CH 16

Business Statistics, 3e
by Ken Black
Discrete Distributions
Chapter 16
Chi-Square and
Other
Nonparametric
Statistics
Business Statistics: Contemporary Decision
1-1
Learning Objectives
Recognize the advantages and disadvantages of
nonparametric statistics.
Understand the 2 goodness-of-fit test and how to use it.
Analyze data using the 2 test of independence.
Understand how to use the runs test to test for
randomness.
Know when and how to use the Mann-Whitney U test,
the Wilcoxon matched-pairs signed rank test, the
Kruskal-Wallis test, and the Friedman test.
Learn when and how to measure correlation using
Spearmans rank correlation measurement.
1-2
Parametric vs Nonparametric Statistics

Parametric Statistics are statistical techniques based on
assumptions about the population from which the sample data
are collected.
Assumption that data being analyzed are randomly selected
from a normally distributed population.
Requires quantitative measurement that yield interval or ratio
level data.
Nonparametric Statistics are based on fewer assumptions

about the population and the parameters.
Sometimes called distribution-free statistics.
A variety of nonparametric statistics are available for use with
nominal or ordinal data.
1-3
Advantages
of Nonparametric Techniques
Sometimes there is no parametric alternative to
the use of nonparametric statistics.
Certain nonparametric test can be used to analyze
nominal data.
Certain nonparametric test can be used to analyze
ordinal data.
The computations on nonparametric statistics are
usually less complicated than those for parametric
statistics, particularly for small samples.
Probability statements obtained from most
nonparametric tests are exact probabilities.
1-4
Disadvantages
of Nonparametric Statistics
Nonparametric tests can be wasteful of data
if parametric tests are available for use with
the data.
Nonparametric tests are usually not as
widely available and well know as
parametric tests.
For large samples, the calculations for many
nonparametric statistics can be tedious.
1-5
2 Goodness-of-Fit Test
The2 goodness-of-fit test compares
expected (theoretical) frequencies
of categories from a population distribution
to the observed (actual) frequencies
from a distribution to determine whether
there is a difference between what was
expected and what was observed.
1-6
2 Goodness-of-Fit Test

2
f o f e
f
df = k - 1 - c
where :
frequency of observed values
frequency of expected values
k number of categories
c = number of parameters estimated from the sample data
1-7
Milk Sales Data

for Demonstration
Problem 16.1
Month
January
February
March
April
May
June
July
August
September
October
November
December
Gallons
1,610
1,585
1,649
1,590
1,540
1,397
1,410
1,350
1,495
1,564
1,602
1,655
18,447
1-8
Hypotheses and Decision Rules

for Demonstration Problem 16.1
Ho : The monthly milk figures for milk sales
are uniformly distributed
Ha : The monthly milk figures for milk sales
are not uniformly distributed
.01
df k 1 c
12 1 0
11
2
.01,11
If
If
2
Cal
2
Cal
24.725, reject Ho.

24.725, do not reject Ho.
24.725
1-9
Calculations
Month
January
February
March
April
May
June
July
August
September
October
November
December
fo
fe
(fo - fe)2/fe
1,610 1,537.25
3.44
1,585 1,537.25
1.48
1,649 1,537.25
8.12
1,590 1,537.25
1.81
1,540 1,537.25
0.00
1,397 1,537.25
12.80
1,410 1,537.25
10.53
1,350 1,537.25
22.81
1,495 1,537.25
1.16
1,564 1,537.25
0.47
1,602 1,537.25
2.73
1,655 1,537.25
9.02
18,447 18,447.00
74.38
18447
f e 12
1537.25
2
Cal
74.37
1-10
Demonstration Problem 16.1:

Conclusion
df = 11
Non Rejection
region
0.01
24.725
2
Cal
74.37 24.725, reject Ho.
1-11
Bank Customer Arrival Data

Number of
Arrivals
0
Observed
Frequencies
7
1
2
18
25
17
12
1-12
Hypotheses and Decision Rules

Ho: The frequency distribution is Poisson
Ha: The frequency distribution is not Poisson
.05
df k 1 c
6 1 1
4
2
.05, 4
If
If
2
Cal
2
Cal
9.488, reject Ho.

