Econ 703 Formula Sheet.pptx - Sx2 on Calc Sx on Calc...

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4. Compare the test statistic to the critical value. Reject or fail to reject the null. If your test statistic is ≤ the critical value then fail to reject the null hypothesis If your test statistic is > the critical value then reject the null hypothesis, accept the alternative hypothesis For different significance levels : • 95% significance level (CV=1 . 96): Reject the null hypothesis if t-stat < −1 . 96 or t-stat > 1 . 96 Not reject if −1 . 96 < t-stat < 1 . 96 • 90% significance level (CV=1 . 645): Reject the null hypothesis if t-stat < −1 . 645 or t-stat > 1 . 645 Not reject if −1 . 645 < t-stat < 1 . 645 • 99% significance level (CV=2 . 575): Reject the null hypothesis if t-stat < −2 . 575 or t-stat > 2 . 575 Not reject if −2 . 575 < t-stat < 2 . 575 Standardized Test Statistic : Informally = Compute a test statistic (often called a t-stat) and see how it compares to the critical values at your significance level. A critical value is a cutoff value that defines the boundaries beyond which less than 5% of sample means can be obtained if the null hypothesis is true. Sample means obtained beyond a critical value will result in a decision to reject the null hypothesis. In a

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