Hypothesis Testing Framework

Now that we've seen an example and explored some of the themes for hypothesis testing, let's specify the procedure that we will follow.

Hypothesis Testing Steps

The formal framework and steps for hypothesis testing are as follows:

1. Identify and define the parameter of interest
2. Define the competing hypotheses to test
3. Set the evidence threshold, formally called the significance level
4. Generate or use theory to specify the sampling distribution and check conditions
5. Calculate the test statistic and p-value
6. Evaluate your results and write a conclusion in the context of the problem.

We'll discuss each of these steps below.

Identify Parameter of Interest

First, I like to specify and define the parameter of interest. What is the population that we are interested in? What characteristic are we measuring?

By defining our population of interest, we can confirm that we are truly using sample data. If we find that we actually have population data, our inference procedures are not needed. We could proceed by summarizing our population data.

By identifying and defining the parameter of interest, we can confirm that we use appropriate methods to summarize our variable of interest. We can also focus on the specific process needed for our parameter of interest.

In our example from the last page, the parameter of interest would be the population mean time that a host has been on Airbnb for the population of all Chicago listings on Airbnb in March 2023. We could represent this parameter with the symbol $\mu$. It is best practice to fully define $\mu$ both with words and symbol.

Define the Hypotheses

For hypothesis testing, we need to decide between two competing theories. These theories must be statements about the parameter. Although we won't have the population data to definitively select the correct theory, we will use our sample data to determine how reasonable our "skeptic's theory" is.

The first hypothesis is called the null hypothesis, $H_0$. This can be thought of as the "status quo", the "skeptic's theory", or that nothing is happening.

Examples of null hypotheses include that the population proportion is equal to 0.5 ($p = 0.5$), the population median is equal to 12 ($M = 12$), or the population mean is equal to 14.5 ($\mu = 14.5$).

The second hypothesis is called the alternative hypothesis, $H_a$ or $H_1$. This can be thought of as the "researcher's hypothesis" or that something is happening. This is what we'd like to convince the skeptic to believe. In most cases, the desired outcome of the researcher is to conclude that the alternative hypothesis is reasonable to use moving forward.

Examples of alternative hypotheses include that the population proportion is greater than 0.5 ($p > 0.5$), the population median is less than 12 ($M < 12$), or the population mean is not equal to 14.5 ($\mu \neq 14.5$).

There are a few requirements for the hypotheses:

• the hypotheses must be about the same population parameter,
• the hypotheses must have the same null value (provided number to compare to),
• the null hypothesis must have the equality (the equals sign must be in the null hypothesis),
• the alternative hypothesis must not have the equality (the equals sign cannot be in the alternative hypothesis),
• there must be no overlap between the null and alternative hypothesis.

You may have previously seen null hypotheses that include more than an equality (e.g. $p \le 0.5$). As long as there is an equality in the null hypothesis, this is allowed. For our purposes, we will simplify this statement to ($p = 0.5$).

To summarize from above, possible hypotheses statements are:

$H_0: p = 0.5$ vs. $H_a: p > 0.5$

$H_0: M = 12$ vs. $H_a: M < 12$

$H_0: \mu = 14.5$ vs. $H_a: \mu \neq 14.5$

In our second example about Airbnb hosts, our hypotheses would be:

$H_0: \mu = 2100$ vs. $H_a: \mu > 2100$.

Set Threshold (Significance Level)

There is one more step to complete before looking at the data. This is to set the threshold needed to convince the skeptic. This threshold is defined as an $\alpha$ significance level. We'll define exactly what the $\alpha$ significance level means later. For now, smaller $\alpha$s correspond to more evidence being required to convince the skeptic.

A few common $\alpha$ levels include 0.1, 0.05, and 0.01.

For our Airbnb hosts example, we'll set the threshold as 0.02.

Determine the Sampling Distribution of the Sample Statistic

The first step (as outlined above) is the identify the parameter of interest. What is the best estimate of the parameter of interest? Typically, it will be the sample statistic that corresponds to the parameter. This sample statistic, along with other features of the distribution will prove especially helpful as we continue the hypothesis testing procedure.

