Statistics for Business Decision

Lecture 7: Tests of Hypothesis II

Master of Management
Faculty of Economics and Business
Universitas Gadjah Mada

2019
Tests of Hypothesis II
Independent Sample

Dependent Sample

Comparing Independent & Dependent

Tests of Hypothesis II
Independent Sample

Dependent Sample

Comparing Independent & Dependent

Learning Objectives
▪ LO11-1: Test a hypothesis that two independent population means
are equal, assuming that the population standard deviations are
known and equal
▪ LO11-2: Test a hypothesis that two independent population means
are equal, with unknown population standard deviations
▪ LO11-3: Test a hypothesis about the mean population difference
between paired or dependent observations
▪ LO11-4: Explain the difference between dependent and
independent samples
Comparing Two Population Means
Two-sample hypothesis testing: We select random samples from
two different populations to determine:
▪ whether the population means or proportions are equal.
▪ whether the distribution of the difference between the means
could have a mean of 0
Comparing Two Population Means
Some questions we might want to test are:
1. Is there a difference in the mean value of residential real
estate sold by male agents and female agents in south
Florida?
2. Is there a difference in the mean number of days absent
between young workers (under 21 years of age) and older
workers (more than 60 years of age) in the fast-food industry?
Two-Sample Test of Hypothesis

Two-Sample Test of Hypothesis

Independent 𝐃𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭
Sample Sample

σ Known
σ Unknown:
1. Equal standard deviation
2. Unequal standard deviation
Two-Sample Test of Hypothesis

Two-Sample Test of Hypothesis

Independent 𝐃𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭
Sample Sample

σ Known
Two-Sample Test of Hypothesis:
Independent Sample
We use the following formula to compute z if the following conditions
are met:
▪ The samples are from independent (unrelated) populations
▪ The population standard deviations are known
▪ The two populations follow normal distributions
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Customers at the FoodTown Supermarket have a choice when paying for
their groceries:
▪ They may check out and pay using the standard cashier-assisted checkout or
▪ They may use the new Fast Lane procedure (self-checkout).
▪ The store manager would like to know if the mean checkout time using
the standard checkout method is longer than using the Fast Lane.
▪ The time was measured from when the customer enters the line until all
his or her bags are in the cart.
▪ Hence the time includes both waiting in line and checking out. What is
the p-value?
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Step 1: State the null and alternate hypothesis
𝐻0 : μ𝑠 ≤ μ𝑓
𝐻1 : μ𝑠 > μ𝑓
▪ Step 2: Select the level of significance, we decide to use
𝛼 =.01
▪ Step 3: Determine the test statistic, we’ll use z
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Step 4: Formulate the decision rule, Reject 𝐻0 if 𝑧 > 2.326
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Step 5: Make the decision regarding 𝐻0 , FoodTown randomly
selected 50 customers using the standard checkout and
computed a mean time of 5.5 minutes and randomly selected
100 customers using the Fast Lane and computed a mean
time of 5.3 minutes.
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Step 5: We will reject the null hypothesis. Formulate the
decision rule, Reject 𝐻0 if 𝑧 > 2.326

The computed value of 3.123 is larger than the critical value

of 2.326.
Two-Sample Test of Hypothesis:
Example of Independent Sample
▪ Step 6: Our decision is to reject the null hypothesis and do
not the alternate hypothesis.
Interpret the result: the difference of .20 minute is too large
to have occurred by chance. We conclude the Fast Lane
method is faster.
Two-Sample Test of Hypothesis:
Example of Independent Sample
What is the p-value for the test statistic?
▪ Recall that the p-value is the probability of finding a value of
the test statistic this extreme when the null hypothesis is true.
Two-Sample Test of Hypothesis:
Example of Independent Sample
What is the p-value for the test statistic?
▪ To calculate the p-value, we need the probability of a z value
larger than 3.13. From the table in Appendix, we find the
probability associated with 3.13 is .4990.
▪ In this case, we can report that the p-value:
𝑝 − 𝑣𝑎𝑙𝑢𝑒 = .5000 − .4990 = .0010
▪ We conclude that there is very little likelihood that the null
hypothesis is true!
Two-Sample Test of Hypothesis

