1/31/2023

Descriptive Analytics

Dr. Khakim Habibi

Rennes School of Business

Today’s Agenda

• Data Manipulation and Visualization

• Statistical Analysis
• Statistical Inference

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Chapter 7
Statistical
Inference

Statistical Inference

• Statistical inference focuses on drawing conclusions about

populations from samples.
• Statistical inference includes estimation of population parameters and
hypothesis testing, which involves drawing conclusions about the value of
the parameters of one or more populations.

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Hypothesis Testing
 Hypothesis testing involves drawing inferences about two
contrasting propositions (each called a hypothesis) relating to
the value of one or more population parameters.
 H0: Null hypothesis: describes an existing theory
 H1: Alternative hypothesis: the complement of H0
 Using sample data, we either:
- reject H0 and conclude the sample data provides
sufficient evidence to support H1, or
- fail to reject H0 and conclude the sample data
does not support H1.

Example 7.1: A Legal Analogy for Hypothesis

Testing
• In the U.S. legal system, a defendant is innocent until proven guilty.
• H0: Innocent
• H1: Guilty
• If evidence (sample data) strongly indicates the defendant is guilty,
then we reject H0.
• Note that we have not proven guilt or innocence!

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Hypothesis Testing Procedure

Steps in conducting a hypothesis test:

1. Identify the population parameter and formulate the hypotheses
to test.
2. Select a level of significance (the risk of drawing an incorrect
conclusion).
3. Determine the decision rule on which to base a conclusion.
4. Collect data and calculate a test statistic.
5. Apply the decision rule and draw a conclusion.

One-Sample Hypothesis Tests

• Three types of one sample tests:

1. H0: parameter ≤ constant
H1: parameter > constant
2. H0: parameter ≥ constant
H1: parameter < constant
3. H0: parameter = constant
H1: parameter ≠ constant
• It is not correct to formulate a null hypothesis using >, <, or ≠.

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Determining the Proper Form of Hypotheses

• Hypothesis testing always assumes that H0 is true and uses
sample data to determine whether H1 is more likely to be true.
• Statistically, we cannot “prove” that H0 is true; we can only fail to reject
it.
• Rejecting the null hypothesis provides strong evidence (in a
statistical sense) that the null hypothesis is not true and that
the alternative hypothesis is true.
• Therefore, what we wish to provide evidence for statistically
should be identified as the alternative hypothesis.

Example 7.2: Formulating a One-Sample Test of

Hypothesis
• CadSoft receives calls for technical support. In the past, the
average response time has been at least 25 minutes. It
believes the average response time can be reduced to less
than 25 minutes.
• If the new information system makes a difference, then, data should
be able to confirm that the mean response time is less than 25
minutes; this defines the alternative hypothesis, H1.
H0: mean response time ≥ 25
H1: mean response time < 25

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Understanding Potential Errors in Hypothesis

Testing
• Hypothesis testing can result in one of four different outcomes:
1. H0 is true and the test correctly fails to reject H0
2. H0 is false and the test correctly rejects H0
3. H0 is true and the test incorrectly rejects H0 (called Type I error)
4. H0 is false and the test incorrectly fails to reject H0 (called Type II
error)

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Terminology
• The probability of making a Type I error = α (level of
significance) = P(rejecting H0 | H0 is true)
• The value of 1 – a is called the confidence coefficient
= P(not rejecting H0 | H0 is true),
• The value of α can be controlled. Common values are 0.01, 0.05, or 0.10.
• The probability of making a Type II error = β = P(not rejecting H0
| H0 is false)
• The value of 1 - β is called the power of the test
= P(rejecting H0 | H0 is false).
• The value of β cannot be specified in advance and depends on the value
of the (unknown) population parameter.