9.488
1-13
Calculations
for Demonstration Problem 16.2:
Estimating the Mean Arrival Rate
Number of
Observed
Arrivals
Frequencies
X
f
0
7
1
18
2
25
3
17
4
12
5
5
fX
0
18
50
51
48
25
192
f X
Mean
Arrival
Rate
192
84
2.3 customers per minute
1-14
Calculations for Demonstration Problem

16.2: Poisson Probabilities for = 2.3
Expected
Expected
Number of Probabilities Frequencies
Arrivals X
P(X)
nP(X)
0
0.1003
8.42
1
0.2306
19.37
2
0.2652
22.28
3
0.2033
17.08
4
0.1169
9.82
0.0838
7.04
Poisson
Poisson
Probabilities
Probabilities
for
for ==2.3
2.3
n f
84
1-15
2 Calculations
Number of Observed
Expected
Arrivals Frequencies Frequencies
X
f
nP(X)
0
7
8.42
1
18
19.37
2
25
22.28
3
17
17.08
4
12
9.82
5
5
7.04
84
84.00
(fo - fe)2
fe
2
Cal
1.74
0.24
0.10
0.33
0.00
0.48
0.59
1.74
1-16
Demonstration Problem 16.2: Conclusion

df = 4
Non Rejection
region
0.05
9.488
2
Cal
174
. 9.488, do not reject Ho.
1-17
Using a 2 Goodness-of-Fit Test

to Test a Population Proportion
.05
df k 1 c
2 1 0
1
2
.05,1
3841
.
Ho: P =.10
Ha: P .10
If
If
2
Cal
2
Cal
3.841, reject Ho.

1-18
Using a 2 Goodness-of-Fit Test to Test

a Population Proportion: Calculations
fo
43
157
200
Defects
Nondefects
n=
Defects
f
f
fe
20
180
200
n P
e
e
200 .10
20
Nondefects
f
f
e
e
f o f e
157180
43
20
20
2645
. 2.94
2939
.
180
n 1 P
200 .90
180
1-19
Using a 2
Goodness-ofFit Test
to Test a
Population
Proportion:
Conclusion
df = 1
0.05
Non Rejection
region
3.841
29
.
39
3841
.
,
reject
H
o.
Cal
1-20
2 Test of Independence
Used to analyze the frequencies of two
variables with multiple categories to
determine whether the two variables
are independent.
Qualitative Variables
Nominal Data
1-21
2 Test of Independence: Investment Example

In which region of the country do you reside?
A. Northeast B. Midwest C. South
D. West
Which type of financial investment are you most likely to make today?
E. Stocks
F. Bonds
G. Treasury bills
Type of financial
Investment
Contingency Table
E
A
Geographic B
C
Region
D
nE
nF
G
O13
nG
nA
nB
nC
nD
N
1-22
2 Test of Independence: Investment Example

If A and F are independent,
P A F P A P F
n
P A
n
P F
AF
n n
P A F
A
N P A F
n n
n
n
Type of Financial
Investment
Contingency Table
E
Geographic
Region
A
B
C
D
e12
nE
nF
nG
nA
nB
nC
nD
N
1-23
2 Test of Independence: Formulas

eij
Expected
Frequencies
n
n
N
where : i = the row
j = the colum n
ni
nj
the total of row i

the total of column j
N = the total of all frequencies
f o f e
Calculated
(Observed )
fe
where : df = (r - 1)(c - 1)
r = the numberr of rows
c = the numberr of columns
1-24
2 Test of Independence: Gasoline

Preference Versus Income Category
.01
df r 1 c 1
4 1 3 1
6
If
If
2
.01, 6
16.812
r=4
Income
Less than $30,000
$30,000 to $49,999
$50,000 to $99,000
At least $100,000
16.812, reject Ho.

