Is the critical value the value which is closest to the significance level or the value which is below the significance level

binomial distributionhypothesis testingstatistics

Consider the example below which I will use to aid my question:

X – B(20, 0.2)

H0: p = 0.2

H1: p ≠ 0.2

Testing at the 10% significance level, the tail is 0.05 at either end.

At the lower end:

P(X <= 0) = 0.0115

p(X <= 1) = 0.0692

Since both values are not equal to 0.05, do we take the critical value as the value which has a closer probability to 0.05, which would be 1 in this instance, or do we take the critical value as the value which is less than the significance level?

I've become confused because the mark scheme chooses the critical value as the value closer to the significance level in some questions but in others, it chooses the critical value as the value which is less than the significance level.

Best Answer

For a two-tailed binomial exact test, the rejection region depends on how you allocate the $\alpha$. You suggest an equal allocation of $\alpha/2$ to each tail, thus you require the maximum $x_1$ such that $\Pr[X \le x_1 \mid H_0] \le \alpha/2$, and the minimum $x_2$ such that $\Pr[X \ge x_2 \mid H_0] \le \alpha/2$. For $n = 20$, as you pointed out, $\Pr[X = 0] \approx 0.0115292$ but $\Pr[X \le 1] \approx 0.0691753 > \alpha/2$. We also have $\Pr[X \ge 8] \approx 0.0321427$, but $\Pr[X \ge 7] \approx 0.0866925 > \alpha/2$. So the rejection region for an equal-tailed allocation is $$(X = 0) \cup (X \ge 8).$$ What is interesting is that the rejection region $(X = 0) \cup (X \ge 7)$ has an overall Type I error of $0.0982217 < \alpha$, but it isn't equal allocation. Similarly we could also choose $(x \le 1) \cup (X \ge 9)$ with an overall Type I error $0.0791571$ but again this is unequal allocation of $\alpha$ to the tails.