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Selecting the Test Statistic

• The decision to reject or fail to reject a null hypothesis is

based on computing a test statistic from the sample data.
• The test statistic used depends on the type of hypothesis
test.
• Test statistics for one-sample hypothesis tests for means:

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Example 7.4 Computing the Test Statistic

• In the CadSoft example, sample data for 44 customers
revealed a mean response time of 21.91 minutes and a
sample standard deviation of 19.49 minutes.

t = -1.05 indicates that the sample mean of 21.91 is 1.05

standard errors below the hypothesized mean of 25 minutes.

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Drawing a Conclusion

• The conclusion to reject or fail to reject H0 is based on

comparing the value of the test statistic to a “critical value”
from the sampling distribution of the test statistic when the
null hypothesis is true and the chosen level of significance,
a.
• The sampling distribution of the test statistic is usually the normal
distribution, t-distribution, or some other well-known distribution.
• The critical value divides the sampling distribution into two
parts, a rejection region and a non-rejection region. If the
test statistic falls into the rejection region, we reject the null
hypothesis; otherwise, we fail to reject it.

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Rejection Regions
H0: parameter ≥ constant H0: parameter ≤ constant H0: parameter = constant
H1: parameter < constant H1: parameter > constant H1: parameter ≠ constant

For a one-tailed test, if H1 is stated as <, the

rejection region is in the lower tail; if H1 is stated as
>, the rejection region is in the upper tail (just
think of the inequality as an arrow pointing to the
proper tail direction).

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Example 7.5: Finding the Critical Value and

Drawing a Conclusion
• In the CadSoft example, use α = 0.05.
• H0: mean response time ≥ 25
• H1: mean response time < 25
• n = 44; df = n −1 = 43
• t = -1.05
• Critical value = tα/2, n−1 = [Link](1− α , n −1) = [Link](0.95, 43) = 1.68
• t = -1.05 does not fall in the rejection region.
• Fail to reject H0.

Even though the sample mean of

21.91 is well below 25, we have too
much sampling error to conclude the
that the true population mean is less
than 25 minutes.

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Vacation Survey Data

Copyright © 2013 Pearson Education, Inc. publishing as

7-18
Prentice Hall

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Example 7.6: Conducting a Two-Tailed

Hypothesis Test for the Mean
• Excel file Vacation Survey
• Test whether the average age of respondents is equal to 35.
• H0: mean age = 35
• H1: mean age ≠ 35
• n = 34; sample mean = 38.677; sample standard deviation = 7.858.
• Test statistic:

• Critical value = [Link].2T(.05, 33) = 2.0345

• p-value = [Link].2T(2.69, 33) = 0.0111
• Reject H0.

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p-Values
• A p-value (observed significance level) is the probability of obtaining
a test statistic value equal to or more extreme than that obtained
from the sample data when the null hypothesis is true.
 An alternative approach to Step 3 of a hypothesis test uses the p-
value rather than the critical value:
Reject H0 if the p-value < α

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Finding p-Values

• For a lower one-tailed test, the p-value is the probability to

the left of the test statistic t in the t-distribution, and is
found using the Excel function:
• =[Link](t, n-1, TRUE).
• For an upper one-tailed test, the p-value is the probability to
the right of the test statistic t, and is found using the Excel
function:
• 1 - [Link](t, n-1, TRUE).
• For a two-tailed test, the p-value is found using the Excel
function:
• [Link].2T(t, n-1), if t > 0
• [Link].2T(-t, n-1), if t < 0

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Example 7.7: Using p-Values

 In the CadSoft example, the p-value is the left tail area of

the observed test statistic, t = -1.05.
 p-value =TDIST(-1.05, 43, true) = 0.1498
 Do not reject H0 because the p-value ≥ α,
i.e., 0.1498 ≥ 0.05
 For the Vacation Survey two-tailed hypothesis test in
Example 7.6, the p-value for this test is
 p-value =[Link].2T(2.73,33) = 0.010
 Reject H0 because 0.010 < 0.05

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One-Sample Tests for Proportions

• Test statistic:

• p0 is the hypothesized value and p is the sample

⌃ proportion

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Example 7.8: One-Sample Test for the

Proportion
• CadSoft sampled 44 customers and asked them to rate the
overall quality of a software package. Sample data revealed
that 35 respondents (a proportion of 35/44 = 0.795) thought
the software was very good or excellent. In the past, this
proportion has averaged about 75%. Is there sufficient
evidence to conclude that this satisfaction measure has
significantly exceeded 75% using a significance level of 0.05?

