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Indian Institute of Management Bangalore

Introduction to Statistical Methods
Quiz-2
Time: 60 min. Name:___________________
Max Points: 15 Roll No.:_________________

Instructions: Included here are parts of the STATS exam in the International Institute of
Management at Billekahali as well as the answer of one Mr. Arshad Hogle, a current PGP1 student
there. You are required to examine Mr. Hogles paper, by pointing out the mistakes with relevant
arguments and to provide the correct answer, where and when needed. Additionally Mr. Hogle
didnt have time to attempt the last question; as a responsible examiner you are required to provide
the solution key for that unanswered question as well. The questions of the mentioned STATS exam
are given in bold italics below, and the answers by Mr. Hogle are in plain text, with double-spacing.

In a recent readership survey of business magazines where 200 business executives from Delhi,
Mumbai, Calcutta, Chennai and Bangalore were asked about their most favourite business
magazines. The only contenders were Business for Tomorrow (BFT), Business Asia-Pacific
(BAP) and Business Universe (BU). The survey reporter who does not believe is straight-forward
reporting, narrated the survey findings as:
1) 40% of the interviewed executives in Delhi prefer BFT; the same was the percentage
of executives interviewed in Calcutta who preferred BAP as well the percentage of
executives interviewed in Chennai who preferred BU. The same was the overall
percentage of executives who preferred BAP.
2) The same number of executives were interviewed from Calcutta, Chennai and
Bangalore and in each of these three cities, one-third of the executives interviewed
preferred BFT.
3) 10 executives from each of the three cities Delhi, Mumbai and Bangalore preferred
BU.
4) In Mumbai, the ratio of the number of executives who chose BAP to those who chose
BFT was 3:2.
5) In Bangalore, the three magazines were in a deadlock for the most preferred spot.
6) The proportion of executives who were from Mumbai was the same as the proportion
of executives who preferred BU.

Question 1) Test at 5% level of significance if the magazine preference of business executives
independent of the city they come from.
[5 points]

Answer given by Mr. Hogle: Clearly a Chi-square test of independence is called for here; but the
information provided is hardly sufficient. So I will proceed assuming 30 executives from Calcutta and 50
executives from Mumbai were surveyed. Then the observed frequency table looks like:

Delhi Mumbai Calcutta Chennai Bangalore TOTAL
BFT 24 16 10 10 10 70
BAP 26 24 12 8 10 80
BU 10 10 8 12 10 50
TOTAL 60 50 30 30 30 200


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The expected frequency
-
table is:

Delhi Mumbai Calcutta Chennai Bangalore TOTAL
BFT 21 17.5 10.5 10.5 10.5 70
BAP 24 20 12 12 12 80
BU 15 12.5 7.5 7.5 7.5 50
TOTAL 60 50 30 30 30 200


The observed value of the Test statistic
|
|
.
|

\
|

e
e
f
f f
2
0
) (
is 9.0
**
.

Null hypothesis: Executives preferences vary from city to city (because thats what one would expect)

Alternative hypothesis: independent

The test statistic (TS) has a Chi-square distribution with 15 degrees of freedom .

So at 5% level significance one should reject the null hypothesis if TS > 27.488 or if TS < 6.262.

Since the observed value 9 falls in-between one should accept the null hypothesis at 5% level and conclude
that the preference is heterogeneous.


-
You may assume that the expected frequency calculation by Mr. Hogle is correct
**
You may assume that the computation of the test statistic is correct.
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Question 2) Let t
d
( t
m
) be the proportion of all executives in Delhi (Mumbai) whose first preference
for Business magazines is BFT. Find a 95% confidence interval for t
d
- t
m
.
[5 points]

Answer given by Mr. Hogle: From the expected frequency table of the survey data, we get the point
estimates: p
d
= 21/200 =0.105 and p
m
= 17.5/200 = 0.0875;
so p
d
- p
m
= 0.105 0.0875 = 0.0175
Table value (o=0.05) = 1.645 [this is from the z-table; since sd is unknown, we should be using t-
distribution with 199 d.f, but effectively thats same as looking up the z-table]
The actual standard error (SE) is:
200
) 1 (
200
) 1 (
m m d d
t t t t
+

but since both t

d
and t
m
are unknown
here, we would conservatively 0.5 in their place. Hence the estimated SE is
0.50.5 (1/200 + 1/200) = 0.0025

So the 95% confidence interval is 0.0175 0.0025 = (1.5%, 2%)

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Question 3) Test the hypothesis t
d
=t
m
at 5% level of significance against the alternative that t
d >
t
m
[5 points]
Answer given by Mr. Hogle: Not enough time left!