1. Single mean:

p1 p2
~ N (0,1).
pc (1 pc ) pc (1 pc )

n1
n2

pc

X1 X 2
n1 n2

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Two means:
Paired t test:

d
sd / n

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10.11 A manufacturer of detergent claims that the contents of boxes sold weigh on average at least 16
ounces. The distribution of weight is known to be
normal, with standard deviation 0.4 ounce. A random
sample of 16 boxes yielded a sample mean weight of
15.84 ounces. Test at the 10% significance level the
null hypothesis that the population mean weight is at
least 16 ounces.

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10.23 A company selling licenses for new e-commerce

computer software advertises that firms using this
software obtain, on average during the first year, a
yield of 10% on their initial investments. A random
sample of 10 of these franchises produced the
following yields for the first year of operation:
6.1 9.2 11.5 8.6 12.1 3.9 8.4 10.1 9.4 8.9
Assuming that population yields are normally
distributed, test the company's claim.

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10.24
A process that produces bottles of shampoo,
when operating correctly, produces bottles whose
contents weigh, on average, 20 ounces. A random
sample of nine bottles from a single production run
yielded the following content weights (in ounces):
21.4 19.7 19.7 20.6 20.8 20.1 19.7 20.3 20.9
Assuming that the population distribution is normal,
test at the 5% level against a two-sided alternative
the null hypothesis that the process is operating
correctly.
10.31 In a random sample of 998 adults in the United
States, 17.3% of the sample members indicated some
measure of disagreement with this statement:
"Globalization is more than an economic trade system
instead it includes institutions and culture." Test at the 5%
level the hypothesis that at least 25% of all U.S. adults
would disagree with this statement.

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In a random sample of 160 business school students, 72

sample members indicated some measure of agreement with
this statement: "Scores on a standardized entrance exam are
less important for a student's chance to succeed
academically than is the student's high school GPA." Test
the null hypothesis that one-half of all business school
graduates would agree with this statement against a twosided alternative. Find and interpret the p-value of the test.

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10

Of a random sample of 199 auditors, 104 indicated some

measure of agreement with this statement: "Cash flow
is an important indication of profitability." Test at the
10% significance level against a two-sided alternative
the null hypothesis that one-half of the members of this
population would agree with this statement. Also find
and interpret the p-value of this test.