Learn the core statistical concepts, followed by application of these concepts using R Studio with the a nice combination of theory and practice. Learn key statistical concepts and techniques like exploratory data analysis, correlation, regression, and inference.
Science of Average and their Estimate
Data Science is primarily used to make decisions and predictions.
Enable the business to make intelligent, fact-based decision.
- Data and its Types
- Variable and it's Types
- Sample and Population
- Sampling Techniques
- Descriptive Statistics
- Information Gain and Entropy
- Probability and it's Uses
- Probability Distribution
- Baye's Theorem
- Statistical Inference
- Hypothesis Testing
- Statistical Testing
- Data Clustering
- Regression Modelling
Statistics Definition: (Science of Average and their Estimate) Statistics is the science of collecting, organizing, presenting, analyzing and interpreting data for specific purpose to help in making more effective decision.
To make more effective decision for the betterment of individual, society, business, nature and so on
Statistical analysis is implemented to manipulate, summarize, and investigate data, so that useful decision making information results are obtained.
Two type of statistics:
a) Descriptive Statistics (used to describe the basic features of the data)
b) Inferential statistics (aims at learning characteristics of the population from a sample)
Data is a set of collected or recorded facts of particular subject.
Data in general terms refer to facts and statistics collected together for reference or analysis.
Types of Data:
“Data Associated with the quality in different categories”. Data is measurements, each fall into one of several categories. (Hair Color, ethnic groups and other attributes of the population)
~ Data with no inherent order or ranking such as gender or race, suck kind of data called Nominal Data.
“Data associated with Quantity which can be measured” ~ Data measured on a numeric scale (distance travelled to college, the number of children in a family etc.)
(a). Discrete Data: “Based on count, finite number of values possible and value cannot be subdivided”
~ Data which can be categorized into classification, data which is based upon counts, there are only a finite number of values possible and values cannot be subdivided meaningfully, such kind of data is called Discrete Data.
(b). # Continuous Data: “measured on a continuum or a scale, value which can be subdivided into finer increments”
~ Data which can be measured on a continuum or a scale, data which can be have almost any numeric value and can be subdivided into finer and finer increments, such kind of data is called Continuous Data.
A variable in algebra represents an unknown value or a value that varies.
Variable that can be put into categories. For example, male and female are two categories in a Gender.
A factor in an experiment which must be held constant
Extra variables that have a hidden effects on your experimental results
The outcome of an experiment
A variable that is not affected by anything
A Population is the set of all possible states of a random variable. The size of the population may be either infinite or finite.
In other words, A collection or set of individual or objects or events whose properties are to be anlysed called population.
A Sample is a subset of the population; its size is always finite.
A subset of population is called "Sample". A well choosen sample will contain most of the information about a particular population parameter.
This Sampling technique uses randomization to make sure that every element of the population gets an equal chance to be part of the selected sample. It’s alternatively known as random sampling.
Every element has an equal chance of getting selected to be the part sample. It is used when we don’t have any kind of prior information about the target population.
For example: Random selection of 20 students from class of 50 student. Each student has equal chance of getting selected. Here probability of selection is 1/50.
Here the selection of elements is systematic and not random except the first element. Elements of a sample are chosen at regular intervals of population. All the elements are put together in a sequence first where each element has the equal chance of being selected.
For a sample of size n, we divide our population of size N into subgroups of k elements.
We select our first element randomly from the first subgroup of k elements.
To select other elements of sample, perform following:
We know number of elements in each group is k i.e N/n
So if our first element is n1 then
Second element is n1+k i.e n2
Third element n2+k i.e n3 and so on..
Taking an example of N=20, n=5
No of elements in each of the subgroups is N/n i.e 20/5 =4= k
Now, randomly select first element from the first subgroup.
If we select n1= 3
n2 = n1+k = 3+4 = 7
n3 = n2+k = 7+4 = 11
This technique divides the elements of the population into small subgroups (strata) based on the similarity in such a way that the elements within the group are homogeneous and heterogeneous among the other subgroups formed. And then the elements are randomly selected from each of these strata. We need to have prior information about the population to create subgroups.
