Important concepts of Business Research Methodology

Hypothesis

A hypothesis can be defined as a tentative, yet testable, statement, which predicts what you
expect to find in your empirical data. Hypotheses are derived from the theory on which your
conceptual model is based and are often relational in nature. Along these lines, hypotheses
can be defined as logically conjectured relationships between two or more variables
expressed in the form of testable statements. By testing the hypotheses and confirming the
conjectured relationships, it is expected that solutions can be found to correct the problem
encountered.

Types of Hypothesis

The null and alternative hypotheses are two competing claims that researchers weigh
evidence for and against using a statistical test. A statistical hypothesis is an assumption

which may or may not be true. Hypothesis testing refers to the formal procedures used by
statisticians to accept or reject statistical hypotheses.

Two types of hypotheses are:

 Null Hypothesis (Ho) - There is no significant difference between the population and
sample research statistic.

OR

It states that there is no relationship between dependent and independent

variable.

 Alternative Hypothesis (H1) - There is significant difference between the population

and sample research statistic

The effect is usually the effect of the independent variable on the dependent variable.

H0 is true unless proven to be wrong.

p value

The P value is defined as the probability under the assumption of no effect or no difference
(null hypothesis), of obtaining a result equal to or more extreme than what was actually
observed. The P stands for probability and measures how likely it is that any observed
difference between groups is due to chance. Being a probability, P can take any value
between 0 and 1. Values close to 0 indicate that the observed difference is unlikely to be due
to chance, whereas a P value close to 1 suggests no difference between the groups other than
due to chance. Thus, it is common in medical journals to see adjectives such as “highly
significant” or “very significant” after quoting the P value depending on how close to zero
the value is.

α (significant value)

The significance value, also denoted as alpha or α, is the probability of rejecting the null
hypothesis when it is true. For example, a significance level of 0.05 indicates a 5% risk of
concluding that a difference exists when there is no actual difference.

Example: You give a test and you assume that you will score > 50

H0 – Score < or = 50, H1- Score > 50 – researcher’s assumption

If you assume 5% significance level, there are 5% chances that you score less than or equal to
50 (H0).

Confidence Interval

A confidence interval refers to the probability that a population parameter will fall between a
set of values for a certain proportion of times. A confidence interval, in statistics, refers to
the probability that a population parameter will fall between a set of values for a certain
proportion of times. Analysts often use confidence intervals that contain either 95% or 99%
of expected observations. Thus, if a point estimate is generated from a statistical model of
10.00 with a 95% confidence interval of 9.50 to 10.50, it means one is 95% confident that
the true value falls within that range.

Statisticians and other analysts use confidence intervals to understand the statistical
significance of their estimations, inferences, or predictions. If a confidence interval contains
the value of zero (or some other null hypothesis), then one cannot satisfactorily claim that a
result from data generated by testing or experimentation is to be attributable to a specific
cause rather than chance.

A confidence interval displays the probability that a parameter will fall between a pair of
values around the mean. Confidence intervals measure the degree of uncertainty or certainty
in a sampling method. They are also used in hypothesis testing and regression analysis.
Statisticians often use p-values in conjunction with confidence intervals to gauge statistical
significance. They are most often constructed using confidence levels of 95% or 99%.

Decision rule

One important part of hypothesis testing is understanding how to determine if there is enough
evidence to support your claim. There are two possible outcomes of hypothesis testing:

Reject the Null Hypothesis

Determine that there is sufficient evidence to suggest that the alternative hypothesis is true:

p< α or test statistic > critical value

Accept the Null Hypothesis

Determine that there is not sufficient evidence to suggest the alternative hypothesis is true.

p > α or test statistic is < critical value

Parametric and non-parametric tests

If you want to calculate a hypothesis test, you must first check the prerequisites of the
hypothesis test. A very common requirement is that the data used must be subject to some
distribution, usually the normal distribution. If your data are normally distributed, parametric
tests can usually be used, if they are not normally distributed, non-parametric tests are usually
used.

