Chapter 5

Statistical Inference
Statistical Inference
Statistical inference focuses on drawing
conclusions about populations from samples.
◦ Statistical inference includes estimation of population
parameters and hypothesis testing, which involves
drawing conclusions about the value of the parameters of
one or more populations.
Hypothesis Testing
Hypothesis testing involves drawing inferences about
two contrasting propositions (each called a hypothesis)
relating to the value of one or more population
parameters.
H0: Null hypothesis: describes an existing theory
H1: Alternative hypothesis: the complement of H0
Using sample data, we either:
- reject H0 and conclude the sample data provides
sufficient evidence to support H1, or
- fail to reject H0 and conclude the sample data
does not support H1.
 Hypothesis Testing Procedure

Steps in conducting a hypothesis test:

1. Identify the population parameter and formulate
the hypotheses to test.
2. Select a level of significance (the risk of drawing
an incorrect conclusion).
3. Determine the decision rule on which to base a
conclusion.
4. Collect data and calculate a test statistic.
5. Apply the decision rule and draw a conclusion.
One-Sample Hypothesis Tests

Three types of one sample tests:

1. H0: parameter ≤ constant
H1: parameter > constant
2. H0: parameter ≥ constant
H1: parameter < constant
3. H0: parameter = constant
H1: parameter ≠ constant
It is not correct to formulate a null hypothesis
using >, <, or ≠.
Determining the Proper Form of
Hypotheses
Hypothesis testing always assumes that H0 is true and
uses sample data to determine whether H1 is more likely
to be true.
◦ Statistically, we cannot “prove” that H0 is true; we can only fail to
reject it.
Rejecting the null hypothesis provides strong evidence
(in a statistical sense) that the null hypothesis is not true
and that the alternative hypothesis is true.
Therefore, what we wish to provide evidence for
statistically should be identified as the alternative
hypothesis.
Terminology
The probability of making a Type I error = α (level of
significance) = P(rejecting H0 | H0 is true)
◦ The value of 1 – α is called the confidence coefficient
= P(not rejecting H0 | H0 is true),
◦ The value of α can be controlled. Common values are 0.01, 0.05,
or 0.10.
The probability of making a Type II error = β = P(not
rejecting H0 | H0 is false)
◦ The value of 1 - β is called the power of the test
= P(rejecting H0 | H0 is false).
◦ The value of β cannot be specified in advance and depends on the
value of the (unknown) population parameter.
Improving the Power of the Test
We would like the power of the test to be high
(equivalently, we would like the probability of a Type II
error to be low) to allow us to make a valid conclusion.
The power of the test is sensitive to the sample size; small
sample sizes generally result in a low value of 1 - β.
The power of the test can be increased by taking larger
samples, which enable us to detect small differences
between the sample statistics and population parameters
with more accuracy.
If you choose a small level of significance, you should try
to compensate by having a large sample size.
Selecting the Test Statistic
The decision to reject or fail to reject a null hypothesis is
based on computing a test statistic from the sample
data.
The test statistic used depends on the type of hypothesis
test.
◦ Test statistics for one-sample hypothesis tests for means:
Example 7.4 Computing the Test Statistic

Sample data for 44 customers revealed a mean

response time of 21.91 minutes and a sample
standard deviation of 19.49 minutes.

t = -1.05 indicates that the sample mean of 21.91 is

1.05 standard errors below the hypothesized mean of
25 minutes.
Drawing a Conclusion
The conclusion to reject or fail to reject H0 is based on
comparing the value of the test statistic to a “critical
value” from the sampling distribution of the test statistic
when the null hypothesis is true and the chosen level of
significance, α.
◦ The sampling distribution of the test statistic is usually the normal
distribution, t-distribution, or some other well-known distribution.
The critical value divides the sampling distribution into
two parts, a rejection region and a non-rejection region.
If the test statistic falls into the rejection region, we reject
the null hypothesis; otherwise, we fail to reject it.
 Rejection Regions

