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## Power Function and Significance Level

Suppose that is the test statistic and the critical region for a test of a hypothesis concerning the value of a parameter . Then the power function of the test is the probability that the test rejects , when the actual parameter value is . That is,

 (9.1)

Some texts interpret power as the probability of rejecting when it is false, but the more general interpretation is the probability that a test rejects for taking values given by or .

Suppose we want to test the simple , against the composite alternative . Ideally we would like a test to detect a departure from with certainty; that is, we would like to be for all in , and to be for in . Since for a fixed sample size, P(rejecting is true) and P(not rejecting is false) cannot both be made arbitrarily small, the ideal test is not possible.

So long as is simple, it is possible to define P(Type I error), denoted by , as P(rejecting is true). But to allow for to be composite, we need the following definitions.

Definition 9..1
The size of a test (or of a critical region) is

 (9.2)

This is also known as the significance level.

Definition 9..2
The size of Type II error is

 (9.3)

Some statisticians regard the formal approach above, of setting up a rejection region, as not the most appropriate, and prefer to compute a P-value. This involves the choice of a test statistic T, the extreme values of which provide evidence against . The statistic T should be a good estimator of and its distribution under known. After experimentation, an observed value of T, t say, is examined to see whether it can be considered extreme in the sense of being unlikely to occur if were true. The computed P-value is the probability of observing or something more extreme. This is the '' at which the observed value is just significant.

Next: Relation between Hypothesis Testing Up: Basic Concepts and Notation Previous: Introduction   Contents
Bob Murison 2000-10-31