2/14/2020

Business Research Method

Prof. Ravi Shekhar Kumar

Session-9b

Causality

• Concept of Causality in Research

– X is only one of a number of possible causes of Y.
– The occurrence of X makes the occurrence of Y more probable (X is a
probabilistic cause of Y).

• Conditions for Causality

– Concomitant variation is the extent to which a cause, X, & an effect, Y,
occur together or vary together in way predicted by hypothesis under
consideration.
– Time order of occurrence condition states that causing event must
occur either before or simultaneously with effect; it cannot occur
afterwards.
– Absence of other possible causal factors means that factor or variable
being investigated should be only possible causal explanation.

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Definitions of Terms

• Independent variables
– Variables or alternatives that are manipulated & whose effects
are measured & compared, e.g., price levels.
• Test units
– Individuals, organizations, or other entities whose response to
the independent variables or treatments is being examined,
e.g., consumers or stores.
• Dependent variables
– Variables which measure effect of independent variables on test
units, e.g., sales, profits, market shares.
• Extraneous variables
– Variables other than independent variables that affect response
of test units, e.g., store size, store location, competitive effort.

Experiment & Experimental Design

• Experiment
– Process of manipulating one or more independent variables and
measuring their effect on one or more dependent variables, while
controlling for the extraneous variable

• Experimental design is a set of procedures specifying:

– test units & how these units are to be divided into homogeneous
subsamples
– what independent variables or treatments are to be manipulated
– what dependent variables are to be measured
– how extraneous variables are to be controlled

Illustration:
• Whether humor has positive effect on the purchase intention of the
products that are purchased impulsively.
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Validity in Experiment

• Internal validity refers to whether manipulation of independent

variables or treatments actually caused observed effects on
dependent variables.
– Did the manipulation of independent variable (e.g., humor) do what it
was supposed to do?
– Control of extraneous variables is a necessary condition for establishing
internal validity.

• External validity refers to whether cause-and-effect relationships

found in experiment can be generalized.
– To what populations, settings, times, independent variables, &
dependent variables can results be projected?

Laboratory Experiment Vs. Field Experiment

Extraneous Variables: Sources

• History refers to specific events that are external to experiment but

occur at the same time as experiment.
• Maturation refers to changes in test units themselves that occur
with passage of time.
• Testing effects are caused by the process of experimentation.
These are effects on experiment of taking a measure on dependent
variable before & after presentation of treatment.
• Instrumentation refers to changes in measuring instrument, in
observers, or in scores themselves.
• Selection bias refers to improper assignment of test units to
treatment conditions.
• Mortality refers to loss of test units while experiment is in progress.

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Control of Extraneous Variables

• Randomization refers to random assignment of test units to

experimental groups by using random numbers. Treatment
conditions are also randomly assigned to experimental groups.
• Matching involves comparing test units on a set of key background
variables before assigning them to treatment conditions.
• Design control involves use of experiments designed to control
specific extraneous variables.
• Statistical control involves measuring extraneous variables &
adjusting for their effects through statistical analysis.

Limitations of Experiment

• Experiments can be time consuming, particularly if researcher is

interested in measuring long-term effects.
• Experiments are often expensive. Requirements of experimental
group, control group, & multiple measurements significantly add to
cost of research.
• Experiments can be difficult to administer. It may be impossible to
control for the effects of extraneous variables, particularly in a field
environment.
• Competitors may deliberately contaminate results of a field
experiment.

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Experimental Design

One-Shot Case Study

X 01
• A single group of test units is exposed to a treatment X.
• A single measurement on dependent variable is taken.
• There is no random assignment of test units.
• One-shot case study is more appropriate for exploratory than for
conclusive research.

Note:
X: Exposure to a treatment
O: Observation

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One-Group Pretest-Posttest Design

01 X 02
• A group of test units is measured twice.

• There is no control group.

• Treatment effect is computed as 02 – 01.

• Validity of this conclusion is questionable since extraneous

variables are largely uncontrolled.

Note:
X: Exposure to a treatment
O: Observation

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Static Group Design

EG: X 01
CG: 02
• A two-group experimental design.
• EG is exposed to treatment, & CG is not.
• Measurements on both groups are made only after treatment.
• Test units are not assigned at random.
• Treatment effect would be measured as 01 - 02.
Note
EG: Experimental group (EG)
CG: Control group (CG)
X: Exposure to a treatment

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Pretest-Posttest Control Group Design

EG: R 01 X 02
CG: R 03 04

• Test units are randomly assigned to either EG or CG.

• A pretreatment measure is taken on each group.
• Treatment effect is measured as: (02 - 01) - (04 - 03).

Note
EG: Experimental group (EG)
CG: Control group (CG)
R: Randomization
X: Exposure to a treatment

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Posttest-Only Control Group Design

EG : R X 01
CG : R 02

• Treatment effect is obtained by: TE = 01 - 02

• Except for pre-measurement, implementation of this design is very
similar to that of pretest-posttest control group design.

Note
EG: Experimental group (EG)
CG: Control group (CG)
R: Randomization
X: Exposure to a treatment

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Randomized Block Design

• Test units are blocked, or grouped, on the basis of external

variable.