It does not rely on randomization. This technique is more reliant on the researcher’s ability to select elements for a sample. Outcome of sampling might be biased and makes difficult for all the elements of population to be part of the sample equally. This type of sampling is also known as non-random sampling.
This technique is used in the situations where the population is completely unknown and rare. Therefore we will take the help from the first element which we select for the population and ask him to recommend other elements who will fit the description of the sample needed.
So this referral technique goes on, increasing the size of population like a snowball.
It’s used in situations of highly sensitive topics like HIV Aids where people will not openly discuss and participate in surveys to share information about HIV Aids.
Not all the victims will respond to the questions asked so researchers can contact people they know or volunteers to get in touch with the victims and collect information
Helps in situations where we do not have the access to sufficient people with the characteristics we are seeking. It starts with finding people to study.
This type of sampling depends of some pre-set standard. It selects the representative sample from the population. Proportion of characteristics/ trait in sample should be same as population. Elements are selected until exact proportions of certain types of data is obtained or sufficient data in different categories is collected.
If our population has 45% females and 55% males then our sample should reflect the same percentage of males and females.
This is based on the intention or the purpose of study. Only those elements will be selected from the population which suits the best for the purpose of our study.
If we want to understand the thought process of the people who are interested in pursuing master’s degree then the selection criteria would be “Are you interested for Masters in..?”
All the people who respond with a “No” will be excluded from our sample.
Here the samples are selected based on the availability. This method is used when the availability of sample is rare and also costly. So based on the convenience samples are selected.
Researchers prefer this during the initial stages of survey research, as it’s quick and easy to deliver results.
Collecting, Summarizing or Describing and Processing data to transform data into information
Descriptive statistics are used to describe the basic features of the data in a study.
- Descriptive statistics is a data analysis strategy.
- It deals with the representation of numerical facts, or data, in either table or graphic form, and with the methodology of analysis the data.
Example: A student’s grade point average (GPA), provides a good understanding in analysing his overall performance.
Descriptive statistics are broken down into two categories. Measures of Central Tendency and Measures of Spread (variability or dispersion).
The data values for most numerical variables tend to group around a specific value
Measure of centre help us to describe what extent this pattern holds for a specific numerical variable
Three commonly-used measures of centre:
The mean (or average) of a number of observations is the sum of the values of all the observations divided by the total number of observations. It is denoted by the symbol X, read as ‘X bar’.
The median is that value of the given number of observations, which divides it into exactly two parts. So, when the data is arranged in ascending (or descending) order the median of ungrouped data is calculated as follows:
(i) When the number of observations (n) is odd, the median is the value of the {(n+1)/2}th observation. For example, if n = 13, the value of the {(13+1)/2}th, i.e., the 7th observation will be the median.
(ii) When the number of observations (n) is even, the median is the mean of the {n/2}th and the {(n+1)/2}th observations.
The mode is the most common observation of a data set, or the value in the data set that occurs most frequently.
Median: • Ignore the extreme value • Tell the point from where 50% data is lesser and 50% is more
Mean: • All the data are given equal importance
Mean – Mode = 3 (Mean - Median)
Mode = 3Median – 2Mean
A measure of spread, sometimes also called a measure of dispersion or measure of variability is used to describe the variability in a sample or population.
It is usually used in conjunction with measure of central tendency, such as the mean or median, to provide an overall description of a set of data.
The range is simply the difference between the maximum and minimum values in a data set.
So in a data set of 2, 2, 3, 4, 5, 5, 6, 7, 8, 9, 11, 13, 15, 15, 17, 19, 20, the range is the difference between 2 and 20. 18 = 20 - 2
While it is useful in seeing how large the difference in observations is in a sample, it says nothing about the spread of the data.
Percentiles divide a data set into 100 equal parts. A percentile is simply a measure that tells us what percent of the total frequency of a data set was at or below that measure.
