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Unformatted text preview: Lecture 6: Hypothesis Testing Econ 444, Winter 2010 Jan 27, 2010 1. What is hypothesis testing ? Example 1: Suppose you have data on quantity demanded of a CD (Qd) and the price of the CD (P). Your goal is to estimate a simple demand curve for this CD : Qd i = β + β 1 P i + i (1) In (1), from law of demand, you would expect, β 1 < (2) Then, (2) forms a hypothesis that can be tested statistically. Example 2: Suppose you have data on, a) Test scores of 300 OSU students in Econ 200 for Fall 2007.Denote this variable by Y . b) Hours studied by the these students on average.Denote this variable by X 1 . c) High School GPA of these students.Denote this variable by X 2 . You want to estimate the following regression equation, Y i = β + β 1 X 1 i + β 2 X 2 i + i for i = 1 , 2 , 3 ... 300 (3) Some of the testable hypotheses based on (3) are, Does hours studied improve test scores? So you may want to test if β 1 = 0 or positive. Does higher high school GPA increases test score obtained in Econ 200? Thus we may want to test if β 2 = 0 or positive. 2. Components of Hypothesis Testing 1 Specifying the hypothesis to be tested. 2 Finding a decision rule that can be applied to accept or reject the hypothesis in question. 3 Accounting for possible errors from the application of the chosen decision rule. 2. Components of Hypothesis Testing 1 Specifying the hypothesis to be tested. 2 Finding a decision rule that can be applied to accept or reject the hypothesis in question. 3 Accounting for possible errors from the application of the chosen decision rule. 2. Components of Hypothesis Testing 1 Specifying the hypothesis to be tested. 2 Finding a decision rule that can be applied to accept or reject the hypothesis in question....
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This note was uploaded on 04/13/2010 for the course ECON 444 taught by Professor Ogaki during the Winter '07 term at Ohio State.
 Winter '07
 OGAKI
 Econometrics

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