Two-Sample Test of Hypothesis

Independent 𝐃𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭
Sample Sample

σ Unknown
Compare Two Means Using t
When the standard deviations of the populations is unknown, we
compare population means using t.
Finding the value of t requires two steps:
1. The first step is to pool the standard deviations according to
the following formula
Compare Two Means Using t
When the standard deviations of the populations is unknown, we
compare population means using t.
Finding the value of t requires two steps
2. The value of t is computed from the following formula

The degrees of freedom for the test are n1 + n2 - 2

Two-Sample Pooled Test Example
▪ Owens Lawn Care Inc. manufactures and
assembles lawnmowers that are shipped to
dealers throughout the United States and
Canada.
▪ Two different procedures have been
proposed for mounting the engine on the
frame of the lawnmower, the Welles method
and the Atkins method.
▪ The question: Is there a difference in the
methods’ mean time to mount the engines
on the frames of the lawnmowers?
Two-Sample Pooled Test Example
Is there a difference in the methods’ mean time to mount the
engines on the frames of the lawnmowers?
▪ Step 1: State the null and alternate hypothesis
𝐻0 : μ𝑊 = μ𝐴
𝐻1 : μ𝑊 ≠ μ𝐴
▪ Step 2: Select the level of significance, we decide to use .10
▪ Step 3: Determine the test statistic, we’ll use t
Two-Sample Pooled Test Example
Is there a difference in the methods’ mean time to mount the
engines on the frames of the lawnmowers?

▪ Step 4: Formulate the

decision rule, do not reject
H0 if t falls between -1.833
and 1.833
Two-Sample Pooled Test Example
▪ Step 5: Make decision regarding H0; It takes three steps to
compute the value of t.

1. Calculate the sample

standard deviations
Two-Sample Pooled Test Example
▪ Step 5: Make decision regarding H0; It takes three steps to
compute the value of t.
2. Pool the sample variances
Two-Sample Pooled Test Example
▪ Step 5: Make decision regarding H0; It takes three steps to
compute the value of t.
2. Pool the sample variances

3. Determine the value of t

The decision is not to reject the null hypothesis because –0.662 falls in the region between -1.833 and 1.833.
Two-Sample Pooled Test Example
▪ Step 6: Interpret the result:
The decision is not to reject the null hypothesis, because -
0.662 falls in the region between -1.833 and 1.833.
We conclude that there is no difference in the mean times to
mount the engine on the frame using the two methods.
Two-Sample Pooled Test Example
▪ Step 6: Interpret the result:
We can also estimate the p-value:
o Locate the row with 9 degrees of freedom, and use the two-tailed test
column.
o Find the t value, without regard to the sign, which is closest to our
computed value of 0.662: It is 1.383, corresponding to a significance
level of .20.
o Thus, even had we used the 20 percent significance level, we would
not have rejected the null hypothesis of equal means.
Unequal Population Standard Deviations
▪ If we cannot assume the population standard deviations are equal, we
adjust the degrees of freedom and the formula for finding t
▪ We determine the degrees of freedom based on the following formula

▪ The value of the test statistic is computed from the following formula
Unequal Population Standard Deviations
Example
▪ Personnel in a consumer testing laboratory are evaluating the
absorbency of paper towels; they wish to compare a set of store brand
towels to a similar group of name brand towels.
▪ For each brand, they dip a ply of the paper into a tub of fluid, allow the
paper to drain back into the vat for 2 minutes, and then evaluate the
amount of liquid the paper has taken up from the vat.
A random sample of 9 store brand towels absorption amounts (in ml.)
8 8 3 1 9 7 5 5 12

A random sample of 12 name brand towels absorption amounts (in ml.)

