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Introduction to Hypothesis Tests

Hypothesis testing is a common method of drawing inferences about a population based on statistical evidence from a sample.

As an example, suppose someone says that at a certain time in the state of Massachusetts the average price of a gallon of regular unleaded gas was $1.15. How could you determine the truth of the statement? You could try to find prices at every gas station in the state at the time. That approach would be definitive, but it could be time-consuming, costly, or even impossible.

A simpler approach would be to find prices at a small number of randomly selected gas stations around the state, and then compute the sample average.

Sample averages differ from one another due to chance variability in the selection process. Suppose your sample average comes out to be $1.18. Is the $0.03 difference an artifact of random sampling or significant evidence that the average price of a gallon of gas was in fact greater than $1.15? Hypothesis testing is a statistical method for making such decisions.

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