Quartile 1 (Q1) can be called the 25th percentile Quartile 2 (Q2) can be called the 50th percentile Quartile 3 (Q3) can be called the 75th percentile
The inter-quartile range (IQR) gives more information about how the observation values of a data set are dispersed. It shows the range of the middle 50% of observations.
The standard deviation indicates the average distance between an observation value, and the mean of a data set. In this way, it shows how well the mean represents the values in a data set. Like the mean, it is appropriate to use when the data set is not skewed or containing outliers.
In probability theory and statistics, skewness is a measure of the asymmetry of the probability distribution of a real-valued random variable about its mean. The skewness value can be positive or negative, or undefined.
In probability theory and statistics, kurtosis is a measure of the "tailedness" of the probability distribution of a real-valued random variable.
- Information is a measure of facts
- Information gain is the ratio of factual information, to uncertain information
- Is signifies a reduction is entropy or uncertain
- In the most layman terms, Entropy is nothing but the measure of disorder or uncertainty (You can think of it as a measure of purity as well) the goal of machine learning models and Data Scientists in general is to reduce uncertainty.
- We sometimes need to choose the options which have high information gain and low entropy while taking crucial decision
A confusion matrix is a table that is often used to describe the performance of a classification model (or “classifier”) on set of test data for which the true value are known:
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Confusion matrix represents a tabular presentation of Actual Vs Predict Value
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You can calculate the accuracy of your model with:
(True Positive + True Negative) / (True Positive + True Negative + False Positive + False Negative)
- There are two possible predicted classes: “yes” and “no”
- The classifier made a total of 165 predictions
- Out of those 165 cases, the classifier predicted “yes” 110 times, and “no” 55 times
- In reality, 105 patients in the sample have the disease, and 60 patient do not
(A): Type I Error: We predict yes, but they don’t actually have the disease (Also known as Type I Error)
(B): Type II Error: We predict No, but they actually do have the disease (Also known as Type II Error)
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Sensitivity (also called the true positive rate, the recall, or probability of detection in some fields) measures the proportion of positives that are correctly identified
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In probability notation:
Sensitivity = TRUE POSITIVE / (TRUE POSITIVE + FALSE NEGATIVE)
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Specificity (also called the true negative rate) measures the proportion of negatives that are correctly identified as such (e.g. the percentage of healthy people who are correctly identified as not having the condition)
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In probability notation:
Specificity = TRUE NEGATIVE / (TRUE NEGATIVE + FALSE POSITIVE)
A measure of uncertainty of various phenomenon, numerically
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Probability is measure of how likely something will occur
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It is the ratio of desired outcomes to total outcomes:
Desired Outcomes/ #Total Outcomes
P (E) = No. of favourable outcome / Total no. of outcomes
P (E) + P (E’) = 1
An operation which can produce some well-defined outcomes is called an experiment. Each outcome is called an event
For example; throwing a die or tossing a coin etc. In an experiment where all possible outcomes are known and in advance if the exact outcome cannot be predicted, is called a random experiment.
By a trial, we mean performing a random experiment.
The sample space for a probability experiment is the set of all possible outcomes. This is usually written with set notation (curly brackets). For example, going back to a regular 6-sided die the sample space would be:
S={1,2,3,4,5,6}
Out of the total results obtained from a certain experiment, the set of those results which are in favor of a definite result is called the event and it is denoted as E.
When there is no reason to expect the happening of one event in preference to the other, then the events are known equally likely events.
For example; when an unbiased coin is tossed the chances of getting a head or a tail are the same.
All the possible outcomes of the experiments are known as exhaustive events.
For example; in throwing a die there are 6 exhaustive events in a trial.
The outcomes which make necessary the happening of an event in a trial are called favorable events.
For example; if two dice are thrown, the number of favorable events of getting a sum 5 is four,
i.e., (1, 4), (2, 3), (3, 2) and (4, 1).
