Business Statistics

0676-201
College of Business Administration
Quantitative Methods Department

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Chapter 5: Chi-Squared Tests

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Outline

.Chi-Squared Goodness-of-Fit Test .1

.Chi-Squared Test of a Contingency Table .2•

•

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Chi-Squared Goodness-of-Fit Test

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Introduction
• This chapter develops two statistical techniques that involve nominal data.
• Nominal data used here produced by a multinomial experiment.
• multinomial experiment is a generalization of a binomial experiment, wherein there are
two or more possible outcomes per trial..
• The sampling distribution of the test statistics in tests is called chi-squared distribution.

The major characteristics of the chi-square distribution are:

• It is positively skewed.
• It is non-negative.
• It is based on degrees of freedom.
• When the degrees of freedom change a new distribution is created.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 What is a Multinomial Experiment

• When k = 2, the multinomial experiment is identical to the binomial experiment.

• Just as we count the number of successes (recall that we label the number of successes x) and failures in a
binomial experiment, we count the number of outcomes falling into each of the k cells in a multinomial
experiment.
• In this way, we obtain a set of observed frequencies is the observed frequency of outcomes falling into cell
i, for .
• Because the experiment consists of n trials and an outcome must fall into some cell,
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Example
Testing Market Shares
Company A has recently conducted aggressive advertising campaigns to maintain and
possibly increase its share of the market (currently 45%) for fabric softener. Its main
competitor, company B, has 40% of the market, and a number of other competitors
account for the remaining 15%. To determine whether the market shares changed after
the advertising campaign, the marketing manager for company A solicited the
preferences of a random sample of 200 customers of fabric softener. Of the 200
customers, 102 indicated a preference for company A’s product, 82 preferred company
B’s fabric softener, and the remaining 16 preferred the products of one of the
competitors. Can the analyst infer at the 5% significance level that customer preferences
have changed from their levels before the advertising campaigns were launched?

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
• The population is composed of the brand preferences of the fabric softener
customers.
• The data are nominal because each respondent will choose one of three possible
answers: product A, product B, or other.
• We recognize this experiment as a multinomial experiment, and we identify the
technique as the chi-squared goodness-of-fit test.
• We want to know whether the market shares have changed:

1. Stating the hypotheses:

the observed and the expected frequencies

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
2. Test Statistic:
If the null hypothesis is true, we would expect the number of
customers selecting
brand A, brand B, and other to be 200 times the proportions
specified under the null
hypothesis; that is,

In general, the expected frequency for each cell is given by

for the chi-squared test statistic it is required to satisfy the
rule of five, which states that the sample Bar chart showing the comparison of actual and
expected frequencies.
size must be large enough so that the expected value for
each cell must be 5 or more.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
2. Test Statistic:
• If the expected frequencies and the observed frequencies are quite different, we would
conclude that the null hypothesis is false, and we would reject it.
• However, if the expected and observed frequencies are similar, we would not reject the
null hypothesis.
• The test statistic defined in the box measures the similarity of the expected and observed
frequencies.

• with degrees of freedom

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Solution
2. Test Statistic:

• When the null hypothesis is true, the observed and expected frequencies should be similar, in
which case the test statistic will be small. Thus, a small test statistic supports the null hypothesis.

• If the null hypothesis is untrue, some of the observed and expected frequencies will differ and
the test statistic will be large. Consequently, we want to reject the null hypothesis when is
greater than .
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Solution
3. Critical value:
• k = 3; the critical value is
• = 5.991

4. The decision:
• Since 5.991, we reject the null
hypothesis. The data provide
sufficient evidence to infer that the
proportions have changed since the
advertising campaigns were
implemented, or customer
preferences have changed from their
levels before the advertising
campaigns were launched.
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Analysis in EXCEL

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Example
Ms. Jan Kilpatrick is the marketing manager for a manufacturer of sports cards. She plans
to begin selling a series of cards with pictures and playing statistics of former Major
League Baseball players. One of the problems is the selection of the former players.
At a baseball card show at Southwyck Mall last weekend, she set up a booth and
offered cards of the following six Hall of Fame baseball players: Tom Seaver, Nolan
Ryan, Ty Cobb, George Brett, Hank Aaron, and Johnny Bench. At the end of the day
she sold a total of 120 cards. The number of cards sold for each old-time player is
shown in the table on the right. Can she conclude the sales are not the same for each
player? Use 0.05 significance level.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
1. Stating the hypotheses:
the observed and the expected frequencies

2. Test statistic:
Baseball Observed Expected 2 𝟐
Player frequency frequency (𝒇 ¿ ¿𝒊−𝒆 𝒊)¿ (𝒇 ¿ ¿𝒊−𝒆 𝒊)   ¿ (𝒇 ¿ ¿𝒊−𝒆 𝒊)   /𝒆𝒊 ¿

Total =34.40

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
3. Critical Value:
• k = 6; the critical value is
• = 11.071