H0: parameter ≥ constant H0: parameter ≤ constant H0: parameter = constant

H1: parameter < constant H1: parameter > constant H1: parameter ≠ constant

For a one-tailed test, if H1 is stated as <, the rejection

region is in the lower tail; if H1 is stated as >, the rejection
region is in the upper tail (just think of the inequality as
an arrow pointing to the proper tail direction).
Example 7.5: Finding the Critical Value
and Drawing a Conclusion
Use α = 0.05.
◦ H0: mean response time ≥ 25
◦ H1: mean response time < 25
n = 44; df = n −1 = 43
t = -1.05
Critical value = tα/2, n−1 = T.INV(1− α , n −1) = T.INV(0.95, 43) = 1.68
t = -1.05 does not fall in the rejection region.
Fail to reject H0.

Even though the sample mean of

21.91 is well below 25, we have too
much sampling error to conclude the
that the true population mean is less
than 25 minutes.
Example 7.6: Conducting a Two-Tailed
Hypothesis Test for the Mean
Vacation Survey
Test whether the average age of respondents is equal to 35.
◦ H0: mean age = 35
◦ H1: mean age ≠ 35
n = 34; sample mean = 38.677; sample standard deviation = 7.858.
Test statistic:

Critical value = T.INV.2T(.05, 33) = 2.0345

p-value = T.DIST.2T(2.69, 33) = 0.0111
Reject H0.
p-Values

A p-value (observed significance level) is the

probability of obtaining a test statistic value
equal to or more extreme than that obtained
from the sample data when the null hypothesis
is true.
An alternative approach to Step 3 of a
hypothesis test uses the p-value rather than the
critical value:
Reject H0 if the p-value < α
Finding p-Values
For a lower one-tailed test, the p-value is the probability
to the left of the test statistic t in the t-distribution, and is
found using the Excel function:
◦ =T.DIST(t, n-1, TRUE).
For an upper one-tailed test, the p-value is the
probability to the right of the test statistic t, and is found
using the Excel function:
◦ 1 - T.DIST(t, n-1, TRUE).
For a two-tailed test, the p-value is found using the Excel
function:
◦ T.DIST.2T(t, n-1), if t > 0
◦ T.DIST.2T(-t, n-1), if t < 0
Example 7.7: Using p-Values

The p-value is the left tail area of the observed test

statistic, t = -1.05.
p-value =TDIST(-1.05, 43, true) = 0.1498
Do not reject H0 because the p-value ≥ α,
i.e., 0.1498 ≥ 0.05
For the Vacation Survey two-tailed hypothesis test in
Example 7.6, the p-value for this test is
p-value =T.DIST.2T(2.73,33) = 0.010
Reject H0 because 0.010 < 0.05
One-Sample Tests for Proportions
Test statistic:

π0 is the hypothesized value and ⌃p is the sample

proportion
Example 7.8: One-Sample Test for the
Proportion
CadSoft sampled 44 customers and asked them to rate
the overall quality of a software package. Sample data
revealed that 35 respondents (a proportion of 35/44 =
0.795) thought the software was very good or excellent.
In the past, this proportion has averaged about 75%. Is
there sufficient evidence to conclude that this satisfaction
measure has significantly exceeded 75% using a
significance level of 0.05?
Example 7.8 Continued

Hypotheses:
◦ H0: π ≤ 0.75
◦ H1: π > 0.75
Test statistic:

Critical value = NORM.S.INV(0.95) = 1.645

p-value = 1 − NORM.S.DIST(0.69,TRUE) = 0.24
Do not reject H0.
Two-Sample Hypothesis Tests
Lower-tailed test
◦ H0: population parameter (1) - population parameter (2) ≥ D0
◦ H1: population parameter (1) - population parameter (2) < D0
This test seeks evidence that the difference between
population parameter (1) and population parameter (2)
is less than some value, D0.
When D0 = 0, the test simply seeks to conclude
whether population parameter (1) is smaller than
population parameter (2).
Two-Sample Hypothesis Tests
Upper-tailed test
◦ H0: population parameter (1) - population parameter (2) ≤ D0
◦ H1: population parameter (1) - population parameter (2) > D0
This test seeks evidence that the difference between
population parameter (1) and population parameter (2)
is greater than some value, D0.
When D0 = 0, the test simply seeks to conclude
whether population parameter (1) is larger than
population parameter (2).
Two-Sample Hypothesis Tests
Two-tailed test
◦ H0: population parameter (1) - population parameter (2) = D0
◦ H1: population parameter (1) - population parameter (2) ≠ D0
This test seeks evidence that the difference between
the population parameters is equal to D0.
When D0 = 0, we are seeking evidence that population
parameter (1) differs from population parameter (2).
In most applications, D0 = 0, and we are simply seeking to
compare the population parameters.
Two-Sample Tests for Difference in
Means
Forms of the hypothesis test:
Selecting the Proper Excel Procedure

