1 UNIT II (FORMULA SHEET) 10.

1 Difference Between Two Population Means: 1 and 2 Known Interval Estimation of 1 and 2 Let 1 = mean of population 1 1 = mean of population 2 x 1 = sample mean of population 1 x 2 = sample mean of population 2 n1 = sample size of sample from population 1 n2 = sample size of sample from population 2 1 = standard deviation of population 1 2 = standard deviation of population 2 Point estimator of the difference between two population means: x1 x 2 Assuming both samples are independent simple random samples and both populations are normally distributed, the interval estimate of the difference between two population means when 1 and 2 are known is:
x 1 x 2 z / 2

12
n1

2 2

n2

Where is the margin of error n1 n2 1 is the confidence coefficient z / 2 is the z-score at /2. Z can be obtained using Normal distribution tables or in Excel with the formula =NORMSINV(p), where p = 1- /2.
z / 2

12

2 2

1- .95 .99 .90

Most used Z-scores /2 .05 .025 .01 .005 .10 .05

Z 1.96 2.576 1.645

Hypothesis Tests About 1 2 Let Ho Ha Do is the null hypothesis is the alternative hypothesis is the hypothesized difference between 1 and 2 1. Hypothesis formulation The three possible scenarios are: Scenario 1 Lower Tail 1 less than 2 Hypotheses Reject Ho if Ho: 1 2 Do Ha: 1 2 < Do p-value 2 Upper Tail 1 greater than 2 Ho: 1 2 Do Ha: 1 2 > Do p-value 3 Two-Tail 1 different than 2 Ho: 1 2 = Do Ha: 1 2 Do p-value

2. Computation of p-value The test statistic for hypothesis tests about 1 2 when 1 and 2 are known is:

z=

( x1 x 2 ) Do

12
n1

22
n2

For a one tail test, the p-value is the area (tail) that is defined by z. For a two-tail test, the p-value is the sum of upper and lower tails. P-values can be obtained using z-tables or Excel. For z-tables, recall Econ 2300. For any z-score, z tables provide the lower (left) side of the distribution. Similarly, the formula in Excel =NORMSDIST(z) provides the lower (left) site of the distribution. Thus,
p-value (using Tables) =area given on tables =1-area given on tables 2*upper or 2*lower tail p-value (using Excel) =NORMSDIST(z) =1 NORMSDIST(z) 2*upper or 2*lower tail

Lower Tail Test Upper Tail Test Two Tail Test

3. Conclusion

3 If is provided, use the rejection rule Reject Ho if. If Ho is rejected, means Ho is false, suggesting that Ha is true. If is not provided, your conclusion depends on the p-value as follows: If p-value is greater than: 0.10 If p-value is less than: 0.10 0.05 0.01 0.001 Interpretation/Conclusion: We do not have evidence that Ho is false, suggesting that Ho is true Interpretation/Conclusion: We have some evidence that Ho is false, suggesting that Ha is true We have strong evidence that Ho is false, suggesting that Ha is true We have very strong evidence that Ho is false, suggesting that Ha is true We have extremely strong evidence that Ho is false, suggesting that Ha is true

10.2 Difference Between Two Population Means: 1 and 2 Unknown Interval Estimation of 1 and 2 With 1 and 2 unknown, we will use the sample standard deviations s1 and s2 to estimate 1 and 2 and replace z / 2 with the t distribution t / 2 . The interval estimate of the difference between two population means when 1 and 2 are unknown is given by:
x 1 x 2 t / 2
2 s12 s 2 + n1 n2

1 is the confidence coefficient; t / 2 is the t value given by the upper tail /2. The degrees of freedom df for t are obtained using the formula below:
2 s12 s 2 + n n 1 2 2

df =

1 s12 n1 1 n1

2 1 s2 + n2 1 n2

Excel We do not need to round the degrees of freedom. t/2 =TINV(, df)