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Example 7.8 Continued

• Hypotheses:
• H0: p ≤ 0.75
• H1: p > 0.75
• Test statistic:

• Critical value = [Link](0.95) = 1.645

• p-value = 1 − [Link](0.69,TRUE) = 0.24
• Do not reject H0.

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Two-Sample Hypothesis Tests

• Lower-tailed test
• H0: population parameter (1) - population parameter (2) ≥ D0
• H1: population parameter (1) - population parameter (2) < D0
 This test seeks evidence that the difference between
population parameter (1) and population parameter (2) is
less than some value, D0.
 When D0 = 0, the test simply seeks to conclude whether
population parameter (1) is smaller than population
parameter (2).

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Two-Sample Hypothesis Tests

• Upper-tailed test
• H0: population parameter (1) - population parameter (2) ≤ D0
• H1: population parameter (1) - population parameter (2) > D0
 This test seeks evidence that the difference between
population parameter (1) and population parameter (2) is
greater than some value, D0.
 When D0 = 0, the test simply seeks to conclude whether
population parameter (1) is larger than population
parameter (2).

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Two-Sample Hypothesis Tests

• Two-tailed test
• H0: population parameter (1) - population parameter (2) = D0
• H1: population parameter (1) - population parameter (2) ≠ D0
 This test seeks evidence that the difference between the
population parameters is equal to D0.
 When D0 = 0, we are seeking evidence that population
parameter (1) differs from population parameter (2).
 In most applications, D0 = 0, and we are simply seeking to compare
the population parameters.

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Excel Analysis Toolpak Procedures for Two-

Sample Hypothesis Tests

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Two-Sample Tests for Difference in Means

• Forms of the hypothesis test:

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Example 7.9: Comparing Supplier Performance

• Purchase Orders database

• Determine if the mean lead time for Alum Sheeting (µ1) is

greater than the mean lead time for Durrable Products (µ2).

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Example 7.9: Comparing Supplier Performance

• Purchase Orders database

• Determine if the mean lead time for Alum Sheeting (µ1) is

greater than the mean lead time for Durrable Products (µ2).

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Selecting the Proper Excel Procedure

 Population variances are known:

 z-Test: Two-Sample for Means
 Population variances are unknown and assumed unequal:
 t-Test: Two-Sample Assuming Unequal Variances
 Population variances are unknown but assumed equal:
 t-Test: Two-Sample Assuming Equal Variances
• These tools calculate the test statistic, the p-value for both a
one-tail and two-tail test, and the critical values for one-tail
and two-tail tests.

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Intepreting Excel Output

• If the test statistic is negative, the one-tailed p-value is the

correct p-value for a lower-tail test; however, for an upper-
tail test, you must subtract this number from 1.0 to get the
correct p-value.
• If the test statistic is nonnegative (positive or zero), then the
p-value in the output is the correct p-value for an upper-tail
test; but for a lower-tail test, you must subtract this number
from 1.0 to get the correct p-value.
• For a lower-tail test, you must change the sign of the one-
tailed critical value.

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Example 7.10: Testing the Hypotheses for

Supplier Lead-Time Performance
• t-Test: Two-Sample Assuming Unequal Variances
• Variable 1 Range: Alum Sheeting data
• Variable 2 Range: Durrable Products data

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Example 7.10 Continued

• Results
• Rule 2: If the test statistic is nonnegative (positive or zero), then the p-value
in the output is the correct p-value for an upper-tail test.

t = 3.83
Critical value = 1.81
p-value = 0.00166
Reject H0.

