One-Way Analysis of Variance (ANOVA)

ANOVA tests for the equality of two or more population (treatment) means.

Assumptions:
1. 2. 3. All populations are normally distributed. All populations have the same variance:
1 2

= ........ =

2 r

= 2.

Independent random samples are selected from the populations (treatments).

Notation:
Yij = the ith observation from the jth treatment.
Yj

= the mean of the jth sample.

Tj = the total of the jth sample. nj = the size of the jth sample. nT = nj = the total number of observations. r = the number of treatments. j = the mean of the jth treatment. = the common standard deviation for all treatments.

ANOVA Table:
Source of Variation Treatment Error Total Sum of Squares SSTR SSE SSTO df r-1 nT - r nT - 1 Mean Square MSTR = SSTR/(r - 1) MSE = SSE/(nT - r) F* MSTR MSE

The total variability in the data may be attributed to two sources: 1. 2. The treatment it received. Residual or extraneous factors.

The first estimate is based on the variation between the sample groups. The second estimate is based on the variation of observations within the sample groups. The ratio F* serves as the test statistic for the ANOVA test of hypothesis. If the null hypothesis is true then estimates of variance based on treatment (between groups) sum of squares (MSTR) and error (within groups) sum of squares (MSE) should be nearly of the same order of magnitude. This would lead to a relatively small test statistic which would lead to accepting the null hypothesis. However if the alternative hypothesis is true, then MSTR should be expected to be significantly larger than MSE. This would lead to a relatively large test statistic which would lead to rejecting the null hypothesis and concluding that the treatments do have some effect on the means.

ANOVA Test of Hypothesis:

H0: 1 = 2 = 3 = ........ =
r

(All the population means are equal).

H1: Not all j are equal (At least one of the means is different). TS: F* = MSTR/MSE. AL: F(1 - ; r - 1; nT - r). DR: Conclude H0 if F* AL and Conclude H1 if F* > AL.

Computer Expenditures Example:

2

You are a market analyst hired as a consultant by a major computer manufacturer to determine whether the mean annual amount spent by independent professionals on computer equipment for their offices is the same for several professions. You have conducted a survey of five different professions with the following results: Physicians $10,950 $9,675 $7,340 $11,325 $8,460 Dentists $8,850 $9,400 $7,800 $8,250 $7,500 $8,460 Lawyers $9,870 $9,500 $9,200 $8,670 Accountants $12,500 $10,600 $11,450 $10,540 $11,460 Economists $10,800 $9,350 $10,650

Test the hypothesis that the population means are the same at the 5% level of significance.

ANOVA: Single Factor SUMMARY Groups Physicians Dentists Lawyers Accountants Economists

Count 5 6 4 5 3

Sum 47750 50260 37240 56550 30800

Average 9550 8376.666667 9310 11310 10266.66667

Variance 2799612.5 479066.667 257133.333 638800 635833.333

ANOVA Source Between Groups Within Groups Total

SS 25141130.43 18192050 43333180.43

df 4 18 22

MS 6285282.609 1010669.444

F 6.21893008

P-value 0.002520313

F crit 2.92774871

Confidence Intervals for One Population Mean:

j=
Yj

t(1 - /2; nT - r)

M SE nj

Note: E(MSE) = 2 MSE s2.

Confidence Intervals for Two Population Means:

j' = j - ( Y j -

Y j'

) t(1 - /2; nT - r)

MSE + MSE nj n j'

An analysis of confidence intervals shows significant differences between P&A, D&A, D&E, L&E.

U.S. Exports Example:

Random samples of export companies in the United Kingdom (UK), Canada and Mexico have been selected and the amount of exports to the United States in millions of U.S. dollars were recorded: Anova: Single Factor SUMMARY Groups UK Canada Mexico

Count 5 6 7

Sum 125 120 155

Average 25 20 22.14

Variance 21.5 4.4 3.14

Assume that the value of SSE = 126.84. Construct a 90% confidence interval for the difference in mean U.S. exports between Canadian and Mexican companies.

Regression Approach to ANOVA:

Expenditure s $10,950 $9,675 $7,340 $11,325 $8,460 $8,850 $9,400 $7,800 $8,250 $7,500 $8,460 $9,870 $9,500 $9,200 $8,670 $12,500 $10,600 $11,450 $10,540 $11,460 $10,800 $9,350 $10,650

X1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

X2 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0

X3 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 0 0 0 0 0 0 0 0

X4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 0 0 0

SUMMARY OUTPUT

Regression Statistics Multiple R 0.761696777 R Square 0.58018198 Adjusted R Square 0.486889087 Standard Error 1005.320568 Observations 23 ANOVA df 4 18 22 SS 25141130.43 18192050 43333180.43 Standard Error 580.4221006 734.1823368 710.8689909 767.8262668 734.1823368 MS 6285282.609 1010669.444 F 6.21893008 Significance F 0.002520313

Regression Residual Total

Intercept X1 X2 X3 X4

Coefficients 10266.66667 -716.6666667 -1890 -956.6666667 1043.333333

t Stat 17.68827661 -0.976142616 -2.658717744 -1.245941573 1.421082041

P-value 7.93699E-13 0.341931187 0.015991402 0.228759487 0.172386196

Lower 95% 9047.245085 -2259.126517 -3383.480328 -2569.809791 -499.1265172

Upper 95% 11486.08825 825.7931838 -396.5196717 656.4764576 2585.793184