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Type II Error Probabilities, Required Sample Size for Specified Power

Type II Error Probabilities, Required Sample Size for Specified Power. Chapter 8 Hypothesis Testing for Means: Part 2. Hypothesis Testing for , Type II Error Probabilities (Right-tail example). Example

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Type II Error Probabilities, Required Sample Size for Specified Power

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  1. Type II Error Probabilities, Required Sample Size for Specified Power Chapter 8 Hypothesis Testing for Means: Part 2

  2. Hypothesis Testing for , Type II Error Probabilities (Right-tail example) • Example • A new billing system for a department store will be cost- effective only if the mean monthly account is more than $170. • A sample of 400 accounts has a mean of $174 and s = $65. • Can we conclude that the new system will be cost effective?

  3. Example (cont.) • Hypotheses • The population of interest is the credit accounts at the store. • We want to know whether the mean account for all customers is greater than $170. H0 : m = 170 HA : m > 170 • Where m is the mean account value for all customers

  4. Example (cont.) • Test statistic: H0 : m = 170 HA : m > 170

  5. Example (cont.) P-value: The probability of observing a value of the test statistic as extreme or more extreme then t = 1.23, given that m = 170 is… t399 Since the P-value > .05, we conclude that there is not sufficient evidence to reject H0 : =170. Type II error is possible

  6. Calculating , the Probability of aType II Error • Calculating  for the t test is not at all straightforward and is beyond the level of this course • The distribution of the test statistic t is quite complicated when H0 is false and HA is true • However, we can obtain very good approximate values for  using z (the standard normal) in place of t.

  7. Calculating , the Probability of aType II Error (cont.) • We need to • specify an appropriate significance level ; • Determine the rejection region in terms of z • Then calculate the probability of not being in the rejection when  = 1, where 1 is a value of  that makes HA true.

  8. Example (cont.) calculating  • Test statistic: H0 : m = 170 HA : m > 170 Choose  = .05 Rejection region in terms of z: z > z.05 = 1.645 a = 0.05

  9. The rejection region with a = .05. a=.05 H0: m = 170 HA: m = 180 m= 170 m=180 Example (cont.) calculating  Express the rejection region directly, not in standardized terms • Let the alternative value be m = 180 (rather than just m>170) Specify the alternative value under HA. Do not reject H0

  10. a=.05 H0: m = 170 H1: m = 180 m= 170 m=180 Example (cont.) calculating  • A Type II error occurs when a false H0 is not rejected. Suppose =180, that is H0 is false. A false H0… …is not rejected

  11. H0: m = 170 H1: m = 180 m=180 Example (cont.) calculating  Power when =180 = 1-(180)=.9236 m= 170

  12. a2 > b2 < Effects on b of changing a • Increasing the significance level a, decreases the value of b, and vice versa. a1 b1 m= 170 m=180

  13. Judging the Test • A hypothesis test is effectively defined by the significance level a and by the sample size n. • If the probability of a Type II error b is judged to be too large, we can reduce it by • increasing a, and/or • increasing the sample size.

  14. Judging the Test • Increasing the sample size reduces b By increasing the sample size the standard deviation of the sampling distribution of the mean decreases. Thus, the cutoff value of for the rejection region decreases.

  15. m= 170 m=180 Judging the Test • Increasing the sample size reduces b Note what happens when n increases: a does not change, but b becomes smaller

  16. Judging the Test • Increasing the sample size reduces b • In the example, suppose n increases from 400 to 1000. • a remains 5%, but the probability of a Type II drops dramatically.

  17. A Left - Tail Test • Self-Addressed Stamped Envelopes. • The chief financial officer in FedEx believes that including a stamped self-addressed (SSA) envelop in the monthly invoice sent to customers will decrease the amount of time it take for customers to pay their monthly bills. • Currently, customers return their payments in 24 days on the average, with a standard deviation of 6 days. • Stamped self-addressed envelopes are included with the bills for 75 randomly selected customers. The number of days until they return their payment is recorded.

  18. A Left - Tail Test: Hypotheses • The parameter tested is the population mean payment period (m) for customers who receive self-addressed stamped envelopes with their bill. • The hypotheses are:H0: m = 24H1: m < 24 • Use  = .05; n = 75.

  19. A Left - Tail Test: Rejection Region • The rejection region: • t < t.05,74 = 1.666 • Results from the 75 randomly selected customers:

  20. A Left -Tail Test: Test Statistic • The test statistic is: Since the rejection region is We do not reject the null hypothesis. Note that the P-value = P(t74< -1.52) = .066. Since our decision is to not reject the null hypothesis, A Type II error is possible.

  21. Left-Tail Test: Calculating , the Probability of a Type II Error • The CFO thinks that a decrease of one day in the average payment return time will cover the costs of the envelopes since customer checks can be deposited earlier. • What is (23), the probability of a Type II error when the true mean payment return time  is 23 days?

  22. Left-tail test: calculating  (cont.) • Test statistic: H0 : m = 24 HA : m < 24 Choose  = .05 Rejection region in terms of z: z < -z.05 = -1.645 a = 0.05

  23. The rejection region with a = .05. a=.05 H0: m = 24 HA: m = 23 m= 23 m=24 Left-tail test: calculating  (cont.) Express the rejection region directly, not in standardized terms • Let the alternative value be m = 23 (rather than just m < 24) Specify the alternative value under HA. Do not reject H0

  24. H0: m = 24 H1: m = 23 m=24 Left-tail test: calculating  (cont.) Power when =23 = 1-(23)=.282 a=.05 m= 23

  25. A Two - Tail Test for  • The Federal Communications Commission (FCC) wants competition between phone companies. The FCC wants to investigate if AT&T rates differ from their competitor’s rates. • According to data from the (FCC) the mean monthly long-distance bills for all AT&T residential customers is $17.09.

  26. A Two - Tail Test (cont.) • A random sample of 100 AT&T customers is selected and their bills are recalculated using a leading competitor’s rates. • The mean and standard deviation of the bills using the competitor’s rates are • Can we infer that there is a difference between AT&T’s bills and the competitor’s bills (on the average)?

  27. A Two - Tail Test (cont.) • Is the mean different from 17.09? • n = 100; use  = .05 H0: m = 17.09

  28. a/2 = 0.025 a/2 = 0.025 0 ta/2= 1.9842 -ta/2= -1.9842 Rejection region A Two – Tail Test (cont.) Rejection region t99

  29. 0 ta/2= 1.9842 -ta/2= -1.9842 A Two – Tail Test: Conclusion There is insufficient evidence to conclude that there is a difference between the bills of AT&T and the competitor. Also, by the P-value approach: The P-value = P(t < -1.19) + P(t > 1.19) = 2(.1184) = .2368 > .05 a/2 = 0.025 a/2 = 0.025 A Type II error is possible -1.19 1.19

  30. Two-Tail Test: Calculating , the Probability of a Type II Error • The FCC would like to detect a decrease of $1.50 in the average competitor’s bill. (17.09-1.50=15.59) • What is (15.59), the probability of a Type II error when the true mean competitor’s bill  is $15.59?

  31. a/2 = 0.025 a/2 = 0.025 Two – Tail Test: Calculating  (cont.) Rejection region Do not reject H0 17.09 Reject H0

  32. H0: m = 17.09 HA: m = 15.59 m=17.09 Two – Tail Test: Calculating  (cont.) Power when =15.59 = 1-(15.59)=.972 a=.05 m= 15.59

  33. General formula: Type II Error Probability (A) for a Level  Test

  34. Sample Size n for which a level  test also has (A) = 

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