# Significance Level and P-values in Hypothesis Testing

Hypothesis Testing is one of the most valuable concepts for Data Science professionals. Significance level (alpha) and p-values are fundamental concepts in hypothesis testing. The significance level determines the risk of Type I errors, while p-values quantify the strength of evidence against the null hypothesis. If you want to know everything about Significance level and p-values in hypothesis testing, this article is for you. In this article, I’ll take you through a detailed introduction to significance level (alpha) and p-values in hypothesis testing and how to interpret these values.

## Understanding Significance Level and P-values in Hypothesis Testing

#### Significance Level (Alpha)

In hypothesis testing, the significance level, denoted as alpha (α), is a predetermined threshold that defines how much evidence we require to reject the null hypothesis. Commonly used significance levels include 0.05 (5%) and 0.01 (1%). Choosing the significance level depends on the desired balance between making correct decisions and avoiding errors.

A lower alpha (e.g., 0.01) means you need stronger evidence to reject the null hypothesis. It reduces the chance of making a Type I error (incorrectly rejecting a true null hypothesis), but it increases the risk of a Type II error (incorrectly failing to reject a false null hypothesis). Conversely, a higher alpha (e.g., 0.05) increases the chance of a Type I error but reduces the risk of a Type II error.

Let’s understand this with an example. Suppose you work in a pharmaceutical company, and you’re testing a new drug to see if it’s effective in treating a particular disease. In hypothesis testing, you have two competing hypotheses:

1. Null Hypothesis (H0): The new drug has no effect; it’s as effective as a placebo.
2. Alternative Hypothesis (H1): The new drug is effective in treating the disease; it’s better than a placebo.

You set a significance level, represented by alpha (α), to determine how strong the evidence should be before you reject the null hypothesis.

##### Case 1: Lower Alpha (e.g., α = 0.01):

In this case, you require very strong evidence to reject the null hypothesis. It means you are being very cautious and conservative in concluding. If you perform a hypothesis test with α = 0.01 and you find that the p-value (a measure of evidence against the null hypothesis) is less than 0.01, you would reject the null hypothesis.

It reduces the chance of a Type I error, which is incorrectly concluding that the new drug is effective when it’s not (false positive). So, with a lower alpha, you are being stringent to avoid making this error. However, it increases the risk of a Type II error, which is incorrectly concluding that the new drug is not effective when it actually is (false negative). With a lower alpha, you make it harder to detect a real effect.

##### Case 2: Higher Alpha (e.g., α = 0.05):

In this case, you are willing to accept weaker evidence to reject the null hypothesis. It means you are more lenient in concluding. If you perform a hypothesis test with α = 0.05 and you find that the p-value is less than 0.05, you would reject the null hypothesis.

It increases the chance of a Type I error, where you may conclude that the new drug is effective when it’s not. So, with a higher alpha, you are more accepting of the possibility of making this error. However, it reduces the risk of a Type II error, where you may incorrectly conclude that the new drug is not effective when it actually is. With a higher alpha, you make it easier to detect a real effect.

#### Understanding P-values

In hypothesis testing, the p-value represents the probability of obtaining an observed result, or more extreme results, if the null hypothesis were true. A smaller p-value suggests stronger evidence against the null hypothesis.

The interpretation of p-values is as follows:

• If p-value ≤ alpha (α): You have enough evidence to reject the null hypothesis. It suggests that the observed data is unlikely to have occurred under the assumption that the null hypothesis is true.
• If p-value > alpha (α): You do not have enough evidence to reject the null hypothesis. It suggests that the observed data is consistent with the null hypothesis.

So, the significance level alpha helps determine the threshold for accepting or rejecting the null hypothesis. P-values provide a measure of the strength of evidence against the null hypothesis. The choice of alpha should be made based on the desired balance between Type I and Type II errors and the specific context of the analysis.

### Summary

In hypothesis testing, the significance level, denoted as alpha (α), is a predetermined threshold that defines how much evidence we require to reject the null hypothesis. Commonly used significance levels include 0.05 (5%) and 0.01 (1%). And the p-value represents the probability of obtaining an observed result, or more extreme results, if the null hypothesis were true. A smaller p-value suggests stronger evidence against the null hypothesis.

I hope you liked this article on an introduction to significance level (alpha) and p-values in hypothesis testing and how to interpret these values. Feel free to ask valuable questions in the comments section below. ##### Aman Kharwal

I'm a writer and data scientist on a mission to educate others about the incredible power of data📈.

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