Statistics for Business and

Economics

Chapter 8
Design of Experiments and
Analysis of Variance
 Learning Objectives
1. Describe Analysis of Variance (ANOVA)
2. Explain the Rationale of ANOVA
3. Compare Experimental Designs
4. Test the Equality of 2 or More Means
• Completely Randomized Design
• Factorial Design
Experiments
 Experiment
• Investigator controls one or more independent
variables
– Called treatment variables or factors
– Contain two or more levels (subcategories)
• Observes effect on dependent variable
– Response to levels of independent variable
• Experimental design: plan used to test
hypotheses
 Examples of Experiments

1. Thirty stores are randomly assigned 1

of 4 (levels) store displays (independent
variable) to see the effect on sales
(dependent variable).
2. Two hundred consumers are randomly
assigned 1 of 3 (levels) brands of juice
(independent variable) to study reaction
(dependent variable).
Experimental Designs

Experimental
Designs

Completely Factorial
Randomized

One-Way Two-Way
ANOVA ANOVA
Experimental Designs

Experimental
Designs

Completely Factorial
Randomized

One-Way Two-Way
ANOVA ANOVA
Two-Way ANOVA
Experimental Designs

Experimental
Designs

Completely Factorial
Randomized

One-Way Two-Way
ANOVA ANOVA
 Two-Way ANOVA

• Tests the equality of two or more population

means when several independent variables
are used
• Same results as separate one-way ANOVA
on each variable
– No interaction can be tested
• Used to analyze factorial designs
 Interaction
• Occurs when effects of one factor vary according to
levels of other factor
• When significant, interpretation of main effects (A
and B) is complicated
• Can be detected
– In data table, pattern of cell means in one row
differs from another row
– In graph of cell means, lines cross
 Graphs of Interaction
Effects of motivation (high or low) and training
method (A, B, C) on mean learning time
Interaction No Interaction
Average Average
Response High Response High

Low Low

A B C A B C
 Two-Way ANOVA
Total Variation Partitioning
Total Variation
SS(Total)

Variation Due Variation Due

to Treatment A to Treatment B
SSA SSB

Variation Due to Variation Due to

Interaction Random Sampling
SS(AB) SSE
 Conditions Required for
Valid F-Tests in Factorial
Experiments
1. Normality
• Populations are approximately normally
distributed
2. Homogeneity of variance
• Populations have equal variances
3. Independence of errors
• Independent random samples are drawn
 Two-Way ANOVA
Hypotheses
• Test for Treatment Means
H0: The ab treatment means are equal
Ha: At least two of the treatment means differ
• Test Statistic
F = MST / MSE
• Degrees of Freedom
1 = ab – 1 2 = n – ab
 Two-Way ANOVA
Hypotheses
• Test for Factor Interaction
H0: The factors do not interact
Ha: The factors do interact
• Test Statistic
F = MS(AB) / MSE
• Degrees of Freedom
1 = (a – 1)(b – 1) 2 = n – ab
 Two-Way ANOVA
Hypotheses
• Test for Main Effect of Factor A
H0: No difference among mean levels of factor A
Ha: At least two factor A mean levels differ
• Test Statistic
F = MS(A) / MSE
• Degrees of Freedom
1 = (a – 1) 2 = n – ab
 Two-Way ANOVA
Hypotheses
• Test for Main Effect of Factor B
H0: No difference among mean levels of factor B
Ha: At least two factor B mean levels differ
• Test Statistic
F = MS(B) / MSE
• Degrees of Freedom
1 = (b – 1) 2 = n – ab
 Two-Way ANOVA
Summary Table
Source of Degrees of Sum of Mean F
Variation Freedom Squares Square
A a-1 SS(A) MS(A) MS(A)
(Row) MSE
B b-1 SS(B) MS(B) MS(B)
(Column) MSE
AB (a - 1)(b - 1) SS(AB) MS(AB) MS(AB)
(Interaction) MSE
Error n - ab SSE MSE
Total n-1 SS(Total) Same as other
designs
 Treatment Means F-Test
Solution
• H0: The 6 treatment
Test Statistic:
means are equal
• Ha: At least 2 differ
•  = .05
• 1 = 5 
2= 6
• Critical Value(s): Decision:

