SBE13 CH 18
SBE13 CH 18
SBE13 CH 18
Statistics for
Business and Economics
Anderson, Sweeney, Williams, Camm, Cochran
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Statistics for Business and Economics
Chapter 18
Nonparametric Methods
• Sign Test
• Wilcoxon Signed Rank Test
• Mann-Whitney-Wilcoxon Test
• Kruskal-Wallis Test
• Rank Correlation
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Nonparametric Methods
• Most of the statistical methods referred to as parametric require the use of
interval- or ratio-scaled data.
• Nonparametric methods are often the only way to analyze categorical ( nominal
or ordinal) data and draw statistical conclusions.
• Nonparametric methods require no assumptions about the population
probability distributions.
• Nonparametric methods are often called distribution-free methods.
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Nonparametric Methods
• Whenever the data are quantitative, we will transform the data into categorical
data in order to conduct the nonparametric test.
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Sign Test
• The sign test is a versatile method for hypothesis testing that uses the
binomial distribution with p = .50 as the sampling distribution.
• We present two applications of the sign test:
• A hypothesis test about a population median
• A matched-sample test about the difference between two populations
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Number of Number of
Plus Signs Probability Plus Signs Probability
0 .0010 6 .2051
1 .0098 7 .1172
2 .0439 8 .0439
3 .1172 9 .0098
4 .2051 10 .0010
5 .2461
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= .5(72) = 36
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• Test Statistic
z = (x – )/s = (45.5 - 36)/4.243 = 2.24
• p-Value
p-Value = 2(1.0000 - .9875) = .025
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𝑛(𝑛 + 1)(2𝑛 + 1)
Standard Deviation: 𝜎 𝑇+ =
24
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𝑛(𝑛+1)(2𝑛+1) 10(11)(21)
𝜎 𝑇+ = = = 9.81
24 24
+
44 − 27.5
𝑃 𝑇 ≥ 44 = 𝑃 𝑧 ≥ = 𝑃(𝑧 ≥ 1.68)
9.81
• p-Value
p-Value = 2(1.0000 - .9535) = .093
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Mann-Whitney-Wilcoxon Test
• This test is another nonparametric method for determining whether there is a
difference between two populations.
• This test is based on two independent samples.
• Advantages of this procedure are;
• It can be used with either ordinal data or quantitative data.
• It does not require the assumption that the populations have a normal
distribution.
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Mann-Whitney-Wilcoxon Test
• Instead of testing for the difference between the medians of two populations,
this method tests to determine whether the two populations are identical.
• The hypotheses are:
• H0: The two populations are identical
• Ha: The two populations are not identical
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Mann-Whitney-Wilcoxon Test
• Example: Westin Freezers
Manufacturer labels indicate the annual energy cost associated with operating
home appliances such as freezers.
The energy costs for a sample of 10 Westin freezers and a sample of 10
Easton Freezers are shown on the next slide. Do the data indicate, using a =
.05, that a difference exists in the annual energy costs for the two brands of
freezers?
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Mann-Whitney-Wilcoxon Test
Westin Freezers Easton Freezers
$55.10 $56.10
54.50 54.70
53.20 54.40
53.00 55.40
55.50 54.10
54.90 56.00
55.80 55.50
54.00 55.00
54.20 54.30
55.20 57.00
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Mann-Whitney-Wilcoxon Test
• Hypotheses
H0: Annual energy costs for Westin freezers and Easton freezers are the
same.
Ha: Annual energy costs differ for the two brands of freezers.
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• Mean
mW = 1/2 n1(n1 + n2 + 1)
• Standard Deviation
𝜎𝑊 = 1ൗ 𝑛 𝑛 (𝑛 + 𝑛 + 1)
12 1 2 1 2
• Distribution Form
Approximately normal, provided
n1 > 7 and n2 > 7
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Mann-Whitney-Wilcoxon Test
Westin Freezers Rank Easton Freezers Rank
$55.10 12 $56.10 19
54.50 8 54.70 9
53.20 2 54.40 7
53.00 1 55.40 14
55.50 15.5 54.10 4
54.90 10 56.00 18
55.80 17 55.50 15.5
54.00 3 55.00 11
54.20 5 54.30 6
55.20 13 57.00 20
Sum of Ranks 86.5 Sum of Ranks 123.5
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Mann-Whitney-Wilcoxon Test
• Sampling Distribution of W with Identical Populations
𝜎𝑊 = 1ൗ (10)(10)(21) = 13.23
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W
W = ½(10)(21) = 105
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Mann-Whitney-Wilcoxon Test
• Rejection Rule
Using .05 level of significance,
Reject H0 if p-value < .05
• Test Statistic
86.5−105
𝑃(W ≤ 86.5)= 𝑃 𝑧 ≤ = 𝑃(𝑧 ≤ −1.40)
13.23
• p-Value
p-Value = 2(.0808) = .1616
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Mann-Whitney-Wilcoxon Test
• Conclusion
Do not reject H0. The p-value > a. There is insufficient evidence in the
sample data to conclude that there is a difference in the annual energy cost
associated with the two brands of freezers.
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Kruskal-Wallis Test
• The Mann-Whitney-Wilcoxon test has been extended by Kruskal and Wallis for
cases of three or more populations.