If there be no element common between two or more events, i.e., between two or more subsets of the sample space, then these events are called mutually exclusive events.
If E1 and E2 are two mutually exclusive events, then E1 ∩ E2 = ∅
An event which consists in the negation of another event is called complementary event of the er event. In case of throwing a die, ‘even face’ and ‘odd face’ are complementary to each other. “Multiple of 3” ant “Not multiple of 3” are complementary events of each other.
Union of events is simply a union of two or more than two events. If A and B are two events then A U B is called union of A and B. suppose that two events are given A and B then. The union of two events A and B is the event which consists all the elements of A and B.
Suppose A and B are two events associated with a random experiment. Then the union of A and B is represented by A ∪ B.
The probability of union of two events is given by:
P(A∪B) = P(A)+P(B) – P(A∩B)
Here, P (A) is the probability of event A, P (B) is the probability of event B.
Also, P(A∩B) is the probability of the intersection of events A and B.
When A and B are two independent or mutually exclusive events that is the occurrence of event A does not affect the occurrence of event B at all, in such a case, P(A∩B) = 0 and hence we have,
P(A∪B) = P(A)+P(B)
If we have more than two independent events say A, B & C, then in that case the union probability is given by:
P(A∪B∪C) = P(A)+P(B)+P(C)
If AB and C are not independent or mutually exclusive then the union probability is given by:
P(A∪B∪C) = P(A)+P(B)+P(C) – P(A∩B)–P(B∩C)–P(A∩C) - P(A∩B∩C)
Intersection of events means that all the events are occurring together. Even if one event holds false all will be false. The intersection of events can only be true if and only if all the events holds true.
The probability that Events A and B both occur is the probability of the intersection of A and B. The probability of the intersection of Events A and B is denoted by P(A ∩ B). If Events A and B are mutually exclusive, P(A ∩ B) = 0.
The rule of multiplication applies to the situation when we want to know the probability of the intersection of two events; that is, we want to know the probability that two events (Event A and Event B) both occur.
Rule of Multiplication The probability that Events A and B both occur is equal to the probability that Event A occurs times the probability that Event B occurs, given that A has occurred.
P(A ∩ B) = P(A) P(B|A)
We will learn this in two part = Probability + Distribution
Probability is often associated with at least one event. This event can be anything. Basic examples of events include rolling a die or pulling a coloured ball out of a bag. In these examples the outcome of the event is random (you can’t be sure of the value that the die will show when you roll it), so the variable that represents the outcome of these events is called a random variable (often abbreviated to RV).
If A is an event, then the marginal probability is the probability of that event occurring, P(A). Example: Assuming that we have a pack of traditional playing cards, an example of a marginal probability would be the probability that a card drawn from a pack is red: P(red) = 0.5.
The probability of the intersection of two or more events. Visually it is the intersection of the circles of two events on a Venn Diagram (see figure below). If A and B are two events then the joint probability of the two events is written as P(A ∩ B). Example: The probability that a card drawn from a pack is red and has the value 4 is P(red and 4) = 2/52 = 1/26. (There are 52 cards in a pack of traditional playing cards and the 2 red ones are the hearts and diamonds). We’ll go through this example in more detail later.
The conditional probability is the probability that some event(s) occur given that we know other events have already occurred. If A and B are two events then the conditional probability of A occurring given that B has occurred is written as P(A|B). Example: The probability that a card is a four given that we have drawn a red card is P(4|red) = 2/26 = 1/13. (There are 52 cards in the pack, 26 are red and 26 are black. Now because we’ve already picked a red card, we know that there are only 26 cards to choose from, hence why the first denominator is 26).
Before we jump on to the explanation of distributions, let’s see what kind of data can we encounter. The data can be discrete or continuous.
Discrete Data, as the name suggests, can take only specified values. For example, when you roll a die, the possible outcomes are 1, 2, 3, 4, 5 or 6 and not 1.5 or 2.45.