Non-parametric tests are more robust than parametric tests and can be calculated in
significantly more situations. Parametric tests, however, have a greater statistical power than
the non-parametric tests. Therefore, if the assumptions for a parametric test are met, it should
always be used. Nonparametric tests are suitable for any continuous data, based on ranks of
the data values
Therefore, the first step in making this decision is to check normality. One option is to
perform a simple check based on a histogram. If your histogram is roughly symmetrical, it is
safe to assume that the data is relatively normally distributed, and a parametric test will be
appropriate. If the histogram is not symmetrical, then a nonparametric test will be more
appropriate.

T-Test: A t-test is used to compare the means of two groups to determine if there is a
significant difference between them. You can use a t-test when your sample size is small (n <
30) and the population standard deviation is unknown. There are two types of t-tests: A two-
sample t-test and a paired t-test. A two-sample t-test is used to compare the means of two
independent groups, while a paired t-test is used to compare the means of two related groups,
such as before-and-after measurements.

Z-Test: A z-test is used to compare the mean of a single sample to a known population mean.
Unlike a t-test, a z-test assumes that the population standard deviation is known. A z-test is
typically used when the sample size is large (n > 30) or when the population standard
deviation is known from previous studies.

ANOVA: ANOVA (analysis of variance) is used to compare the means of more than two
groups to determine if there is a significant difference between them. ANOVA is appropriate
when you have continuous data and multiple groups to compare.

Chi-Square Test: A chi-square test is used to compare the frequency or count of observations
in two or more categories or groups. It is used to test the independence of two categorical
variables. For example, you can use a chi-square test to determine if there is a relationship
between gender and political affiliation. The chi-square test is appropriate when you have
categorical data and you want to determine if there is a relationship between two
variables.

Normal Distribution - Normal distribution, also known as the Gaussian distribution, is

a probability distribution that is symmetric about the mean, showing that data near the mean
are more frequent in occurrence than data far from the mean. The normal distribution
appears as a "bell curve" when graphed. Normal distributions are symmetrical, but not all
symmetrical distributions are normal.
Generally, skewness values if within -0.5 to 0.5 then said distribution can be
considered Normally skewed distribution.

One-tail and a two-tail hypothesis

One-Tailed: -A one-tailed test results from an alternative hypothesis which specifies a

direction. i.e. when the alternative hypothesis states that the parameter is in fact either bigger
or smaller than the value specified in the null hypothesis.

A one-tailed test may be either left-tailed or right-tailed. A left-tailed test is used when the
alternative hypothesis states that the true value of the parameter specified in the null
hypothesis is less than the null hypothesis claims. A right-tailed test is used when the
alternative hypothesis states that the true value of the parameter specified in the null
hypothesis is greater than the null hypothesis claims. Example- We want to collect data in
2021 and prove that Mean age of women in Delhi is μ>30 yrs

H0= Mean age of women in Delhi is not > 30 yrs; it is either equal or less i.e. μ0 < = 30

H1: Mean age of women in Delhi > 30; μ >30

Two-Tailed: - A two-tailed test results from an alternative hypothesis which does not specify
a direction. i.e. when the alternative hypothesis states that the null hypothesis is wrong. The
main difference between one-tailed and two-tailed tests is that one-tailed tests will only have
one critical region whereas two-tailed tests will have two critical regions.

Example- The average height of students in a batch is 100 cm and the standard deviation is
15. However, Tedd believes that this has changed, so he decides to test the height of 75
random students in the batch. The average height of the sample comes out to be 105. Is there
enough evidence to suggest that the average height has changed?

H0: μ = 100 (average height is same as before)

H1: μ ≠100 (The average height has changed; what ted believes)
Critical region

A critical region, also known as the rejection region, is a set of values for the test statistic for
which the null hypothesis is rejected. i.e. if the observed test statistic is in the critical region
then we reject the null hypothesis and accept the alternative hypothesis.

The critical value at a certain significance level can be thought of as a cut-off point. If a test
statistic on one side of the critical value results in accepting the null hypothesis, a test statistic
on the other side will result in rejecting the null hypothesis.

The rejection region is the region beyond a critical value in a hypothesis test. When the value
of a test statistic is in the rejection region, we decide to reject the null hypothesis; otherwise,
we retain the null hypothesis.