Cal
2
Cal
c=3
Type of
Gasoline
Regular Premium
Extra
Premium
Ho : Type of gasoline is
independent of income
Ha : Type of gasoline is not
independent of income
1-25
Gasoline Preference Versus Income

Category: Observed Frequencies
Type of
Gasoline
Income
Less than $30,000
$30,000 to $49,999
$50,000 to $99,000
At least $100,000
Regular Premium
85
16
102
27
36
22
15
23
238
88
Extra
Premium
6
13
15
25
59
107
142
73
63
385
1-26

Category: Expected Frequencies
e
n
n
ij
N
107 238
e11 385
66.15
12
107 88
385
24 .46
e13
Type of
Gasoline
107 59
385
16.40
Income
Less than $30,000
$30,000 to $49,999
$50,000 to $99,000
At least $100,000
Regular Premium
(66.15)
(24.46)
85
16
(87.78)
(32.46)
102
27
(45.13)
(16.69)
36
22
(38.95)
(14.40)
15
23
238
88
Extra
Premium
(16.40)
6
(21.76)
13
(11.19)
15
(9.65)
25
59
107
142
73
63
385
1-27

Category: 2 Calculation
f o f e
f
88 66.15
16 24.46
27 32.46
66.15
102 87.78
87 .78
36 4513
.
45.13
70.78
38.95
24 .46
6 16.40
13 21.76
32 .46
15 1119
.
23 14.40
16.69
25 9.65
14.40
22 16.69
15 38.95
16.40
21.76
11.19
9.65
1-28

Category: Conclusion
df = 6
Non rejection
region
0.01
16.812
70
.
78
16
.
812
,
reject
H
o.
Cal
1-29
Runs Test
Test for randomness - is the order or sequence of
observations in a sample random or not
Each sample item possesses one of two possible
characteristics
Run - a succession of observations which possess
the same characteristic
Example with two runs: F, F, F, F, F, F, F, F, M,
M, M, M, M, M, M
Example with fifteen runs: F, M, F, M, F, M, F,
M, F, M, F, M, F, M, F
1-30
Runs Test: Sample Size Consideration

Sample size: n
Number of sample member possessing
the first characteristic: n1
Number of sample members possessing
the second characteristic: n2
n = n1 + n2
If both n1 and n2 are 20, the small
sample runs test is appropriate.
1-31
Runs Test: Small Sample Example
H0: The observations in the sample are randomly generate

Ha: The observations in the sample are not randomly gene
= .05
n1 = 18
n2 = 8
If 7 R 17, do not reject H0
Otherwise, reject H0.
1
2
3 4 5
6 7 8 9 10 11 12
D CCCCC D CC D CCCC D C D CCC DDD CCC
R = 12
Since 7 R = 12 17, do not reject H0
1-32
Runs Test: Large Sample

2n n
If either n or n is > 20,
1
n n
the sampling
1
distribution of R is
approximately normal.
2 n1 n2 (2 n1 n2 n1 n2)
(n1 n2)
(n1 n2 1)
R R
1-33
Runs Test: Large Sample Example

H
H00:: The
The observations
observations in
in the
the sample
sample are
are randomly
randomly
generated.
generated.
H
Haa:: The
The observations
observations in
in the
the sample
sample are
are not
not randomly
randomly
generated.
generated.
=
= .05
.05
nn1 =
40
1 = 40
nn2 =
10
2 = 10
If
If -1.96
-1.96 ZZ 1.96,
1.96, do
do not
not reject
reject H
H00
Otherwise,
Otherwise, reject
reject H
H00..
11
NNN
NNN
22
33 44 55 66
77
FF NNNNNNN
NNNNNNN FF NN
NN FF
FF NNNNNN
NNNNNN
88
99
FF NNNN
NNNN
12
13
12
13
FFFF
RR =
FFFF NNNNNNNNNNNN
NNNNNNNNNNNN
= 13
13
11
00
11
11
FF NNNNN
NNNNN
1-34
Runs Test: Large Sample Example