However, we do have a decision at this step. We can choose to use simulations with a resampling approach or we can choose to rely on theory if we are using proportions or means. We then also need to confirm that our results and conclusions will be valid based on the available data.

Required Condition

The one required assumption, regardless of approach (resampling or theory), is that the sample is random and representative of the population of interest. In other words, we need our sample to be a reasonable sample of data from the population.

Using Simulations and Resampling

If we'd like to use a resampling approach, we have no (or minimal) additional assumptions to check. This is because we are relying on the available data instead of assumptions.

We do need to adjust our data to be consistent with the null hypothesis (or skeptic's claim). We can then rely on our resampling approach to estimate a plausible sampling distribution for our sample statistic.

Recall that we took this approach on the last page. Before simulating our estimated sampling distribution, we adjusted the mean of the data so that it matched with our skeptic's claim, shown in the code below.

skeptic_data = df['host_since'] - df['host_since'].mean() + 1461

We'll see a few more examples on the next page.

Using Theory

On the other hand, we could rely on theory in order to estimate the sampling distribution of our desired statistic. Recall that we had a few different options to rely on:

• the CLT for the sampling distribution of a sample mean
• the binomial distribution for the sampling distribution of a proportion (or count)
• the Normal approximation of a binomial distribution (using the CLT) for the sampling distribution of a proportion

If relying on the CLT to specify the underlying sampling distribution, you also need to confirm:

• independence of observations in the sample, by:
  • having a random sample and
  • having a sample size that is less than 10% of the population size if the sampling is done without replacement
  • having a Normally distributed population for a quantitative variable OR
  • having a large enough sample size (usually at least 25) for a quantitative variable
  • having a large enough sample size for a categorical variable (defined by $np$ and $n(1-p)$ being at least 10)

  If relying on the binomial distribution to specify the underlying sampling distribution, you need to confirm:

  • independence of observations in the sample, by:
    • having a random sample and
    • having a sample size that is less than 10% of the population size if the sampling is done without replacement
    • having a set number of trials, $n$
    • having the same probability of success, $p$ for each observation

    After determining the appropriate theory to use, we should check our conditions and then specify the sampling distribution for our statistic.

    For the Airbnb hosts example, we have what we've assumed to be a random sample. It is not taken with replacement, so we also need to assume that our sample size (700) is less than 10% of our population size. In other words, we need to assume that the population of Chicago Airbnbs in March 2023 was at least 7000. Since we do have our (presumed) population data available, we can confirm that there were at least 7000 Chicago Airbnbs in the population in 2023.

    Additionally, we can confirm that normality of the sampling distribution applies for the CLT to apply. Our sample size is more than 25 and the parameter of interest is a mean, so this meets our necessary criteria for the normality condition to be valid.

    With the conditions now met, we can estimate our sampling distribution. From the CLT, we know that the distribution for the sample mean should be $\bar \sim N(\mu, \frac>)$.

    Now, we face our next challenge -- what to plug in as the mean and standard error for this distribution. Since we are adopting the skeptic's point of view for the purpose of this approach, we can plug in the value of $\mu_0 = 2100$. We also know that the sample size $n$ is 700. But what should we plug in for the population standard deviation $\sigma$?

    When we don't know the value of a parameter, we will generally plug in our best estimate for the parameter. In this case, that corresponds to plugging in $\hat$, or our sample standard deviation.

    (df['host_since]).std()

    1095.4612690788788

    Now, our estimated sampling distribution based on the CLT is: $\bar \sim N(2100, 41.4045)$.

    If we compare to our corresponding skeptic's sampling distribution on the last page, we can confirm that the theoretical sampling distribution is similar to the simulated sampling distribution based on resampling.

    Assumptions not met

    What do we do if the necessary conditions aren't met for the sampling distribution? Because the simulation-based resampling approach has minimal assumptions, we should be able to use this approach to produce valid results as long as the provided data is representative of the population.

    The theory-based approach has more conditions, and we may not be able to meet all of the necessary conditions. For example, if our parameter is something other than a mean or proportion, we may not have appropriate theory. Additionally, we may not have a large enough sample size.

