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Take the offer II We saw in Chapter 16 ?, Exercise 36 ? that First USA tested the effectiveness of a double miles campaign by recently sending out offers to a random sample of 50,000 cardholders. Of those, 1184 registered for the promotion. Even though this is nearly a \(2.4 \%\) rate, a staff member suspects that the success rate for the full campaign will be no different than the standard \(2 \%\) rate that they are used to seeing in similar campaigns. What do you predict? a. What are the hypotheses? b. Are the assumptions and conditions for inference met? c. Do you think the rate would change if they use this fundraising campaign? Explain.

Short Answer

Expert verified
a. Null hypothesis \(H_0: p = 0.02\), Alternative hypothesis \(H_a: p ≠ 0.02\). b. Yes, the conditions of Randomness, Normality, and Independence for conducting inference on a proportion are met. c. A prediction about whether the rate would change if they continue to use this campaign would require to perform a formal hypothesis test and cannot be asserted confidently just based on the sample proportion.

Step by step solution

01

Stating the Hypotheses

The null hypothesis (\(H_0\)) is that the success rate of the campaign is the same as the standard rate (i.e., \(p = 0.02\)), where p is the proportion of success. The alternative hypothesis (\(H_a\)) is that the success rate is different from the standard rate (i.e., \(p ≠ 0.02\)).
02

Check Assumptions and Conditions for Inference

For conducting inference about a proportion, we must check if the conditions of Randomness, Normality, and Independence are met. Randomness condition seems to be met as the problem states that the offers were sent to a random sample. Normality condition can be checked using the large counts condition which requires both \(np ≥ 10\) and \(n(1-p) ≥ 10\). Here, \(n = 50000\) and \(p = 0.02\). Thus, both \(np = 50000*0.02 = 1000 ≥ 10\) and \(n(1-p) = 50000*0.98 = 49000 ≥ 10\), so the Normality condition is met. Independence condition can be assumed if the sample is less than 10% of population, as we usually don't have access to accurate population sizes, especially in this case, it's safe to assume that 50000 is less than 10% of all cardholders. Thus, all conditions for inference are satisfied.
03

Perform Hypothesis Test and Make Prediction

As of now, based on the provided sample proportion \(2.4%\) which is slightly higher than the success rate they are used to seeing in similar campaigns \(2% = 0.02\), it might be tempting to think that the strategy is working. However, without performing a proper hypothesis test using a significance level (say, \(α = 0.05\)), it is premature to conclude that they will benefit from using this campaign in terms of the success rate. The prediction would require calculation of the test statistic and p-value using statistical software.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Null Hypothesis
When embarking on hypothesis testing, the null hypothesis (\( H_0 \) represents the default position or a statement of no effect. It's a hypothesis that there is no significant difference, and any observed deviation is due to random chance.
In the context of our example, the null hypothesis asserts that the success rate (\( p \)) of the campaign is equivalent to the standard rate of 2%.

To express it formally: \( H_0: p = 0.02 \), meaning the campaign made no impact on the success rate.
Alternative Hypothesis
The alternative hypothesis (\( H_a \)), on the other hand, posits that there is a real effect or difference. It challenges the status quo represented by the null hypothesis and suggests the possibility of a change brought about by the new condition or treatment.
For our exercise, the alternative hypothesis posits a change in the success rate different from the standard: \( H_a: p ≠ 0.02 \). This implies the campaign does have an effect on the success rate, be it an increase or decrease.
Conditions for Inference
For reliable inference about a population proportion, we must ensure three conditions are met: Randomness, Normality, and Independence.
  • The Randomness condition necessitates that the data should arise from a random sample or randomized experiment.
  • Normality is verified when the sample size (\( n \) is sufficiently large to justify the use of a normal model — typically examined by ensuring both \( np \geq 10 \) and \( n(1-p) \geq 10 \).
  • Last is the Independence, assuming that individual observations are independent of one another, often operationalized by the rule that the sample size should not exceed 10% of the population.
In our example, the conditions are met allowing us to perform a valid hypothesis test.
Test Statistic
The test statistic is a crucial component in hypothesis testing. It's calculated from sample data and serves as a standard measure to compare what we observed to what was hypothesized under the null hypothesis.

Calculating the test statistic allows us to see how extreme the observed result (\( p̂ \) is, considering the null hypothesis to be true. It typically involves how many standard deviations away our observed value is from that under the null hypothesis.
P-Value
The p-value is the probability of obtaining test results as extreme as the observed, assuming that the null hypothesis is correct. It provides a way to quantify the evidence against the null hypothesis.
In simplistic terms, a small p-value (\( < \)0.05 for instance) indicates strong evidence against the null hypothesis, thereby favoring the alternative.
Statistical Significance
Statistical significance is about determining whether our results are likely due to something other than mere random chance. It's a threshold we set for deciding when to believe the alternative hypothesis over the null.

If our p-value is lower than the chosen significance level, commonly denoted by \( α \), we say our results are 'statistically significant.' This means our findings are unlikely to have occurred if the null hypothesis were true and we might reject \( H_0 \) in favor of \( H_a \) with confidence.

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Most popular questions from this chapter

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