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Two-Sample Test for Means with Paired

Samples
• In many situations, data from two samples are naturally paired
or matched.
• When paired samples are used, a paired t-test is more accurate
than assuming that the data come from independent
populations.
• Hypotheses (mD is the mean difference between the paired
samples):

• Excel Data Analysis tool: t-Test: Paired Two-Sample for Means

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Example 7.11 Using the Paired Two-Sample

Test for Means
• Excel file Pile Foundation
• Test for a difference in the means of the estimated and actual pile lengths
(two-tailed test).

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Example 7.11 Continued

• Results:

• t = -10.91
• t is smaller than the lower
critical value
• p-value ≈ 0
• Reject the null hypothesis

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Analysis of Variance (ANOVA)

• Used to compare the means of two or more population groups.

• ANOVA derives its name from the fact that we are analyzing
variances in the data.
• ANOVA measures variation between groups relative to
variation within groups.
• Each of the population groups is assumed to come from a
normally distributed population.

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Example 7.13: Difference in Insurance Survey

Data
• Determine whether any significant differences exist in satisfaction
among individuals with different levels of education.

• The variable of interest is called a factor. In this example, the factor

is the educational level, and we have three categorical levels of this
factor, college graduate, graduate degree, and some college.

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Example 7.14: Applying the Excel ANOVA Tool

• Data Analysis tool: ANOVA: Single Factor
• The input range of the data must be in contiguous columns

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Example 7.14: Continued

• Results

• F = 3.92
• Fcrit = 3.46
• F > Fcrit
• p-value = 0.0356
• Reject H0.

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Assumptions of ANOVA

• The m groups or factor levels being studied represent populations

whose outcome measures
1. are randomly and independently obtained,
2. are normally distributed, and
3. have equal variances.

• If these assumptions are violated, then the level of

significance and the power of the test can be
affected.

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Chi-Square Test for Independence

 Test for independence of two categorical
variables.
◦ H0: two categorical variables are independent
◦ H1: two categorical variables are dependent

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Example 7.15: Independence and Marketing

Strategy
• Energy Drink Survey data. A key marketing question is whether the
proportion of males who prefer a particular brand is no different from the
proportion of females.
• If gender and brand preference are indeed independent, we would expect that about the
same proportion of the sample of female students would also prefer brand 1.
• If they are not independent, then advertising should be targeted differently to males and
females, whereas if they are independent, it would not matter.

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Chi-Square Test Calculations

 Step 1: Using a cross-tabulation of the data, compute
the expected frequency if the two variables are
independent.

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Example 7.16: Computing Expected

Frequencies

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Chi-Square Test Calculations

 Step 2: Compute a test statistic, called a chi-square
statistic, which is the sum of the squares of the
differences between observed frequency, fo, and
expected frequency, fe, divided by the expected
frequency in each cell:

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Chi-Square Distribution

• The sampling distribution of C2 is a special distribution

called the chi-square distribution.
• The chi-square distribution is characterized by degrees of freedom.
• Table 3 in Appendix A

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Chi-Square Test Calculations (continued)

• Step 3: Compare the chi-square statistic for the level of significance a
to the critical value from a chi-square distribution with (r – 1)(c – 1)
degrees of freedom, where r and c are the number of rows and
columns in the cross-tabulation table, respectively.
• The Excel function [Link](probability, deg_ freedom) returns the value of
C2 that has a right-tail area equal to probability for a specified degree of
freedom.
• By setting probability equal to the level of significance, we can obtain the critical
value for the hypothesis test.
• The Excel function [Link](actual_range, expected_range) computes the p-
value for the chi-square test.

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Example 7.17: Conducting the Chi-Square Test

• Test statistic = 6.49

• d.f. = (2 – 1)(3 – 1) = 2
• Critical value = [Link](0.05,2)
= 5.99
• p-value =
[Link](F6:H7,F12:H13) =
0.0389
• Reject H0

Test statistic

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