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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 12 Learning Objectives (LOs)

experiment.

population are independent.

12-2

Is Brand Loyalty Related to Buyer’s Age?

if different customer groups prefer one brand over

another. She looks at data from 600 sales.

In particular, she feels that the brand Under Armour

might appeal more to younger customers.

The more established brands (Nike and Adidas)

might be capturing the older-customer market.

12-3

Is Brand Loyalty Related to Buyer’s Age?

(age and brand name) are dependent at

the 5% significance level

independence can be used.

12-4

12.1 Goodness-of-Fit Test for a Multinomial Experiment

proportions equal each other or any predetermined set of

values.

favored by voters?

to last year?

12-5

LO 12.1 A Multinomial Experiment

independent trials such that:

2.The

probability pi of falling into category i is the same on

each trial.

p1 + p2 + … + pk = 1

12-6

LO 12.1 The Hypothesis Test

to one another or they are each equal to a specific value.

H0: p1 = p2 = p3 = p4 = 0.25

HA: Not all population proportions are equal to 0.25.

H0: p1 =0.4, p2 = 0.3, p3 = 0.2, p4 = 0.1

HA: At least one pi differs from its hypothesized value.

12-7

LO 12.1 Restaurant Food Quality

surveyed its patrons to rate the quality of its food.

The results were as follows:

management made changes to the menu.

12-8

LO 12.1 This Year’s Results

patrons, asking the same questions about food

quality. Here are the results:

from last year, or if there has been a significant

change.

12-9

LO 12.1 Methodology

Compute an expected frequency for each

category and compare it to what we actually

observe.

observed and expected for each category.

year, these differences will be relatively small.

12-10

LO 12.1 The ei (Expected Frequencies)

We first compute the expected counts based

on the survey of 250 restaurant patrons.

results, we expect e1 = p1(250) = .15(250) =

37.5 responses to be in the “Excellent”

category.

expected.

12-11

LO 12.1 Computing the Deviations

In the first category e1 = 37.5 and o1 = 46, so we

get (o1 – e1) = ___.

e3 = p3(250) = .45(250) = 112.5.

so we compute (o3 – e3) = 105 – 112.5 = ___.

12-12

LO 12.1 Standardizing the Deviations

12-13

LO 12.1 The Chi-Square Test

oi = observed frequency for category i

ei = expected frequency for category i

12-14

LO 12.1 The Critical Value (at = .05)

12-15

LO 12.1 The Restaurant Example

12-16

LO 12.1 The Restaurant Example

Observed Expected ( oi - ei )2

Response Percentage This Year Out of 250 ________

Category Last year ( oi ) ( ei ) ( oi - ei ) ei

Excellent 15% 46 37.5 8.5 1.927

Good 30% 83 75.0 8.0 0.853

Fair 45% 105 112.5 -7.5 0.500

Poor 10% 16 25.0 -9.0 3.240

TOTAL 100% 250 250 0.0 6.520

the critical value of 7.815, we do not reject H0.

The changes did not produce a statistically significant

response at the 5% level.

12-17

LO 12.1 A Required Condition

( ei ) in each cell is at least 5.

example.

to combine categories to get ei ≥ 5.

12-18

LO 12.1 Example 12.1

There are five companies that manufacture a

particular product. Their market shares for

2010 are:

Company 1 2 3 4 5

Market Share 40% 32% 24% 2% 2%

market analyst surveys 200 recent customers

to gain an “advanced look.”

12-19

LO 12.1 Example 12.1 (continued)

The survey showed the following results:

Company 1 2 3 4 5 Total

Purchases 70 60 54 10 6 200

companies, a 2% market share yields

expected frequencies of 4 (200×0.02).

performing the analysis.

12-20

LO 12.1 Example 12.1 (continued)

12-21

LO 12.1 Example 12.1 Computations

Market Purchases Expected ( oi - ei )2

Share in This Year Out of 200 ________

Company 2010 ( oi ) ( ei ) ( oi - ei ) ei

1 40% 70 80 -10.0 1.250

2 32% 60 64 -4.0 0.250

3 24% 54 48 6.0 0.750

4 and 5 4% 16 8 8.0 8.000

TOTAL 100% 200 200 0.0 10.250

we reject H0.

We conclude that there have been shifts in the market.

12-22

12.2 Chi-Square Test for Independence

LO 12.2 Determine whether two classifications of a population are independent.

variable. A test of independence – also called a chi-

square test of a contingency table – analyzes the

relationship between two qualitative variables.