4. The decision:
• Since 11.071, we reject the null
hypothesis. The data provide sufficient
evidence to infer that the there are
differences between observed and
expected frequencies, and the
observed sales are not the same for at
least one player with its expected
sales.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Exercise
The American Hospital Administrators Association (AHAA) reports the following
information concerning the number of times senior citizens are admitted to a hospital during
a one-year period. Forty percent are not admitted; 30% are admitted once; 20% are admitted
twice, and the remaining 10% are admitted three or more times. A survey of 150 residents of
Bartow Estates, a community devoted to active seniors located in central Florida, revealed
55 residents were not admitted during the last year, 50 were admitted to a hospital once, 32
were admitted twice, and the rest of those in the survey were admitted three or more times.
Can we conclude the survey at Bartow Estates is consistent with the information reported by
the AHAA?
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Use the .05 significance level.
Quantitative Methods Dept. College of Business
 Chi-Squared Test of a Contingency Table

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Introduction

• Chi-squared test of contingency table is designed to satisfy two different problem

objectives:

1. It is used to determine whether there is enough evidence to infer that two nominal
variables are related.
2. It is also used to infer that differences exist between two or more populations of
nominal variables.

• Completing both objectives entails classifying items according to two different

criteria, (consider the following example).

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Example
Relationship between Undergraduate Degree and MBA Major

The MBA program was experiencing problems scheduling its courses. The demand
for the program’s optional courses and majors was quite variable from one year to the
next. In one year, students seem to want marketing courses; in other years, accounting or
finance are the rage. In desperation, the dean of the business school turned to a
statistics professor for assistance. The statistics professor believed that the problem may
be the variability in the academic background of the students and that the
undergraduate degree affects the choice of major. As a start, he took a random sample of
last year’s MBA students and recorded the undergraduate degree and the major selected
in the graduate program.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Example
Relationship between Undergraduate Degree and MBA Major

The undergraduate degrees were BA, BEng, BBA, and several others. There are three
possible majors for the MBA students: accounting, finance, and marketing. The results
were summarized in a cross-classification table, which is shown here. Can the statistician
conclude that the undergraduate degree affects the choice of major?

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
There are two ways of addressing this problem:
1. First Way:
• consider that there are two variables: undergraduate degree and MBA major, both are nominal.
• The values of the undergraduate degree are BA, BEng, BBA, and other.
• The values of MBA major are accounting, finance, and marketing.
• The problem objective is to analyze the relationship between the two variables. Specifically, we want
to know whether one variable is related to the other.
2. Second Way:
• determine whether differences exist between BA’s, BEng’s, BBA’s, and others. In other words, we
treat the holders of each undergraduate degree as a separate population.
• Each population has three possible values represented by the MBA major.
• The problem objective is to compare four populations, (We can also answer the question by treating
the MBA majors as populations and the undergraduate degrees as the values of the random
variable.)
Both objectives lead to the same test. Consequently, we address both objectives at the same time.
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Solution
1. Stating the hypotheses:
: The two variables are independent
: The two variables are dependent

2. Test statistic:
• The test statistic is the same as the one
used to test proportions in the goodness-
of-fit test

• is the number of cells in the cross-

classification table.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
2. Test statistic:
• The events in this example are the values each of the two nominal variables can assume.
• We do not have the probabilities of A and B. However, these
• Probabilities can be estimated from the data. Using relative frequencies, we calculate the estimated
probabilities for the MBA major.

• We calculate the estimated probabilities for the undergraduate degree.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
2. Test statistic:
• To produce the expected
values, we multiply the
estimated joint
probabilities by the sample
size, n = 152.
• The results are listed in a
contingency table as
follows.

• The expected value for each

cell is computed by
multiplying the row total by
the column total and
dividing by the sample size.
‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬
Quantitative Methods Dept. College of Business
 Solution
2. Test statistic:
• The expected cell frequencies are shown in parentheses in the following table.
• As in the case of the goodness-of-fit test, the expected cell frequencies should satisfy the rule
of five.

• We can now calculate the value of the test statistic:

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Solution
2. Test statistic:
• The number of degrees of freedom for a contingency table with r rows and c
columns is
• For this example, the number of degrees of freedom is

3. Critical value:
• = 12.592.

4. The decision:
• Since 12.592, we reject the null hypothesis and conclude that there is evidence of a
relationship between undergraduate degree and MBA major.

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Analysis in EXCEL

The following codes are used in the Excel sheet above

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 Exercise
The operations manager of a company that manufactures shirts wants to
determine whether there are differences in the quality of workmanship among
the three daily shifts. She randomly selects 600 recently made shirts and
carefully inspects them. Each shirt is classified as either perfect or flawed, and
the shift that produced it is also recorded. The accompanying table summarizes
the number of shirts that fell into each cell. Do these data at 5% significance
level provide sufficient evidence to infer that there are differences in quality
between the three shifts?

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business
 End of Chapter 5

Thank you

‫قـــســـم األســـاليـب الكميـــة‬ ‫كـليـــة إدارة األعمـــال‬

Quantitative Methods Dept. College of Business