• By blocking, researcher ensures that various experimental & control

groups are matched closely on external variable.

• It is useful when there is only one major external variable, such as

store size, that might influence dependent variable.

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Randomized Block Design

Treatment Groups
Block Store Commercial Commercial Commercial
Number Patronage A B C

1 Heavy A B C

2 Medium A B C

3 Low A B C

4 None A B C

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Factorial Design

• It is used to measure the effects of two or more independent

variables at various levels.
• A factorial design may also be conceptualized as a table.
• In a two-factor design, each level of one variable represents a row
and each level of another variable represents a column.

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Factorial Design

Amount of Humor
Amount of Store No Medium High
Information Humor Humor Humor

Low A B C

Medium D E F

High G H I

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One way ANOVA

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ANOVA: Introduction

• Analysis of variance (ANOVA) is used as a test of means for two or

more populations.
– Null hypothesis is that all means are equal.

• ANOVA must have a dependent variable that is metric (measured

using an interval or ratio scale).

• There must also be one or more independent variables that are all
categorical (nonmetric).

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ANOVA: Introduction

• Categorical independent variables are also called factors.

• A particular combination of factor levels, or categories, is called a
treatment.
• One-way ANOVA involves only one categorical variable, or a single
factor. In one-way ANOVA, a treatment is same as a factor level.
• If two or more factors are involved, analysis is termed n-way
ANOVA.

• If set of independent variables consists of both categorical & metric

variables, technique is Analysis of Covariance (ANCOVA).
– In this case, categorical independent variables are still referred to as
factors, whereas metric-independent variables are referred to as
covariates.

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Statistics Associated with One-Way ANOVA

• SSbetween. Also denoted as SSx, this is variation in Y related to

variation in means of categories of X. This represents variation
between categories of X, or portion of sum of squares in Y related to
X.
• SSwithin. Also referred to as SSerror, this is variation in Y due to
variation within each of categories of X. This variation is not
accounted for by X.
• SSy. This is total variation in Y.

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Decomposition of Total Variation

Independent Variable X
Total
Categories Sample
Within X1 X2 X3 … Xc
Category Y1 Y1 Y1 Y1 Y1 Total
Variation Variation
Y2 Y2 Y2 Y2 Y2 =SSy
=SSwithin : :
: :
Yn Yn Yn Yn YN
Category Y1 Y2 Y3 Yc Y
Mean
Between Category Variation = SSbetween

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Statistics Associated with One-way ANOVA

• F statistic. Null hypothesis that category means are equal in

population is tested by F statistic based on ratio of mean square
related to X & mean square related to error.
• Mean square: Sum of squares divided by appropriate degrees of
freedom.
• eta2 ( 2). Strength of effects of X on Y is measured by eta2 ( 2) that
varies between 0 & 1. It is calculated by SSx/SSy

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Conducting One-Way ANOVA

• Null hypothesis may be tested by the F statistic based on the ratio

between these two estimates:

SS x /(c - 1)
F= = MS x
SS error/(N - c) MS error

• This statistic follows the F distribution, with (c - 1) and (N - c)

degrees of freedom (df).

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Interpret Results

• If null hypothesis of equal category means is not rejected, then

independent variable does not have a significant effect on
dependent variable.

• On other hand, if null hypothesis is rejected, then effect of

independent variable is significant.

• A comparison of category mean values will indicate nature of effect

of independent variable.

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One way ANOVA: Exercise

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Effect of Promotion or Coupon on Sales

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Illustrative Applications of One-way ANOVA

• Department store wants to determine effect of in-store

promotion (X) on sales (Y).

Null hypothesis is that category means are equal:

H0: µ1 = µ2 = µ3.

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One-Way ANOVA: Effect of In-store Promotion on

Store Sales

Source of Sum of df Mean F ratio F prob.

Variation squares square
Between groups 106.067 2 53.033 17.944 0.000
(Promotion)
Within groups 79.800 27 2.956
(Error)
TOTAL 185.867 29 6.409

Cell means

Level of Count Mean

Promotion
High (1) 10 8.300
Medium (2) 10 6.200
Low (3) 10 3.700
TOTAL 30 6.067

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Issues in Interpretation: Multiple Comparisons

• If null hypothesis of equal means is rejected, we can only conclude

that not all of group means are equal. We may wish to examine
differences among specific means.

• This can be done by specifying appropriate contrasts, or

comparisons used to determine which of means are statistically
different.

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Issues in Interpretation: Multiple Comparisons

• A posteriori contrasts are made after analysis. These are generally

multiple comparison tests.
• These tests, in order of decreasing power, include least significant
difference, Duncan's multiple range test, Student-Newman-Keuls,
Tukey's alternate procedure, honestly significant difference,
modified least significant difference, and Scheffe's test.

• Of these tests, ‘least significant difference’ is the most powerful.

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Assumptions in ANOVA

• Ordinarily, categories of independent variable are assumed to be

fixed. Inferences are made only to specific categories considered.
This is referred to as fixed-effects model.

• Error term is normally distributed, with a zero mean & a constant

variance.

• Error is NOT related to any of categories of X.

• Error terms are uncorrelated. If error terms are correlated (i.e.,

observations are not independent), F ratio can be seriously
distorted.

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Thank You

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