Continuous Data can take any value within a given range. The range may be finite or infinite. For example, A girl’s weight or height, the length of the road. The weight of a girl can be any value from 54 kgs, or 54.5 kgs, or 54.5436kgs.
1.Bernoulli Distribution 2. Uniform Distribution 3. Binomial Distribution 4. Normal Distribution 5. Poisson Distribution 6. Exponential Distribution
Normal distribution represents the behavior of most of the situations in the universe (That is why it’s called a “normal” distribution). The large sum of (small) random variables often turns out to be normally distributed, contributing to its widespread application. Any distribution is known as Normal distribution if it has the following characteristics:
- The mean, median and mode of the distribution coincide.
- The curve of the distribution is bell-shaped and symmetrical about the line x=μ.
- The total area under the curve is 1.
- Exactly half of the values are to the left of the center and the other half to the right.
- A normal distribution is highly different from Binomial Distribution. However, if the number of trials approaches infinity then the shapes will be quite similar.
- The normal curve is symmetric about the mean and bell shaped.
- Mean, mode and median is zero which is the centre of the curve.
- Approximately 68% of the data will be between -1 and +1 (i.e. within 1 standard deviation from the mean), 95% between -2 and +2 (within 2 SD from the mean) and 99.7% between -3 and 3 (within 3 SD from the mean)
- Population : Space of all possible elements from a set of data
- Sample : consists of observations drawn from population
- Parameter : measurable characteristic of a population such as mean, SD
- Statistic: measurable characteristic of a sample
A probability distribution is a list of all of the possible outcomes of a random variable along with their corresponding probability values.
A probability distribution is a table or an equation that links each outcome of a statistical experiment with its probability of occurrence. Consider the coin flip experiment described above. The table below, which associates each outcome with its probability, is an example of a probability distribution.
Number of heads Probability
0 0.25
1 0.50
2 0.25
The above table represents the probability distribution of the random variable X.
- A probability distribution is a list of outcomes and their associated probabilities.
- We can write small distributions with tables but it’s easier to summarise large distributions with functions.
- A function that represents a discrete probability distribution is called a probability mass function.
- A function that represents a continuous probability distribution is called a probability density function.
- Functions that represent probability distributions still have to obey the rules of probability
- The output of a probability mass function is a probability whereas the area under the curve produced by a probability density function represents a probability.
- Parameters of a probability function play a central role in defining the probabilities of the outcomes of a random variable.
The central limit theorem (CLT) is simple. It just says that with a large sample size, sample means are normally distributed.
Well, the central limit theorem (CLT) is at the heart of hypothesis testing – a critical component of the data science lifecycle.
Given a dataset with unknown distribution (it could be uniform, binomial or completely random), the sample means will approximate the normal distribution.
Before we dive into the implementation of the central limit theorem, it’s important to understand the assumptions behind this technique:
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The data must follow the randomization condition. It must be sampled randomly
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Samples should be independent of each other. One sample should not influence the other samples
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Sample size should be not more than 10% of the population when sampling is done without replacement
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The sample size should be sufficiently large. Now, how we will figure out how large this size should be? Well, it depends on the population. When the population is skewed or asymmetric, the sample size should be large. If the population is symmetric, then we can draw small samples as well In general, a sample size of 30 is considered sufficient when the population is symmetric.
The mean of the sample means is denoted as: µ X̄ = µ where, µ X̄ = Mean of the sample means µ= Population mean And, the standard deviation of the sample mean is denoted as: σ X̄ = σ/sqrt(n) where, σ X̄ = Standard deviation of the sample mean σ = Population standard deviation n = sample size
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Bayes' theorem (also known as Bayes' rule) is a useful tool for calculating conditional probabilities.
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Bayes’ Theorem is a way of finding a probability when we know certain other probabilities.
