321w8p1 - Rejecting the Null Once we have our hypotheses...

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Rejecting the Null Once we have our hypotheses formed, and our t-statistics and p-values calculated, we must decide whether or not our hypothesis is reasonable.
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Level of Significance – the probability level at which we feel comfortable rejecting the null. Typically denoted by . Critical Value – Given our chosen level of significance, the critical value is that value, above which, the probability of a t-stat occuring is equal to . The critical value is denoted by c. ex/ Suppose we choose = 5% as our level of significance. For a one sided test ( H 0 : j = 0, H 1 : j 0 ), the critical value is such that: P t j c 0.05 = P t j c With n-k-1=28 degrees of freedom, c=1.701
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Rejection Rule for our One-Sided test: When t j >c, the probability of this t-stat occuring by chance is less than our chosen significance level 5%, so we reject the null hypothesis. When t j <c, the probability of the t-stat occuring by chance is greater than 5%, so do not reject the null hypothesis.
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This note was uploaded on 01/26/2012 for the course ECON 401 taught by Professor Burbidge,john during the Fall '08 term at Waterloo.

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321w8p1 - Rejecting the Null Once we have our hypotheses...

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