Business Statistics:

A Decision-Making Approach
7th Edition

Topic #5
Analysis of Variance

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-1

 Chapter Overview

Analysis of Variance (ANOVA)

Randomized
Complete
Block ANOVA

F-test

Fisher’s Least
Significant
Difference test
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-2
 General ANOVA Setting

◼ Investigator controls one or more independent

variables
◼ Called factors (or treatment variables)
◼ Each factor contains two or more levels (or
categories/classifications)
◼ Observe effects on dependent variable
◼ Response to levels of independent variable
◼ Experimental design: the plan used to test
hypothesis

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-3

 Randomized Complete Block
ANOVA
◼ Like One-Way ANOVA, we test for equal population
means (for different factor levels, for example)...

◼ ...but we want to control for possible variation from a

second factor (with two or more levels)

◼ Used when more than one factor may influence the

value of the dependent variable, but only one is of key
interest

◼ Levels of the secondary factor are called blocks

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-4

 Partitioning the Variation
◼ Total variation can now be split into three parts:

SST = SSB + SSBL + SSW

SST = Total sum of squares

SSB = Sum of squares between factor levels
SSBL = Sum of squares between blocks
SSW = Sum of squares within levels

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-5

 Sum of Squares for Blocking

SST = SSB + SSBL + SSW

b
SSBL =  k( x j − x )2
j=1
Where:
k = number of levels for this factor
b = number of blocks
xj = sample mean from the jth block
x = grand mean (mean of all data values)
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-6
 Partitioning the Variation
◼ Total variation can now be split into three parts:

SST = SSB + SSBL + SSW

SST and SSB are SSW = SST – (SSB + SSBL)

computed as they were
in One-Way ANOVA

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-7

 Mean Squares

SSBL
MSBL = Mean square blocking =
b −1

SSB
MSB = Mean square between =
k −1

SSW
MSW = Mean square within =
(k − 1)(b − 1)

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-8

 Randomized Block ANOVA
Table
Source of SS df MS F ratio
Variation
Between MSBL
SSBL b-1 MSBL
Blocks MSW
Between MSB
SSB k-1 MSB
Samples MSW
Within
SSW (k–1)(b-1) MSW
Samples

Total SST nT - 1
k = number of populations nT = sum of the sample sizes from all populations
b = number of blocks df = degrees of freedom
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-9
 Blocking Test
H0 : μb1 = μb2 = μb3 = ...
HA : Not all block means are equal

MSBL ◼ Blocking test: df1 = b - 1

F=
MSW df2 = (k – 1)(b – 1)

Reject H0 if F > F

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-10

 Main Factor Test
H0 : μ1 = μ2 = μ3 = ... = μk
HA : Not all population means are equal

MSB ◼ Main Factor test: df1 = k - 1

F=
MSW df2 = (k – 1)(b – 1)

Reject H0 if F > F

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-11

 Fisher’s
Least Significant Difference Test
◼ To test which population means are significantly
different
◼ e.g.: μ1 = μ2 ≠ μ3
◼ Done after rejection of equal means in randomized
block ANOVA design
◼ Allows pair-wise comparisons
◼ Compare absolute mean differences with critical
range

1= 2 3 x
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-12
 Fisher’s Least Significant
Difference (LSD) Test

2
LSD = t /2 MSW
b

where:
t/2 = Upper-tailed value from Student’s t-distribution
for /2 and (k - 1)(b - 1) degrees of freedom
MSW = Mean square within from ANOVA table
b = number of blocks
k = number of levels of the main factor

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-13

 Fisher’s Least Significant
Difference (LSD) Test
(continued)

2
LSD = t /2 MSW
b

Compare:
Is x i − x j  LSD ? x1 − x 2

If the absolute mean difference x1 − x 3

is greater than LSD then there
is a significant difference x2 − x3
between that pair of means at
the chosen level of significance. etc...
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 12-14