Incorporating the Subjective Probabilities in
the Hypothesis Testing Process

This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page.

Professor Hossein Arsham   

At the planning stage of a statistical hypothesis testing, both parties, namely the "producer", and the "consumer" agree on the testing process prior to taking sampling. In most cases, the consumer has some prior experience; therefore, he/she might be able to make a better decision by incorporating his/her subjective probabilities regarding trustfulness of the null hypothesis.

The following JavaScript compute the total net profit, as a performance measure indicating how "good" is the decision-maker in deciding about the input parameters of the decision process.

The aim of applying this JavaScript is at improving your decision making process with a desirable net profit.

Enter the needed information indicated with red headings, and then click the Calculate button.

In entering your data to move from cell to cell in the data-matrix use the Tab key not arrow or enter keys.

The four possible profits (some could be negative):
If the null is true and you'll reject it If the null is false and you'll reject it
If the null is true and you'll not reject it If the null is false and you'll not reject it
Size of the two types of error:
Type-I error: The producer's risk (a) Type-II error: The consumer's risk (b)
Total sampling cost
Your subjective probability that the null is true
Your expected net profit is:

For Technical Details, Back to:
Statistical Thinking for Decision Making

Kindly email your comments to:
Professor Hossein Arsham


Decision Tools in Economics & Finance

Probabilistic Modeling


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Kindly e-mail me your comments, suggestions, and concerns. Thank you.

Professor Hossein Arsham   

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