Q. How do I set up a hypothesis test?
There are three items you need before performing a hypothesis test:
Null Hypothesis (\(H_0\)): This is the “default” hypothesis for the parameter. You are trying to disprove this. It should always include “=”.
Alternative Hypothesis (\(H_A\) or \(H_1\)): This is what you want to show. It should include “<”, “>”, or “\(\neq\)”.
Significance Level: This is the probability that you reject the null hypothesis when the null is actually true (also called false positive rate or Type I error). It is often notated with the Greek letter \(\alpha\). You can adjust the significance level based on how confident you want to be in the results. Smaller significance levels result in greater confidence.