Bayes' theorem can be stated as follows:
The formula is: P(A|B) = P(A) P(B|A)P(B)
Which tells us: how often A happens given that B happens, written P(A|B),
When we know: how often B happens given that A happens, written P(B|A)
and how likely A is on its own, written P(A)
and how likely B is on its own, written P(B)
The rule has a very simple derivation that directly leads from the relationship between joint and conditional probabilities. First, note that P(A,B) = P(A|B)P(B) = P(B,A) = P(B|A)P(A). Next, we can set the two terms involving conditional probabilities equal to each other, so P(A|B)P(B) = P(B|A)P(A), and finally, divide both sides by P(B) to arrive at Bayes rule.
In this formula, A is the event we want the probability of, and B is the new evidence that is related to A in some way.
P(A|B) is called the posterior; this is what we are trying to estimate. In the above example, this would be the “probability of having cancer given that the person is a smoker”.
P(B|A) is called the likelihood; this is the probability of observing the new evidence, given our initial hypothesis. In the above example, this would be the “probability of being a smoker given that the person has cancer”.
P(A) is called the prior; this is the probability of our hypothesis without any additional prior information. In the above example, this would be the “probability of having cancer”.
P(B) is called the marginal likelihood; this is the total probability of observing the evidence. In the below mention example, this would be the “probability of being a smoker”. In many applications of Bayes Rule, this is ignored, as it mainly serves as normalization.
Let us say P(Fire) means how often there is fire, and P(Smoke) means how often we see smoke, then:
P(Fire|Smoke) means how often there is fire when we can see smoke P(Smoke|Fire) means how often we can see smoke when there is fire
So the formula kind of tells us "forwards" P(Fire|Smoke) when we know "backwards" P(Smoke|Fire)
Example: If dangerous fires are rare (1%) but smoke is fairly common (10%) due to barbecues, and 90% of dangerous fires make smoke then:
P(Fire|Smoke) = P(Fire) * P(Smoke|Fire) / P(Smoke)
= 1% x 90% / 10%
= 9%
So the "Probability of dangerous Fire when there is Smoke" is 9%
Statistical inference is the process of drawing conclusions about populations or scientific truths from data.
The four-step process that encompasses statistics: Data Production, Exploratory Data Analysis, Probability and Inference.
A statistical inference aims at learning characteristics of the population from a sample; the population characteristics are parameters and sample characteristics are statistics.
A statistical model is a representation of a complex phenomena that generated the data.
- It has mathematical formulations that describe relationships between random variables and parameters.
- It makes assumptions about the random variables, and sometimes parameters.
- A general form: data = model + residuals
- Model should explain most of the variation in the data
- Residuals are a representation of a lack-of-fit, that is of the portion of the data unexplained by the model.
Estimation represents ways or a process of learning and determining the population parameter based on the model fitted to the data.
Point Estimation and Interval Estimation, and Hypothesis Testing are three main ways of learning about the population parameter from the sample statistic.
An estimator is particular example of a statistic, which becomes an estimate when the formula is replaced with actual observed sample values.
Point Estimation = a single value that estimates the parameter. Point estimates are single values calculated from the sample
Confidence Intervals = gives a range of values for the parameter Interval estimates are intervals within which the parameter is expected to fall, with a certain degree of confidence.
Hypothesis Tests = tests for a specific value(s) of the parameter. In order to perform these inferential tasks, i.e., make inference about the unknown population parameter from the sample statistic, we need to know the likely values of the sample statistic. What would happen if we do sampling many times?
We need the sampling distribution of the statistic
- It depends on the model assumptions about the population distribution, and/or on the sample size.
- Standard error refers to the standard deviation of a sampling distribution.
A statistical hypothesis is an assumption about a population parameter. This assumption may or may not be true. Hypothesis testing refers to the formal procedures used by statisticians to accept or reject statistical hypotheses.
The best way to determine whether a statistical hypothesis is true would be to examine the entire population. Since that is often impractical, researchers typically examine a random sample from the population. If sample data are not consistent with the statistical hypothesis, the hypothesis is rejected.
The null hypothesis, denoted by Ho, is usually the hypothesis that sample observations result purely from chance.
