LOS A requires us to:
define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses
a. Statistical inferences can be drawn through the process of hypothesis testing, so it is important to understand these terms.
b. Statistical Inference: It is the process of making judgments about a large group (population) on the basis of a small subset of that group (sample).
c. Hypothesis: It is a statement about the value of some effect size or parameter of one or more populations.
d. Hypothesis Testing: It is the process of evaluating the accuracy of a statement regarding population parameter or effect size given sample information. It is one of two fields in statistical inference, allows us to objectively assess the probability that statements about a population are true.
However, since these statements are probabilistic in nature, we cannot accurately analyze the truth or certainty of it.
d. Steps in Hypothesis Testing: The process of hypothesis testing involves the following steps:
i. Stating the hypotheses.
ii. Identifying the appropriate test statistic and its probability distribution.
iii. Specifying the significance level.
iv. Stating the decision rule.
v. Collecting the data and calculating the test statistic.
vi. Making the statistical decision.
vii. Making the economic/investment or ‘real world’ decision.
In the above process, the first four steps are done without the data. These steps are performed based on the experience. The last three steps involve the data.