H0: The two classifications are independent

HA: The two classifications are dependent

12-23

LO 12.2 Contingency Tables

for two qualitative variables (i.e., brand of

product and type of customer).

expected and observed frequencies for each

cell in the table.

12-24

LO 12.2 Example

Does the brand of compression garment

purchased depend on the customer’s age?

Brand Name

Age Group Under Armor Nike Adidas

Under 35 years 174 132 90

35 years and older 54 72 78

12-25

LO 12.2 Notation

We use the notation oij to denote the observed

frequency in row i of column j.

of column j.

expected frequency per cell is:

eij = (Row i total)(Column j total)/Sample Size

12-26

LO 12.2 The Chi-Square Statistic

We apply the chi-square test statistic in a

similar manner as in the goodness-of-fit test.

The formula is as follows:

(oij eij ) 2

2

df ,

i j eij

12-27

LO 12.2 Computing Expected Frequencies

Brand Name Row

Age Group Under Armor Nike Adidas Totals

Under 35 years 174 132 90 396

35 years and up 54 72 78 204

Column Totals 228 204 168 600

(396)(228)/600 = 150.48.

(396)(204)/600 = _____.

12-28

LO 12.2 Expected Frequencies and Deviations

Age Group Under Armor Nike Adidas Totals

Under 35 years 150.48 134.64 110.88 396.00

35 years and up 077.52 069.36 057.12 204.00

Column Totals 228.00 204.00 168.00 600.00

Brand Name

Age Group Under Armor Nike Adidas

Under 35 years 23.52 -2.64 -20.88

35 years and up -23.52 2.64 20.88

12-29

LO 12.2 Squared Deviations

We square each deviation and divide by the

respective expected frequency. These

values are shown in the following table.

Brand Name

Age Group Under Armor Nike Adidas

Under 35 years 3.68 0.05 3.93

35 years and up 7.14 0.10 7.63

22.53, the value of the test statistic.

12-30

LO 12.2 Summarizing the Example

Competing Hypotheses:

H0: Age and brand name are independent.

HA: Age and brand name are dependent.

(oij eij ) 2

2

df ,

i j eij

where df = (r – 1)(c – 1) = (2 - 1)(3 - 1) = 2.

12-31

LO 12.2 Summarizing the Example

We reject H0 because the value of the test

statistic is larger than the critical value:

22.53 > 5.991. Therefore, age and brand

name are not independent of one another.

Function > CHISQ.DIST.RT and inputting

X=22.53 and Deg-freedom=2, Excel will

compute the p-value for our test, which is

very close to 0.

12-32

12.3 Chi-Square Test for Normality

LO 12.3 Conduct a goodness-of-fit test for normality.

determine if a population has a particular

probability distribution. The expected

frequencies are determined from this assumed

distribution.

to the observed frequencies to compute the

familiar chi-square test statistic.

12-33

LO 12.3 Testing for Normality

H0: The data follow a normal distribution with

parameters µ and σ

HA: The data do not follow this distribution

estimates calculated from the sample data.

12-34

LO 12.3 Example: A Sample of 50 Incomes

Table 12.9 in the text shows 50 household

incomes. The sample mean income is 63.80 (in

$1000s) with standard deviation 45.78.

40, etc.), and count how many households we

observe with incomes in each category.

probability of an income falling in each category,

assuming income follows our hypothesized

distribution.

12-35

LO 12.3 Computing the Expected Counts

There are 6 households in the first class of

less than $20,000.

households.

12-36

LO 12.3 Calculations for the Test

normal distribution.

With k = 5, df = 2 and the critical value is 5.991.

12-37

LO 12.3 Concluding the Test

Since the value of the test statistic, 8.12, exceeds

our critical value of 5.991, we reject the null

hypothesis.

We conclude that this data does not come from a

normal distribution with mean 63.8 and standard

deviation 45.78.

A criticism of this method is that we first have to

convert raw data into a set of arbitrary classes.

The result might be different if we had grouped

the data differently.

12-38

12.4 The Jarque-Bera Test for Normality

LO 12.4 Perform the Jarque-Bera test for normality.

normality is one developed by Jarque and Bera.

is in a specific ratio to its spread.

a test statistic.

12-39

LO 12.4 Skewness and Kurtosis

Skewness is a measure of a distribution’s lack of

symmetry; we have S = 0 for any normal

distribution.

is K = 0 for a normal distribution.

and use them to compute the appropriate test

statistic.

12-40

LO 12.4 Hypotheses and Test Statistic

12-41

LO 12.4 Example 12.3

12-42

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