12 11 10 6 8 9 9 10 11 9 8 10
Unequal Population Standard Deviations
Example
▪ Step 1: State the null and alternate hypothesis
𝐻0 : μ1 = μ2
𝐻1 : μ2 ≠ μ2

▪ Step 2: Select the level of significance, we decide to use .10

Unequal Population Standard Deviations
Example
▪ Step 3: Determine the test statistic, we’ll use t:
However, we must adjust the degrees of freedom before finding the critical
values and round the result down to an integer:
Unequal Population Standard Deviations
Example
▪ Step 4: State the decision rule, do not reject H0 if t falls
between -1.812 and 1.812.
▪ Step 5: Make decision, we reject the null hypothesis.

▪ Step 6: Interpret, the mean absorption rate of the two types of

towels is not the same.
Tests of Hypothesis II
Independent Sample

Dependent Sample

Comparing Independent & Dependent

Two-Sample Test of Hypothesis

Two-Sample Test of Hypothesis

Independent 𝐃𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭
Sample Sample
Dependent Samples
▪ We first compute the mean and the standard deviation of the
sample differences
▪ The value of the test statistic is computed with the following
formula:

𝑑ҧ is the mean of the difference between the paired observations

𝑠𝑑 is the standard deviation of the differences between the paired observations
𝑛 is the number of paired observations
Dependent Samples Continued
The standard deviation of the differences will be computed as the
following:
Dependent Samples Example
▪ Nickel Savings and Loan wishes to
compare Schadek Appraisals and
Bowyer Real Estate in order to
appraise the value of residential
homes.
▪ Nickel Savings selected a sample
of 10 residential properties and
scheduled both firms for an
appraisal.
At the .05 significance level, can we
conclude there is a difference between
the firm’s appraised values?
Dependent Samples Example
▪ Step 1: State the null and alternate hypothesis
𝐻0 : μ𝑑 = 0
𝐻1 : μ𝑑 ≠ 0
▪ Step 2: Select the level of significance, we decide to use .05
▪ Step 3: Determine the test statistic, we’ll use t
▪ Step 4: State the decision rule, reject H0 if t < -2.262 or >
2.262
Dependent Samples Example
Here we find the mean of
the sample differences, 𝑑ҧ
is 4.6 and the standard
deviation of the sample
differences, 𝑠𝑑 is 4.402.
use these in formula 11-7
to compute the t value,
3.305
Dependent Samples Example
▪ Step 5: Make your decision, we’ll reject the null hypothesis
▪ Step 6: Interpret, we conclude there is a difference between
the firms’ mean appraised home values
Dependent Samples Example
To find the p-value, we use Appendix
B.2 and the section for a two-tailed test.
▪ Move along the row with 9 degrees of
freedom and find the values of t that are
closest to our calculated value.
▪ For a .01 significance level, the value of
t is 3.250.
▪ The computed value is larger than this
value, but smaller than the value of
4.781 corresponding to the .001
significance level. Hence, the p-value is
less than .01.
Tests of Hypothesis II
Independent Sample

Dependent Sample

Comparing Independent & Dependent

Dependent and Independent Samples
There are two types of dependent samples:
1. The first type of dependent sample is characterized by a
measurement followed by an intervention of some kind and
then another measurement.
2. The second type of dependent sample is characterized by
matching or pairing observations.
Dependent and Independent Samples
There are two types of dependent samples:
1. The first type of dependent sample is characterized by a
measurement followed by an intervention of some kind
and then another measurement.
For example, suppose we wish to show that by playing music in the
production area we are able to increase production. We begin by
selecting a sample of workers and measure their output, then we place
the speakers in the production area and play soothing music, and then
we again measure the output
Dependent and Independent Samples
There are two types of dependent samples:
2. The second type of dependent sample is characterized by
matching or pairing observations.
For example, the Nickel Savings and Loan example illustrates
dependent samples because a property is selected and both firms
appraise the same property
Dependent and Independent Samples
There are two types of dependent samples:
1. The first type of dependent sample is characterized by a
measurement followed by an intervention of some kind and
then another measurement.
2. The second type of dependent sample is characterized by
matching or pairing observations.

We prefer a test based on dependent samples because it reduces the

amount of variation in the test and is considered a better test
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