What is the method by which one makes a conclusion about the entire population based on information obtained from a sample?

Hypothesis testing is a form of statistical inference that uses data from a sample to draw conclusions about a population parameter or a population probability distribution. First, a tentative assumption is made about the parameter or distribution. This assumption is called the null hypothesis and is denoted by H0. An alternative hypothesis (denoted Ha), which is the opposite of what is stated in the null hypothesis, is then defined. The hypothesis-testing procedure involves using sample data to determine whether or not H0 can be rejected. If H0 is rejected, the statistical conclusion is that the alternative hypothesis Ha is true.

For example, assume that a radio station selects the music it plays based on the assumption that the average age of its listening audience is 30 years. To determine whether this assumption is valid, a hypothesis test could be conducted with the null hypothesis given as H0: μ = 30 and the alternative hypothesis given as Ha: μ ≠ 30. Based on a sample of individuals from the listening audience, the sample mean age, x̄, can be computed and used to determine whether there is sufficient statistical evidence to reject H0. Conceptually, a value of the sample mean that is “close” to 30 is consistent with the null hypothesis, while a value of the sample mean that is “not close” to 30 provides support for the alternative hypothesis. What is considered “close” and “not close” is determined by using the sampling distribution of x̄.

Ideally, the hypothesis-testing procedure leads to the acceptance of H0 when H0 is true and the rejection of H0 when H0 is false. Unfortunately, since hypothesis tests are based on sample information, the possibility of errors must be considered. A type I error corresponds to rejecting H0 when H0 is actually true, and a type II error corresponds to accepting H0 when H0 is false. The probability of making a type I error is denoted by α, and the probability of making a type II error is denoted by β.

In using the hypothesis-testing procedure to determine if the null hypothesis should be rejected, the person conducting the hypothesis test specifies the maximum allowable probability of making a type I error, called the level of significance for the test. Common choices for the level of significance are α = 0.05 and α = 0.01. Although most applications of hypothesis testing control the probability of making a type I error, they do not always control the probability of making a type II error. A graph known as an operating-characteristic curve can be constructed to show how changes in the sample size affect the probability of making a type II error.

A concept known as the p-value provides a convenient basis for drawing conclusions in hypothesis-testing applications. The p-value is a measure of how likely the sample results are, assuming the null hypothesis is true; the smaller the p-value, the less likely the sample results. If the p-value is less than α, the null hypothesis can be rejected; otherwise, the null hypothesis cannot be rejected. The p-value is often called the observed level of significance for the test.

A hypothesis test can be performed on parameters of one or more populations as well as in a variety of other situations. In each instance, the process begins with the formulation of null and alternative hypotheses about the population. In addition to the population mean, hypothesis-testing procedures are available for population parameters such as proportions, variances, standard deviations, and medians.

Hypothesis tests are also conducted in regression and correlation analysis to determine if the regression relationship and the correlation coefficient are statistically significant (see below Regression and correlation analysis). A goodness-of-fit test refers to a hypothesis test in which the null hypothesis is that the population has a specific probability distribution, such as a normal probability distribution. Nonparametric statistical methods also involve a variety of hypothesis-testing procedures.

The methods of statistical inference previously described are often referred to as classical methods. Bayesian methods (so called after the English mathematician Thomas Bayes) provide alternatives that allow one to combine prior information about a population parameter with information contained in a sample to guide the statistical inference process. A prior probability distribution for a parameter of interest is specified first. Sample information is then obtained and combined through an application of Bayes’s theorem to provide a posterior probability distribution for the parameter. The posterior distribution provides the basis for statistical inferences concerning the parameter.

A key, and somewhat controversial, feature of Bayesian methods is the notion of a probability distribution for a population parameter. According to classical statistics, parameters are constants and cannot be represented as random variables. Bayesian proponents argue that, if a parameter value is unknown, then it makes sense to specify a probability distribution that describes the possible values for the parameter as well as their likelihood. The Bayesian approach permits the use of objective data or subjective opinion in specifying a prior distribution. With the Bayesian approach, different individuals might specify different prior distributions. Classical statisticians argue that for this reason Bayesian methods suffer from a lack of objectivity. Bayesian proponents argue that the classical methods of statistical inference have built-in subjectivity (through the choice of a sampling plan) and that the advantage of the Bayesian approach is that the subjectivity is made explicit.

Bayesian methods have been used extensively in statistical decision theory (see below Decision analysis). In this context, Bayes’s theorem provides a mechanism for combining a prior probability distribution for the states of nature with sample information to provide a revised (posterior) probability distribution about the states of nature. These posterior probabilities are then used to make better decisions.