    • First, we could consider changing approaches to the simulation-based one.
    • Second, we might look at how we could meet the necessary conditions better. In some cases, we may be able to redefine groups or make adjustments so that the setup of the test is closer to what is needed.
    • As a last resort, we may be able to continue following the hypothesis testing steps. In this case, your calculations may not be valid or exact; however, you might be able to use them as an estimate or an approximation. It would be crucial to specify the violation and approximation in any conclusions or discussion of the test.

    Calculate the evidence with statistics and p-values

    Now, it's time to calculate how much evidence the sample contains to convince the skeptic to change their mind. As we saw above, we can convince the skeptic to change their mind by demonstrating that our sample is unlikely to occur if their theory is correct.

    How do we do this? We do this by calculating a probability associated with our observed value for the statistic.

    For example, for our situation, we want to convince the skeptic that the population mean is actually greater than 2100 days. We do that by calculating the probability that a sample mean would be as large or larger than what we observed in our actual sample, which was 2188 days. Why do we need the larger portion? We use the larger portion because a sample mean of 2200 days also provides evidence that the population mean is larger than 2100 days; it isn't limited to exactly what we observed in our sample. We call this specific probability the p-value.

    That is, the p-value is the probability of observing a test statistic as extreme or more extreme (as determined by the alternative hypothesis), assuming the null hypothesis is true.

    Our observed p-value for the Airbnb host example demonstrates that the probability of getting a sample mean host time of 2188 days (the value from our sample) or more is 1.46%, assuming that the true population mean is 2100 days.

    Test statistic

    Notice that the formal definition of a p-value mentions a test statistic. In most cases, this word can be replaced with "statistic" or "sample" for an equivalent statement.

    Oftentimes, we'll see that our sample statistic can be used directly as the test statistic, as it was above. We could equivalently adjust our statistic to calculate a test statistic. This test statistic is often calculated as:

    P-value Calculation Options

    Note also that the p-value definition includes a probability associated with a test statistic being as extreme or more extreme (as determined by the alternative hypothesis. How do we determine the area that we consider when calculating the probability. This decision is determined by the inequality in the alternative hypothesis.

    For example, when we were trying to convince the skeptic that the population mean is greater than 2100 days, we only considered those sample means that we at least as large as what we observed -- 2188 days or more.

    If we wanted to convince the skeptic that they were wrong and that the population mean is anything other than 2100 days ($H_a: \mu \neq 2100$), then we would want to calculate the probability that a sample mean is at least 88 days away from 2100 days. That is, we would calculate the probability corresponding to 2188 days or more or 2012 days or less. In this case, our p-value would be roughly twice the previously calculated p-value.

    We could calculate all of those probabilities using our sampling distributions, either simulated or theoretical, that we generated in the previous step. If we chose to calculate a test statistic as defined in the previous section, we could also rely on standard normal distributions to calculate our p-value.

    Evaluate your results and write conclusion in context of problem

    Once you've gathered your evidence, it's now time to make your final conclusions and determine how you might proceed.

    In traditional hypothesis testing, you often make a decision. Recall that you have your threshold (significance level $\alpha$) and your level of evidence (p-value). We can compare the two to determine if your p-value is less than or equal to your threshold. If it is, you have enough evidence to persuade your skeptic to change their mind. If it is larger than the threshold, you don't have quite enough evidence to convince the skeptic.

    Common formal conclusions (if given in context) would be:

    • I have enough evidence to reject the null hypothesis (the skeptic's claim), and I have sufficient evidence to suggest that the alternative hypothesis is instead true.
    • I do not have enough evidence to reject the null hypothesis (the skeptic's claim), and so I do not have sufficient evidence to suggest the alternative hypothesis is true.

    The only decision that we can make is to either reject or fail to reject the null hypothesis (we cannot "accept" the null hypothesis). Because we aren't actively evaluating the alternative hypothesis, we don't want to make definitive decisions based on that hypothesis. However, when it comes to making our conclusion for what to use going forward, we frame this on whether we could successfully convince someone of the alternative hypothesis.

    A less formal conclusion might look something like:

    Based on our sample of Chicago Airbnb listings, it seems as if the mean time since a host has been on Airbnb (for all Chicago Airbnb listings) is more than 5.75 years.

    Significance Level Interpretation

    We've now seen how the significance level $\alpha$ is used as a threshold for hypothesis testing. What exactly is the significance level?