The alternative hypothesis, denoted by H1 or Ha, is the hypothesis that sample observations are influenced by some non-random cause.
Statisticians follow a formal process to determine whether to reject a null hypothesis, based on sample data. This process, called hypothesis testing, consists of four steps.
- State the hypotheses: This involves stating the null and alternative hypotheses. The hypotheses are stated in such a way that they are mutually exclusive. That is, if one is true, the other must be false.
- Formulate an analysis plan: The analysis plan describes how to use sample data to evaluate the null hypothesis. The evaluation often focuses around a single test statistic.
- Analyze sample data: Find the value of the test statistic (mean score, proportion, t statistic, z-score, etc.) described in the analysis plan.
- Interpret results: Apply the decision rule described in the analysis plan. If the value of the test statistic is unlikely, based on the null hypothesis, reject the null hypothesis.
Two types of errors can result from a hypothesis test.
A Type I error occurs when the researcher rejects a null hypothesis when it is true. The probability of committing a Type I error is called the significance level. This probability is also called alpha, and is often denoted by α.
A Type II error occurs when the researcher fails to reject a null hypothesis that is false. The probability of committing a Type II error is called Beta, and is often denoted by β. The probability of not committing a Type II error is called the Power of the test.
The analysis plan includes decision rules for rejecting the null hypothesis. In practice, statisticians describe these decision rules in two ways - with reference to a P-value or with reference to a region of acceptance.
- P-value. The strength of evidence in support of a null hypothesis is measured by the P-value. Suppose the test statistic is equal to S. The P-value is the probability of observing a test statistic as extreme as S, assuming the null hypothesis is true. If the P-value is less than the significance level, we reject the null hypothesis.
- Region of acceptance. The region of acceptance is a range of values. If the test statistic falls within the region of acceptance, the null hypothesis is not rejected. The region of acceptance is defined so that the chance of making a Type I error is equal to the significance level.
- The set of values outside the region of acceptance is called the region of rejection. If the test statistic falls within the region of rejection, the null hypothesis is rejected. In such cases, we say that the hypothesis has been rejected at the α level of significance.
Significance level is the probablity of rejecting the null hypothesis when it is true, which is known as Type I Error. Denoted by alpha.
The Confidence level is just the compliment of Significance level which signifies how confident you are in your decision. Express as 1 - alpha.
Confidence Level + Significance Level = 1 (always)
One-Tailed and Two-Tailed Tests A test of a statistical hypothesis, where the region of rejection is on only one side of the sampling distribution, is called a one-tailed test.
For example, suppose the null hypothesis states that the mean is less than or equal to 10. The alternative hypothesis would be that the mean is greater than 10. The region of rejection would consist of a range of numbers located on the right side of sampling distribution; that is, a set of numbers greater than 10.
A test of a statistical hypothesis, where the region of rejection is on both sides of the sampling distribution, is called a two-tailed test.
For example, suppose the null hypothesis states that the mean is equal to 10. The alternative hypothesis would be that the mean is less than 10 or greater than 10. The region of rejection would consist of a range of numbers located on both sides of sampling distribution; that is, the region of rejection would consist partly of numbers that were less than 10 and partly of numbers that were greater than 10.
Statistical Tests are intended to decide weather a hypothesis about distribution of one or more populations should be accepted or rejected.
Their are two type of statistical tests:
- To calculate the difference in the sample and population means
- To find the difference in sample means
- To test the significance of association between two variables
- To calculate several population means
- To test the difference in proportions between two independent populations
- To test the difference in proporation between sample and population
- Parameters are numbers which summarize the data for the entrire population, while statistics are numbers which summarize the data from a sample
- Parametric Testing is used for quanititve data and continuous variables
(1) Parametric Tests : A parametric test makes assumption regarding population parameters and distribution
The Z Test is used for testing significance difference between two point estimates
- The sample must be randomly selected and data must be quantitative
- Sample should be larger
- Data should follow a normal distribution
The CEO of a large electric utility claims that 80 percent of his 1,000,000 customers are very satisfied with the service they receive. To test this claim, the local newspaper surveyed 100 customers, using simple random sampling. Among the sampled customers, 73 percent say they are very satisified. Based on these findings, can we reject the CEO's hypothesis that 80% of the customers are very satisfied? Use a 0.05 level of significance.