2 n1 n2
R 1
n1 n2
2(40)(10)
1
40 10
17
2 n1 n2 (2 n1 n2 n1 n2)
(n1 n2)
(n1 n2 1)
2(40)(10)[2(40)(10) (40) (10)]
(4010)
(40 10 1)
2.213
R R
13 17
181
.
2.213
-1.96 Z = -1.81 1.96,

do not reject H0
1-35
Mann-Whitney U Test
Nonparametric counterpart of the t test for
independent samples
Does not require normally distributed
populations
May be applied to ordinal data
Assumptions
Independent Samples
At Least Ordinal Data
1-36
Mann-Whitney U Test:
Sample Size Consideration
Size of sample one: n1
Size of sample two: n2
If both n1 and n2 are 10, the small sample
procedure is appropriate.
If either n1 or n2 is greater than 10, the
large sample procedure is appropriate.
1-37
Small Sample Example
H0: The health service
population is identical to the
educational service
population on employee
compensation
Ha: The health service
population is not identical to
the educational service
population on employee
compensation
Health
Service
20.10
19.80
22.36
18.75
21.90
22.96
20.75
Educational
Service
26.19
23.88
25.50
21.64
24.85
25.30
24.12
23.45
1-38
= .05
Compensation
18.75
19.80
0
20.10
20.75
21.64
21.90
22.36
22.96
23.45
23.88
24.12
24.85
25.30
25.50
26.19
If the final p-value < .05, reject H .
W1 = 1 + 2 + 3 + 4 + 6 + 7 + 8
= 31
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
W2 = 5 + 9 + 10 + 11 + 12 + 13 + 14 + 15
= 89
Group
H
H
H
H
E
H
H
H
E
E
E
E
E
E
E
1-39
U n n
1
W1
2
(7)(8)
(7)(8)
31
2
53
1
U n n
2
(n 1)
n
(n
n
1)
Since U2 < U1, U = 3.
p-value = .0011 < .05, rejec
W 2
(8)(9)
(7)(8) n1 n2
89
2
3
1-40
Formulas for Large Sample Case
U n1 n2
1
n
n
2
where : n1 number in group 1
n
W
number in group 2
sum or the ranks of

1
n
n
2
n n n n
1
U U
12
values in group 1
1-41
Incomes of PBS
and Non-PBS Viewers
Ho: The incomes for PBS viewers
and non-PBS viewers are
identical
Ha: The incomes for PBS viewers
and non-PBS viewers are not
identical
.05
If Z 1.96 or Z 1.96, reject Ho
n1 = 14
n2 = 13
PBS
24,500
39,400
36,800
44,300
57,960
32,000
61,000
34,000
43,500
55,000
39,000
62,500
61,400
53,000
Non-PBS
41,000
32,500
33,000
21,000
40,500
32,400
16,000
21,500
39,500
27,600
43,500
51,900
27,800
1-42
Ranks of Income from Combined

Groups of PBS and Non-PBS Viewers
Income Rank
Group
16,000
1 Non-PBS
21,000
2 Non-PBS
21,500
3 Non-PBS
24,500
4
PBS
27,600
5 Non-PBS
27,800
6 Non-PBS
32,000
7
PBS
32,400
8 Non-PBS
32,500
9 Non-PBS
33,000
10 Non-PBS
34,000
11
PBS
36,800
12
PBS
39,000
13
PBS
39,400
14
PBS
Income Rank Group

39,500
15 Non-PBS
40,500
16 Non-PBS
41,000
17 Non-PBS
43,000
18 PBS
43,500 19.5 PBS
43,500 19.5 Non-PBS
51,900
21 Non-PBS
53,000
22 PBS
55,000
23 PBS
57,960
24 PBS
61,000
25 PBS
61,400
26 PBS
62,500
27 PBS
1-43
PBS and Non-PBS Viewers:

Calculation of U
W
4 7 11 12 13 14 18 19.5 22 23 24 25 26 27
2455
.
U n1 n2
n
n
W1
2
14 15
14 13
2455
.
2
415
.
1
1-44
PBS and Non-PBS Viewers: Conclusion
n n
1
2
14 13
2
91
n n n n
1
U U
415
. 91
20.6
2.40
12
14 13 28
12
20.6
Cal
2.40 1.96, reject Ho
1-45
Wilcoxon Matched-Pairs
Signed Rank Test
A nonparametric alternative to the t test for
related samples
Before and After studies
Studies in which measures are taken on the
same person or object under different
conditions
Studies or twins or other relatives
1-46
Wilcoxon Matched-Pairs
Signed Rank Test
Differences of the scores of the two matched
samples
Differences are ranked, ignoring the sign
Ranks are given the sign of the difference
Positive ranks are summed
Negative ranks are summed
T is the smaller sum of ranks
1-47
Wilcoxon Matched-Pairs Signed

