A car manufacturing company releases a new car and it claims that the car has a mileage of 20 kms per liter. Should we believe it or not? And why should or shouldn't we believe it? Hypothesis testing is a method that can be used to make decisions in such situations.
Hypothesis testing generally involves four steps.
First, we develop two claims: null hypothesis (H0) and alternative hypothesis (Ha). In our case ‘the car can run 20 kms per liter’ is a null hypothesis and ‘the car can’t run 20 kms per liter’ is an alternative hypothesis.
Second, we collect a sample (sample of newly manufactures cars) and collect relevant data from them and summarize it using statistics.
Then, we calculate how probable it is to find the result from our analysis if the hypothesis was true.