    The significance level $\alpha$ has two primary definitions. One is that the significance level is the maximum probability required to reject the null hypothesis; this is based on how the significance level functions within the hypothesis testing framework. The second definition is that this is the probability of rejecting the null hypothesis when the null hypothesis is true; in other words, this is the probability of making a specific type of error called a Type I error.

    Why do we have to be comfortable making a Type I error? There is always a chance that the skeptic was originally correct and we obtained a very unusual sample. We don't want to the skeptic to be so convinced of their theory that no evidence can convince them. In this case, we need the skeptic to be convinced as long as the evidence is strong enough. Typically, the probability threshold will be low, to reduce the number of errors made. This also means that a decent amount of evidence will be needed to convince the skeptic to abandon their position in favor of the alternative theory.

    p-value Limitations and Misconceptions

    In comparison to the $\alpha$ significance level, we also need to calculate the evidence against the null hypothesis with the p-value.

    The p-value is the probability of getting a test statistic as extreme or more extreme (in the direction of the alternative hypothesis), assuming the null hypothesis is true.

    Recently, p-values have gotten some bad press in terms of how they are used. However, that doesn't mean that p-values should be abandoned, as they still provide some helpful information. Below, we'll describe what p-values don't mean, and how they should or shouldn't be used to make decisions.

    Factors that affect a p-value

    What features affect the size of a p-value?

    • the null value, or the value assumed under the null hypothesis
    • the effect size (the difference between the null value under the null hypothesis and the true value of the parameter)
    • the sample size

    More evidence against the null hypothesis will be obtained if the effect size is larger and if the sample size is larger.

    Misconceptions

    We gave a definition for p-values above. What are some examples that p-values don't mean?

    • A p-value is not the probability that the null hypothesis is correct
    • A p-value is not the probability that the null hypothesis is incorrect
    • A p-value is not the probability of getting your specific sample
    • A p-value is not the probability that the alternative hypothesis is correct
    • A p-value is not the probability that the alternative hypothesis is incorrect
    • A p-value does not indicate the size of the effect

    Our p-value is a way of measuring the evidence that your sample provides against the null hypothesis, assuming the null hypothesis is in fact correct.

    Using the p-value to make a decision

    Why is there bad press for a p-value? You may have heard about the standard $\alpha$ level of 0.05. That is, we would be comfortable with rejecting the null hypothesis once in 20 attempts when the null hypothesis is really true. Recall that we reject the null hypothesis when the p-value is less than or equal to the significance level.

    Consider what would happen if you have two different p-values: 0.049 and 0.051.

    In essence, these two p-values represent two very similar probabilities (4.9% vs. 5.1%) and very similar levels of evidence against the null hypothesis. However, when we make our decision based on our threshold, we would make two different decisions (reject and fail to reject, respectively). Should this decision really be so simplistic? I would argue that the difference shouldn't be so severe when the sample statistics are likely very similar. For this reason, I (and many other experts) strongly recommend using the p-value as a measure of evidence and including it with your conclusion.

    Putting too much emphasis on the decision (and having a significant result) has created a culture of misusing p-values. For this reason, understanding your p-value itself is crucial.

    Searching for p-values

    The other concern with setting a definitive threshold of 0.05 is that some researchers will begin performing multiple tests until finding a p-value that is small enough. However, with a p-value of 0.05, we know that we will have a p-value less than 0.05 1 time out of every 20 times, even when the null hypothesis is true.

    This means that if researchers start hunting for p-values that are small (sometimes called p-hacking), then they are likely to identify a small p-value every once in a while by chance alone. Researchers might then publish that result, even though the result is actually not informative. For this reason, it is recommended that researchers write a definitive analysis plan to prevent performing multiple tests in search of a result that occurs by chance alone.

    Best Practices

    With all of this in mind, what should we do when we have our p-value? How can we prevent or reduce misuse of a p-value?

    • Report the p-value along with the conclusion
    • Specify the effect size (the value of the statistic)
    • Define an analysis plan before looking at the data
    • Interpret the p-value clearly to specify what it indicates
    • Consider using an alternate statistical approach, the confidence interval, discussed next, when appropriate