• H0: All populations are identical
• Ha: Not all populations are identical
• The Kruskal-Wallis test can be used with ordinal data as well as with interval or
ratio data.
• Also, the Kruskal-Wallis test does not require the assumption of normally
distributed populations.
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Kruskal-Wallis Test
• Test Statistic
𝑘
12 𝑅𝑖 2
𝐻= − 3 𝑛𝑇 + 1
𝑛𝑇 𝑛𝑇 + 1 𝑛𝑖
𝑖=1
where:
k = number of populations
ni = number of observations in sample i
nT = Sni = total number of observations in all samples
Ri = sum of the ranks for sample i
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Kruskal-Wallis Test
• When the populations are identical, the sampling distribution of the test statistic
H can be approximated by a chi-square distribution with k – 1 degrees of
freedom.
• This approximation is acceptable if each of the sample sizes ni is > 5.
• This test is always expressed as an upper-tailed test.
• The rejection rule is: Reject H0 if p-value < a
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Kruskal-Wallis Test
• Example: Lakewood High School
John Norr, Director of Athletics at Lakewood High School, is curious about
whether a student’s total number of absences in four years of high school is
the same for students participating in no varsity sport, one varsity sport, and
two varsity sports.
Number of absences data were available for 20 recent graduates and are
listed on the next slide. Test whether the three populations are identical in
terms of number of absences. Use a = .10.
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Kruskal-Wallis Test
• Example: Lakewood High School
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Kruskal-Wallis Test
• Example: Lakewood High School
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Kruskal-Wallis Test
• Rejection Rule
Using test statistic: Reject H0 if c2 > 4.60517 (2 d.f.)
Using p-value: Reject H0 if p-value < .10
• Kruskal-Wallis Test Statistic
k = 3 populations, n1 = 6, n2 = 7, n3 = 7, nT = 20
𝑘
12 𝑅𝑖 2
𝐻= − 3 𝑛𝑇 + 1
𝑛𝑇 𝑛𝑇 + 1 𝑛𝑖
𝑖=1
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Kruskal-Wallis Test
• Conclusion
Do no reject H0. There is insufficient evidence to conclude that the
populations are not identical. (H = .3532 < 4.60517)
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Rank Correlation
• The Pearson correlation coefficient, r, is a measure of the linear association
between two variables for which interval or ratio data are available.
• The Spearman rank-correlation coefficient, rs , is a measure of association
between two variables when only ordinal data are available.
• Values of rs can range from –1.0 to +1.0, where
• values near 1.0 indicate a strong positive association between the rankings, and
• values near -1.0 indicate a strong negative association between the rankings.
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Rank Correlation
• Spearman Rank-Correlation Coefficient, rs
6 σ 𝑑𝑖 2
𝑟𝑠 = 1 −
𝑛 𝑛2 − 1
where:
n = number of observations being ranked
xi = rank of observation i with respect to the first variable
yi = rank of observation i with respect to the second variable
di = xi - yi
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Rank Correlation
• Sampling Distribution of rs when ps = 0
• Mean
𝜇𝑟𝑠 = 0
• Standard Deviation
1
𝜎𝑟𝑠 =
𝑛−1
• Distribution Form
Approximately normal, provided n > 10
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Rank Correlation
• Example: Crennor Investors
Crennor Investors provides a portfolio management service for its clients. Two
of Crennor’s analysts ranked ten investments as shown on the next slide. Use
rank correlation, with a = .10, to comment on the agreement of the two
analysts’ rankings.
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Rank Correlation
• Example: Crennor Investors
• Analysts’ Rankings
Investment A B C D E F G H I J
Analyst 1 1 4 9 8 6 3 5 7 2 10
Analyst 2 1 5 6 2 9 7 3 10 4 8
• Hypotheses
𝐻0 : 𝑝𝑠 = 0 (No rank correlation exists)
𝐻𝑎 : 𝑝𝑠 ≠ 0 (Rank correlation exists)
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Rank Correlation
Analyst #1 Analyst #2
Investment Ranking Ranking Differ. (Differ.)2
A 1 1 0 0
B 4 5 -1 1
C 9 6 3 9
D 8 2 6 36
E 6 9 -3 9
F 3 7 -4 16
G 5 3 2 4
H 7 10 -3 9
I 2 4 -2 4
J 10 8 2 4
Sum = 92
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Rank Correlation
• Sampling Distribution of rs Assuming No Rank Correlation
1
𝜎𝑟𝑠 = = .333
10 − 1
rs
𝜇𝑟𝑠 = 0
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Rank Correlation
• Rejection Rule
With .10 level of significance:
Reject H0 if p-value < .10
• Test Statistic
6 σ 𝑑𝑖 2 6(92)
𝑟𝑠 = 1 − 2 = 1- = 0.4424
𝑛 𝑛 −1 10(100−1)
• p-Value
p-Value = 2(1.0000 - .9082) = .1836
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Rank Correlation
• Conclusion
Do no reject H0. The p-value > a. There is not a significant rank correlation.
The two analysts are not showing agreement in their ranking of the risk
associated with the different investments.
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End of Chapter 18
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