HYPOTHESIS TESTING

Hypothesis Testing

Hypothesis

Originating from the Latin word hypothesis, which in turn derives from a Greek concept, a hypothesis is the assumption of something possible or impossible to get out of it a consequence (McCune, 2010). In the scientific method, a hypothesis can be defined as the provisional or tentative solution to a given problem. The true level assigned to this hypothesis will depend on how the empirical data collected to support or not stated in the hypothesis. This process, known as empirical hypotheses, can be accomplished through confirmation (for universal hypothesis) or check (for existential assumptions). Hypotheses are statements and assertions that through scientific investigations (eg, empirical, experiment) can be confirmed or disproved, thus hypotheses have a provisional character.

Some Hypothesis Testing Examples

One Tailed (Upper Tailed)

A company who deals is insurance is has reviews its policy rates that they currently apply. Initially they thought the average amount of claim is about $1800. They thought they actually mean of the data is higher than this value. So when they randomly checked it with 40 claims they observed the sample mean as $1,950. They have made the assumption of standard deviation as $500. a=0.5. check whether they should be concerned or not?

Solution

Step 1: Formulate a alternate and null hypothesis

Step 2: Calculate the test statistic

Step 3: Setting of rejection region

Step 4: Conclude

Our test statistic is not under the area of rejection as we can observe the data. From this set of information we can't judge whether they should be concerned or not.

Two Tailed

A sample of 40 sales recepts from a grcery store has x = $137 and ¾ = $30:2. Use these values to test whether or not the mean is sales at the grocery store are different from $150.

Solution

Step 1: Set the null and alternative hypotheses

Step 2: Calculate the test statistic

Step 3: Set Rejection Region

Looking at the picture below, we need to put half of á in the left tail, and the other half of ® in the right tail. Thus,

Step 4: Conclude

We can see that |- 2.722| = 2.722 > 2.58, thus our test statistic is in the rejection region. Therefore we reject the null hypothesis in favor of the alternative. We can conclude that the mean is significantly different from $150, thus I have proven that the mean sales at the grocery store is not $150.

Originating from the Latin word hypothesis, which in turn derives from a Greek concept, a hypothesis ...