Rank Test: Sample Size
Consideration
n is the number of matched pairs
If n > 15, T is approximately normally distributed, and a
Z test is used.
If n 15, a special small sample procedure is followed.
The paired data are randomly selected.
The underlying distributions are symmetrical.
1-48

Rank Test: Small Sample Example
H0: M d = 0
Ha: Md 0
n=6
=0.05
Family
Pair
1
2
3
4
5
6
If Tobserved 1, reject H0.
Pittsburgh
1,950
1,840
2,015
1,580
1,790
1,925
Oakland
1,760
1,870
1,810
1,660
1,340
1,765
1-49

Rank Test: Small Sample Example
Family
Pair
1
2
3
4
5
6
Pittsburgh
1,950
1,840
2,015
1,580
1,790
1,925
Oakland
1,760
1,870
1,810
1,660
1,340
1,765
d
190
-30
205
-80
450
160
Rank
+4
-1
+5
-2
+6
+3
T = minimum(T+, T-)
T = 3 > Tcrit = 1, do not rejec
T+ = 4 + 5 + 6 + 3= 18
T- = 1 + 2 = 3
T = 3 Business Statistics: Contemporary Decision
1-50

Rank Test: Large Sample Formulas
n n 1
4
n n 1 2n 1
T
24
T
where : n = number of pairs

T = total ranks for either + or - differences, whichever is less
1-51
Airline Cost Data for 17 Cities,

1997 and 1999
H0: Md = 0
Ha: Md 0
City 1979 1999
1 20.3 22.8
2 19.5 12.7
3 18.6 14.1
4 20.9 16.1
5 19.9 25.2
6 18.6 20.2
7 19.6 14.9
8 23.2 21.3
9 21.8 18.7
.05
If Z 1.96 or Z 1.96, reject Ho
d Rank
-2.5
-8
6.8
17
4.5
13
4.8
15
-5.3
-16
-1.6
-4
4.7
14
1.9
6.5
3.1
10
City 1979 1999

10 20.3 20.9
11 19.2 22.6
12 19.5 16.9
13 18.7 20.6
14 17.7 18.5
15 21.6 23.4
16 22.4 21.3
17 20.8 17.4
d Rank
-0.6
-1
-3.4 -11.5
2.6
9
-1.9 -6.5
-0.8
-2
-1.8
-5
1.1
3
3.4 11.5
1-52
Airline Cost: T Calculation

T min imum(T , T )
17 13 15 14 6.5 10 9 3 115
.
99
8 16 4 1 115
. 6.5 2 5
54
T min imum(99,54)
54
1-53
Airline Cost: Conclusion
n n 1
4
17 18
4
76.5
n n 1 2n 1
17 18 35
211
.
T
24
24
Z
T T
54 76.5
107
.
211
.
1.96 Z Cal 1.07 1.96, do not reject Ho

1-54
Kruskal-Wallis Test
A nonparametric alternative to one-way
analysis of variance
May used to analyze ordinal data
No assumed population shape
Assumes that the C groups are independent
Assumes random selection of individual items
1-55
Kruskal-Wallis K Statistic
12
K
n n 1
n
C
j 1
2
j
3 n 1
where : C = number of groups

n = total number of items
total of ranks in a group
n j = number of items in a group

K 2 , with df = C - 1
1-56
Number of Patients per Day

per Physician in Three Organizational Categories
Ho: The three populations are identical
Ha: At least one of the three populations is different
0.05
df C 1 3 1 2
5
.
991
.05, 2
If K 5.991, reject Ho.
Three or
Two
More
Partners Partners HMO
13
24
26
15
16
22
20
19
31
18
22
27
23
25
28
14
33
17
1-57
Patients per Day Data:

Kruskal-Wallis Preliminary Calculations
Three or
Two
More
Partners
Partners
HMO
Patients Rank Patients Rank Patients Rank
13
1
24
12
26
14
15
3
16
4
22
9.5
20
8
19
7
31
17
18
6
22
9.5
27
15
23
11
25
13
28
16
14
2
33
18
17
5
T1 = 29
T2 = 52.5
T3 = 89.5
n1 = 5
n2 = 7
n3 = 6
n = n1 + n2 + n3 = 5 + 7 + 6 = 18
1-58
Patients per Day Data: Kruskal-Wallis

Calculations and Conclusion
12
K
n n 1
n
C
3 n 1
j 1
12
18 18 1
29 52.5 89.5
5
3 18 1
12
1,897 3 18 1
18 18 1
9.56
2
.05, 2
5.991
K 9.56 5.991, reject Ho.