Population variances are known:

z-Test: Two-Sample for Means
Population variances are unknown and assumed
unequal:
t-Test: Two-Sample Assuming Unequal Variances
Population variances are unknown but assumed equal:
t-Test: Two-Sample Assuming Equal Variances
These tools calculate the test statistic, the p-value for
both a one-tail and two-tail test, and the critical values for
one-tail and two-tail tests.
Two-Sample Test for Means with
Paired Samples
In many situations, data from two samples are naturally
paired or matched.
When paired samples are used, a paired t-test is more
accurate than assuming that the data come from
independent populations.
Hypotheses (μD is the mean difference between the paired
samples):
F-Distribution
The F-distribution has two degrees of freedom, one associated with
the numerator of the F-statistic, n1 - 1, and one associated with the
denominator of the F-statistic, n2 - 1.
Table 4, Appendix A provides only upper-tail critical values, and the
distribution is not symmetric.
Conducting the F-Test
Although the hypothesis test is really a two-tailed test,
we will simplify it as an upper-tailed, one-tailed test to
make it easy to use tables of the F-distribution and
interpret the results of the Excel tool.
◦ We do this by ensuring that when we compute F, we take the ratio
of the larger sample variance to the smaller sample variance.
Find the critical value Fα/2,df1,df2 of the F-distribution, and
then we reject the null hypothesis if the F-test statistic
exceeds the critical value.
Note that we are using α/2 to find the critical value, not α.
This is because we are using only the upper tail
information on which to base our conclusion.
Analysis of Variance (ANOVA)
Used to compare the means of two or more population
groups.

ANOVA derives its name from the fact that we are

analyzing variances in the data.
ANOVA measures variation between groups relative to
variation within groups.
Each of the population groups is assumed to come from
a normally distributed population.
Assumptions of ANOVA
The m groups or factor levels being studied
represent populations whose outcome measures
1. are randomly and independently obtained,
2. are normally distributed, and
3. have equal variances.

If these assumptions are violated, then the level

of significance and the power of the test can be
affected.
Chi-Square Test for Independence
Test for independence of two categorical
variables.
◦ H0: two categorical variables are independent
◦ H1: two categorical variables are dependent
Chi-Square Test Calculations
Step 1: Using a cross-tabulation of the data, compute the
expected frequency if the two variables are independent.
Chi-Square Test Calculations
Step 2: Compute a test statistic, called a chi-square
statistic, which is the sum of the squares of the
differences between observed frequency, fo, and
expected frequency, fe, divided by the expected
frequency in each cell:
Chi-Square Distribution
The sampling distribution of Χ2 is a special distribution
called the chi-square distribution.
◦ The chi-square distribution is characterized by degrees of
freedom.
◦ Table 3 in Appendix A
Chi-Square Test Calculations
(continued)
Step 3: Compare the chi-square statistic for the level of
significance α to the critical value from a chi-square
distribution with (r – 1)(c – 1) degrees of freedom, where r and
c are the number of rows and columns in the cross-tabulation
table, respectively.
◦ The Excel function CHISQ.INV.RT(probability, deg_ freedom) returns the
value of Χ2 that has a right-tail area equal to probability for a specified
degree of freedom.
◦ By setting probability equal to the level of significance, we can obtain the
critical value for the hypothesis test.
◦ The Excel function CHISQ.TEST(actual_range, expected_range)
computes the p-value for the chi-square test.