 = .05
Conclusion:

0 4.39 F
 Two-Way ANOVA
Summary Table

Source of Degrees of Sum of Mean F

Variation Freedom Squares Square
Model 5 546.75 240.35 7.65

Error 6 188.5 31.42

Corrected
11 735.25
Total
 Treatment Means F-Test
Solution
• H0: The 6 treatment
Test Statistic:
means are equal
• Ha: At least 2 differ MST
F  7.65
•  = .05 MSE
• 1 = 5 2 = 6
• Critical Value(s): Decision:
Reject at  = .05
 = .05
Conclusion:
There is evidence population
0 4.39 F means are different
 Interaction F-Test
Solution
• H0:The factors do not
Test Statistic:
interact
• Ha:The factors interact
•  = .05
• 1 = 2 
2= 6
• Critical Value(s): Decision:

 = .05
Conclusion:

0 5.14 F
 Two-Way ANOVA
Summary Table
Source of Degrees of Sum of Mean F
Variation Freedom Squares Square
A 1 546.75 546.75 17.40
(Row)
B 2 531.5 265.75 8.46
(Column)
AB 2 123.5 61.76 1.97
(Interaction)
Error 6 188.5 31.42
Total 11 SS(Total) Same as other
designs
 Interaction F-Test
Solution
• H0: The factors do not
Test Statistic:
interact
• Ha: The factors interact F  MS ( AB )  1.97
•  = .05 MSE
• 1 = 2 2 = 6
• Critical Value(s): Decision:
Do not reject at  = .05
 = .05
Conclusion:
There is no evidence the
0 5.14 F factors interact
 Main Factor A F-Test
Solution
• H0: No difference between
Test Statistic:
motivation levels
• Ha: Motivation levels differ
•  = .05
• 1 = 1 
2 = 6
• Critical Value(s): Decision:

 = .05
Conclusion:

0 5.99 F
 Two-Way ANOVA
Summary Table
Source of Degrees of Sum of Mean F
Variation Freedom Squares Square
A 1 546.75 546.75 17.40
(Row)
B 2 531.5 265.75 8.46
(Column)
AB 2 123.5 61.76 1.97
(Interaction)
Error 6 188.5 31.42
Total 11 SS(Total) Same as other
designs
 Main Factor A F-Test
Solution
• H0: No difference between
Test Statistic:
motivation levels
• Ha: Motivation levels differ MS ( A)
F  17.4
•  = .05 MSE
• 1 = 1 
2= 6
• Critical Value(s): Decision:
Reject at  = .05
 = .05
Conclusion:
There is evidence
0 5.99 F motivation levels differ
 Main Factor B F-Test
Solution
• H0: No difference between
Test Statistic:
training methods
• Ha: Training methods differ
•  = .05
• 1 = 2 
2 = 6
• Critical Value(s): Decision:

 = .05
Conclusion:

0 5.14 F
 Two-Way ANOVA
Summary Table
Source of Degrees of Sum of Mean F
Variation Freedom Squares Square
A 1 546.75 546.75 17.40
(Row)
B 2 531.5 265.75 8.46
(Column)
AB 2 123.5 61.76 1.97
(Interaction)
Error 6 188.5 31.42
Total 11 SS(Total) Same as other
designs
 Main Factor B F-Test
Solution
• H0: No difference between
Test Statistic:
training methods
• Ha: Training methods differ F  MS ( B )  8.46
•  = .05 MSE
• 1 = 2 
2= 6
• Critical Value(s): Decision:
Reject at  = .05
 = .05
Conclusion:
There is evidence
0 5.14 F training methods differ