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Managerial Statistics

Richard A. Briesch
Southern Methodist University

Agenda
Review

Homework
Confidence intervals
Estimating population variance
t- distributions

Hypothesis testing

MV Distributions and Covariance/correlation

Confidence Intervals

Applying what we learned last week


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Confidence Intervals

When Variance is known (2) :

When Variance is estimated (s2) :


When using a proportion:

X z / 2

X t / 2,df

p z / 2

p (1 p)
n

We call (and ) the standard error.

s
n

Hypothesis Testing:
Relationship to Confidence Intervals

Process: Hypothesis Testing


Determine type of test

Picture
Write out null and alternative hypothesis

Generate test statistics

Test for hypothesis


Critical values

Interpret results
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Hypothesis Testing
H0 Null Hypothesis
HA Alternative Hypothesis
What you are trying to prove is always the
alternative hypothesis. You can not prove
Null to be true.
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Hypothesis Testing:
Types of Tests

Two Tailed
range : t / 2,df

s
n

One Tailed to Left


range : t ,df

s
n

One Tailed to Right


s
range : t ,df
n

t*

-t*

-t*

t*

Critical values (t & z)


Test statistics

t X /

Critical values


z X /

*
t * t.inv.2t ( , df ) z norm.s.inv ( / 2)

Two-tailed:
One tailed (left) t * t.inv ( , df ) z * norm.s.inv( )
One tailed (right) t * t.inv ( , df ) z * norm.s.inv ( )
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p-values
t

t.dist.2t (abs (t ), df ) 2 * norm.s.dist (abs ( z ), true)


2 tails:
1 tail (left): t.dist (t , df , true) norm.s.dist ( z, true)
1tail (right): t.dist.rt (t , df ) 1 norm.s.dist ( z, true)

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Covariance and correlation:


Purchase Incidence Matrix

Period 2

(Coke )

( Pepsi) (Dr Pepper)

Total

Period 1
(Coke )

137

47

19

203

(Pepsi)

41

179

12

232

(Dr Pepper)

22

10

46

78

Total

200

236

77

513

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Covariance and correlation:


Joint Probability Matrix

Period 2

(Coke )

Period 1
(Coke )
(Pepsi)
(Dr Pepper)
Marginal
Prob.
(Period 2)

0.267
0.080
0.043
0.390

( Pepsi) (Dr Pepper) Marginal


Prob.
(Period 1)

0.092
0.037
0.396
0.349
0.023
0.452
0.019
0.90
0.152
0.460
0.150
1.000

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How to tell if independent?


Step 1: Assume independence (H0). What would the table look like?

Note: Definition of independence is joint probability = product of marginal


probabilities.

Period 2

(Coke )

( Pepsi)

(Dr Pepper)

0.154
0.176
0.059
0.390

0.182
0.208
0.070
0.460

0.059
0.068
0.023
0.150

Period 1
(Coke )
(Pepsi)
(Dr Pepper)
Marginal Prob.
(Period 2)

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Marginal
Prob.
(Period 1)

0.396
0.452
0.152
1.000

Step 2: Calculate test statistic:


2 n X Y (oxy exy ) 2 exy

has (rows-1)(columns-1) degrees of


freedom (4) and has a Chi-Squared
distribution
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Step 3: Interpret results

Use p-value.
Roughly 0% probability that H0 is true, so for
any alpha greater than 0% reject null hypothesis
(they are independent) and accept alternative
hypothesis that purchases are correlated over
time (i.e., loyalty exists).

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Example 2: Is Job Satisfaction


Related to Job Performance?
Using OB Data Set.
Step 0: Prepare data (Use median split)
Performance
High
Satisfaction Low
Total

Total

High
19
22

Low
25
23

44
45

41

48

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Step 1: Hypotheses?
Step 2: Calculate statistics
Step 3: Interpret
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Discrete Covariance and


correlation
Y
X

(1 )
25%

( 2)
50%

Marginal
Prob.

P( X x i )

(1 ) 20%

.3

.3

(2 ) 30%

.1

.1

.2

(3 ) 40%

.5

.5

Marginal Prob.
P(Y y j )

.6

.4

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Mean
Variance

X E ( X ) x i P( X x i )
i

2X Var ( X ) ( x i X ) 2 P( X x i )
i

( x i X )( y j Y ) p ij
Covariance. Cov( X , Y )
(i , j )

Correlation

XY

Cov( X , Y )

X Y
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Sums of Random Variables


For any two constants, a and b

E (aX bY ) a X b Y
Var (aX bY ) a 2 2X b 2 Y2 2abCov( X , Y )

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Example:
Consider two assets (X and Y) with x=10%, y=12%,
x=4%, y=5%, and Cov(X,Y) = -10(%)2. What is the
expected return and variance of the portfolio having 70%
invested in X and 30% invested in Y? Compare the risk and
return of this portfolio with the risks and returns associated
with investing everything in either X or Y.

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Estimating using continuous sample data


Correl(:), covariance.s(:)
Sumproduct(:)

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What are the covariance and correlation


between job satisfaction and job
performance?

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Testing the correlation coefficient


H0: = 0
Ha: 0
df = n-2

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What did we learn?


Covariance & correlation

Discrete
Continuous

Sums of correlated normals.


Test for independence: 2
Test for correlation.
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What is next?
Homework
Midterm
Linear Regression

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