1-59
Friedman Test
A nonparametric alternative to the randomized
block design
Assumptions
The blocks are independent.
There is no interaction between blocks and
treatments.
Observations within each block can be ranked.
Hypotheses
Ho: The treatment populations are equal
Ha: At least one treatment population
yields larger values than at least one
other treatment population
1-60
Friedman Test
2
r
C
12
2
3b(C 1)
R
j
bC (C 1) j 1
where : C number of treatment levels (columns)

b = number of blocks (rows)
R j = total ranks for a particular treatment level
j = particular treatment level

2
r
, with df = C - 1
1-61
Friedman Test: Tensile Strength

of Plastic Housings
Ho:
The supplier populations are equal
Ha:
At least one supplier population yields larger

values than at least one other supplier population
Monday
Tuesday
Wednesday
Thursday
Friday
Supplier 1
62
63
61
62
64
Supplier 2
63
61
62
60
63
Supplier 3
57
59
56
57
58
Supplier 4
61
65
63
64
66
1-62

of Plastic Housings
0.05
df C 1 4 1 3
7
.
81473
.05, 3
If
2
r
7.81473, reject Ho.
1-63

of Plastic Housings
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Monday
Tuesday
Wednesday
Thursday
Friday
14
13
18
196
169
25
324
R
R
2
j
R j (196 169 25 324) 714

2
j 1
1-64

of Plastic Housings
2
r
C
12
2
3b(C 1)
R
j
bC (C 1) j 1
12
(714) 3(5)(4 1)
(5)(4)(4 1)
10.68
2
r
= 10.68 7.81473, reject Ho.
1-65
Spearmans Rank Correlation

Analyze the degree of association of two
variables
Applicable to ordinal level data (ranks)
6 d
n 1
where: n = number of pairs being correlated

d = the difference in the ranks of each pair
1-66

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Business Statistics, 3e

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

Parametric vs Nonparametric Statistics

Nonparametric Statistics are based on fewer assumptions

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

frequency of observed values

frequency of expected values

Business Statistics: Contemporary Decision

Milk Sales Data

Business Statistics: Contemporary Decision

Hypotheses and Decision Rules

24.725, reject Ho.

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

Demonstration Problem 16.1:

74.37 24.725, reject Ho.

Business Statistics: Contemporary Decision

Bank Customer Arrival Data

Business Statistics: Contemporary Decision

Hypotheses and Decision Rules

9.488, reject Ho.

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

Calculations for Demonstration Problem

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

Demonstration Problem 16.2: Conclusion

Business Statistics: Contemporary Decision

Using a 2 Goodness-of-Fit Test

3.841, reject Ho.

Business Statistics: Contemporary Decision

Using a 2 Goodness-of-Fit Test to Test

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

Business Statistics: Contemporary Decision

2 Test of Independence: Investment Example

Business Statistics: Contemporary Decision

2 Test of Independence: Investment Example

Business Statistics: Contemporary Decision

2 Test of Independence: Formulas

the total of row i

N = the total of all frequencies

Business Statistics: Contemporary Decision

2 Test of Independence: Gasoline

16.812, reject Ho.

16.812, do not reject Ho.

Business Statistics: Contemporary Decision

Gasoline Preference Versus Income

Business Statistics: Contemporary Decision

Gasoline Preference Versus Income

Business Statistics: Contemporary Decision

Gasoline Preference Versus Income

Business Statistics: Contemporary Decision

Gasoline Preference Versus Income

Business Statistics: Contemporary Decision

Runs Test: Sample Size Consideration

Runs Test: Small Sample Example

H0: The observations in the sample are randomly generate

Business Statistics: Contemporary Decision

Runs Test: Large Sample

Business Statistics: Contemporary Decision