The solution to this problem takes four steps: (1) state the hypotheses, (2) formulate an analysis plan, (3) analyze sample data, and (4) interpret results. We work through those steps below:
State the hypotheses. The first step is to state the null hypothesis and an alternative hypothesis.
Null hypothesis: P = 0.80
Alternative hypothesis: P ≠ 0.80
Note that these hypotheses constitute a two-tailed test. The null hypothesis will be rejected if the sample proportion is too big or if it is too small.
Formulate an analysis plan. For this analysis, the significance level is 0.05. The test method, shown in the next section, is a one-sample z-test.
Analyze sample data. Using sample data, we calculate the standard deviation (σ) and compute the z-score test statistic (z).
σ = sqrt[ P * ( 1 - P ) / n ]
σ = sqrt [(0.8 * 0.2) / 100]
σ = sqrt(0.0016) = 0.04
z = (p - P) / σ = (.73 - .80)/0.04 = -1.75
where P is the hypothesized value of population proportion in the null hypothesis, p is the sample proportion, and n is the sample size.
Since we have a two-tailed test, the P-value is the probability that the z-score is less than -1.75 or greater than 1.75.
We use the Normal Distribution Calculator to find P(z < -1.75) = 0.04, and P(z > 1.75) = 0.04. Thus, the P-value = 0.04 + 0.04 = 0.08. Interpret results. Since the P-value (0.08) is greater than the significance level (0.05), we cannot reject the null hypothesis. Note: If you use this approach on an exam, you may also want to mention why this approach is appropriate. Specifically, the approach is appropriate because the sampling method was simple random sampling, the sample included at least 10 successes and 10 failures, and the population size was at least 10 times the sample size.
Suppose the previous example is stated a little bit differently. Suppose the CEO claims that at least 80 percent of the company's 1,000,000 customers are very satisfied. Again, 100 customers are surveyed using simple random sampling. The result: 73 percent are very satisfied. Based on these results, should we accept or reject the CEO's hypothesis? Assume a significance level of 0.05.
The solution to this problem takes four steps: (1) state the hypotheses, (2) formulate an analysis plan, (3) analyze sample data, and (4) interpret results. We work through those steps below:
State the hypotheses. The first step is to state the null hypothesis and an alternative hypothesis.
Null hypothesis: P >= 0.80
Alternative hypothesis: P < 0.80
Note that these hypotheses constitute a one-tailed test. The null hypothesis will be rejected only if the sample proportion is too small.
Formulate an analysis plan. For this analysis, the significance level is 0.05. The test method, shown in the next section, is a one-sample z-test.
Analyze sample data. Using sample data, we calculate the standard deviation (σ) and compute the z-score test statistic (z).
σ = sqrt[ P * ( 1 - P ) / n ] = sqrt [(0.8 * 0.2) / 100]
σ = sqrt(0.0016) = 0.04
z = (p - P) / σ = (.73 - .80)/0.04 = -1.75
where P is the hypothesized value of population proportion in the null hypothesis, p is the sample proportion, and n is the sample size.
Since we have a one-tailed test, the P-value is the probability that the z-score is less than -1.75. We use the Normal Distribution Calculator to find P(z < -1.75) = 0.04. Thus, the P-value = 0.04. Interpret results. Since the P-value (0.04) is less than the significance level (0.05), we cannot accept the null hypothesis. Note: If you use this approach on an exam, you may also want to mention why this approach is appropriate. Specifically, the approach is appropriate because the sampling method was simple random sampling, the sample included at least 10 successes and 10 failures, and the population size was at least 10 times the sample size.