4 Hypothesis Tests About 1 2 1. Hypothesis formulation The three possible scenarios are: Scenario 1 Lower Tail 1 less than 2 Hypotheses Reject Ho if Ho: 1 2 Do Ha: 1 2 < Do p-value 2 Upper Tail 1 greater than 2 Ho: 1 2 Do Ha: 1 2 > Do p-value 3 Two-Tail 1 different than 2 Ho: 1 2 = Do Ha: 1 2 Do p-value

2. Computation of p-value The statistic for hypothesis tests about 1 2 when 1 and 2 are unknown is given by t distribution:

t=

( x1 x 2 ) Do
2 s12 s 2 + n1 n2

Where Do denote the hypothesized difference between 1 and 2. The degrees of freedom are given by the same formula used for the interval estimate:
2 s12 s 2 + n 1 n2 2

df =

1 s12 n1 1 n1

2 1 s2 + n 1 n 2 2

3. Conclusion

If is provided, use the rejection rule Reject Ho if. If Ho is rejected, means Ho is false, suggesting that Ha is true. If is not provided, your conclusion depends on the p-value as follows:
If p-value is greater than: 0.10 If p-value is less than: Interpretation/Conclusion:

We do not have evidence that Ho is false, suggesting that Ho is true Interpretation/Conclusion:

5 0.10 0.05 0.01 0.001 We have some evidence that Ho is false, suggesting that Ha is true We have strong evidence that Ho is false, suggesting that Ha is true We have very strong evidence that Ho is false, suggesting that Ha is true We have extremely strong evidence that Ho is false, suggesting that Ha is true

The sample size, sample mean, and sample standard deviation were obtained using the following Excel functions: Sample size Sample standard deviation Sample mean =COUNT(RANGE) =STDEV(RANGE) =AVERAGE(RANGE)

Excel p-value=TDIST(t, df, number of tails)

10.3 Difference Between Two Population Means: Matched Samples Scenario 1 Lower Tail 1 less than 2 Hypotheses Reject Ho if
d=

2 Upper Tail 1 greater than 2 Ho: d Do Ha: d > Do p-value

3 Two-Tail 1 different than 2 Ho: d = Do Ha: d Do p-value

Ho: d Do Ha: d < Do p-value

d
n

sd =

(d

d )2

n 1

t=

d d sd / n

The degrees of freedom df=n-1. The p-value can be obtained using the textbook tables or Excel.

Excel The function used is =TDIST(t, df, 1)

Interval Estimate We can obtain an interval estimate of the difference between the two population means as follows:

d t / 2

sd n

10.4, 10. 5 Analysis of Variance (ANOVA) In the analysis of variance, the null hypothesis states that sample means, obtained from different samples, come from the same distribution. The alternative hypothesis states that there is significant difference among sample means, which indicates that the samples come from different distributions.

Between Treatments (groups) The between-treatments estimate of 2 is given by the Mean Square due to Treatments (MSTR) as follows:

n
MSTR =
j =1

( x j x) 2 k 1

Where

x
x=
j =1 i =1

nj

ij

nT nT = n1 + n2 + + nk

Within-Treatments (groups) The within-treatments estimate of 2 is called the Mean Square due to Error (MSE) and is computed using the formula:

(n
MSE =
j =1

1) s 2 j

nT k

Comparing the Variance Estimates: The F Test

When the null hypothesis is true and the ANOVA assumptions are valid (populations normally distributed, simple random samples), the test statistic for the equality of k population means is

F=

MSTR MSE

The F distribution has k 1 degrees of freedom in the numerator and nT k degrees of freedom in the denominator. Ho: 1 = 2 = 3 Ha: Not all population means are equal Reject Ho if p-value The p-value is the upper tail area given by F. There are two methods to obtain this area: textbook tables (F distribution, pages 587-590) or Excel.
Excel

=FDIST(F, numerator degrees of freedom df1, denominator degrees of freedom df2) We can use Fcritical=F REJECTION RULE p-value approach: Reject Ho if p-value<= Critical value approach : Reject Ho if p-value<= if F>Fcritical (Fcritical=F) where the value of Fcritical based on a F distribution with k-1 numerator degree of freedom and nT k denominator degree of freedom.
7

Interval Estimate The interval estimate for a single population is given by

n Where s = MSE

x t / 2

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