# Hypothesis Testing This article is part of the EconHelp Tutoring Wiki

A statistical hypothesis test is a method of making decisions using data, whether from a controlled experiment or an observational study (not controlled). In statistics, a result is called statistically significant if it is unlikely to have occurred by chance alone, according to a pre-determined threshold probability, the significance level. The phrase "test of significance" was coined by Ronald Fisher: "Critical tests of this kind may be called tests of significance, and when such tests are available we may discover whether a second sample is or is not significantly different from the first."

Hypothesis testing is sometimes called confirmatory data analysis, in contrast to exploratory data analysis. In frequency probability, these decisions are almost always made using null-hypothesis tests (i.e., tests that answer the question Assuming that the null hypothesis is true, what is the probability of observing a value for the test statistic that is at least as extreme as the value that was actually observed?) One use of hypothesis testing is deciding whether experimental results contain enough information to cast doubt on conventional wisdom.

A result that was found to be statistically significant is also called a positive result; conversely, a result that is not unlikely under the null hypothesis is called a negative result or a null result.

Statistical hypothesis testing is a key technique of frequentist statistical inference. The Bayesian approach to hypothesis testing is to base rejection of the hypothesis on the posterior probability.Other approaches to reaching a decision based on data are available via decision theory and optimal decisions.

The critical region of a hypothesis test is the set of all outcomes which, if they occur, will lead us to decide that there is a difference. That is, cause the null hypothesis to be rejected in favor of the alternative hypothesis. The critical region is usually denoted by the letter C.

## Testing Process

1 We start with a research hypothesis of which the truth is unknown.

2 The first step is to state the relevant null and alternative hypotheses. This is important as mis-stating the hypotheses will muddy the rest of the process. Specifically, the null hypothesis allows to attach an attribute: it should be chosen in such a way that it allows us to conclude whether the alternative hypothesis can either be accepted or stays undecided as it was before the test.

3 The second step is to consider the statistical assumptions being made about the sample in doing the test; for example, assumptions about the statistical independence or about the form of the distributions of the observations. This is equally important as invalid assumptions will mean that the results of the test are invalid.

4 Decide which test is appropriate, and stating the relevant test statistic T.

5 Derive the distribution of the test statistic under the null hypothesis from the assumptions. In standard cases this will be a well-known result. For example the test statistics may follow a Student's t distribution or a normal distribution.

6 The distribution of the test statistic partitions the possible values of T into those for which the null-hypothesis is rejected, the so called critical region, and those for which it is not.

7 Compute from the observations the observed value tobs of the test statistic T.

8 Decide to either fail to reject the null hypothesis or reject it in favor of the alternative. The decision rule is to reject the null hypothesis H0 if the observed value tobs is in the critical region, and to accept or "fail to reject" the hypothesis otherwise.