9/24/2015

COURSE OUTLINE

QUANTITATIVE ANALYSIS FOR

MANAGEMENT II

Sampling Distributions Chi-Square, t and F distributions

Interval Estimation
Sample Size Decision
Testing of Hypothesis
single population and
two populations

Measures of Association for Qualitative data and

contingency Table
Chi-square test for Goodness of fit
Analysis of Variance one way and two way
Nonparametric tests
Multiple Regression Analysis
QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

EVALUATION SCHEME AND EXAM DATES

QUIZ -1:
MID TERM EXAM:
QUIZ- 2:
ASSIGNMENT/ IMPRESSION:
END TERM EXAM:

Sampling Distributions

Weight
10%
30%
10%
10%
40%

Concept of Sampling Distribution

Distributions of Sample Mean and
Sample Proportion
Central Limit Theorem
t, Chi-Square and F distributions.

QAM II by Gaurav Garg (IIM Lucknow)

Parameter and Statistic

Parameter:
Statistical measures computed using population observations.
Let X1, X2,, XN are population units.
Population mean
Population Variance
1 N
1 N
2 ( X i X )2
X Xi
N i 1
N i 1

Statistic:
Statistical measures computed using sample observations.
Let x1, x2,, xn are sample units.
Sample mean
Sample Variance
1 n
1 n
1 n
s 2 ( xi x ) 2 or s12
x xi
( xi x )2
n i 1
n 1 i 1
n i 1
QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

In practice, parameter values are not known.

They are estimated using sample observations.
Parameter values are fixed.
Values of statistic varies sample to sample.
Unbiased Estimate
If E(statistic) = parameter,
then the statistic is said to be unbiased estimate of
the parameter.
Sample mean is an unbiased estimate of population
mean.
QAM II by Gaurav Garg (IIM Lucknow)

9/24/2015

Let us consider the following population of size 4:

18,
20,
22,
24
Population mean = (18 + 20 + 22 + 24)/ 4 = 21
Population Variance
= [(18-21)2 + (20-21) 2 + (22-21) 2 + (24-21) 2] / 4 = 5
Consider all possible samples of size 2
Obtain sample mean and sample variance of all the
samples.
Sample mean is an unbiased estimate of population
mean.
This means that the average of all sample means
equals population mean.
QAM II by Gaurav Garg (IIM Lucknow)

Samples

s2

s12

18, 18

18

20, 18

19

22, 18

20

24, 18

21

18

18, 20

19

20, 20

20

22, 20

21

24, 20

22

18, 22

20

20, 22

21

22, 22

22

24, 22

23

18, 24

21

18

20, 24

22

22, 24

23

24, 24

24

Average

21

2.5

Parameter values are fixed.

s2

1 n
( xi x)2
n i 1

s12

1 n
( xi x)2
n 1 i 1

21, 2 5, n 2
E( x)
E (s 2 ) 2
E ( s12 ) 2

Sampling Distribution of Mean

(or Distribution of Sample Mean)

Sampling Distributions
Unknown parameters are estimated using sample
observations.

1 n
xi
n i 1

Consider the previous example again.

Histogram of population units

Values of statistic varies sample to sample.

Each sample has some probability of being chosen.

0.25

Each value of a statistic is associated with a probability.

Statistic is a random variable.
Distribution of a statistic is called sampling distribution.

Distribution of a statistic may not be the same as the

distribution of population.

18

20

QAM II by Gaurav Garg (IIM Lucknow)

24

QAM II by Gaurav Garg (IIM Lucknow)

Sample
Probability = relative
Mean Frequency
frequency

Samples
(18, 18)

22

Each item is frequented only once.

Population distribution is discrete uniform
distribution.

18

1/16

(20, 18), (18, 20)

19

2/16

(22, 18), (18, 22), (20, 20)

20

3/16

(24, 18), (18, 24), (20, 22), (22,20)

21

4/16

(20, 24), (24, 20), (22, 22)

22

3/16

(22, 24), (24, 22)

23

2/16

(24, 24)

24

1
Total

1/16
1

The value of the sample mean depends on the chosen

sample.
Each sample is chosen with certain probability.
So, each possible value of sample mean is associated
with some probability.

Distribution of sample mean is the list of all possible

values along with corresponding probabilities.

4/16

(no longer uniform)

3/16
2/16

Sample
Mean

18

19

20

21

22

23

24

Probability

1/16

2/16

3/16

4/16

3/16

2/16

1/16

1/16
0
18 19 20 21

22 23 24

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

9/24/2015

In other words, the statistic T x (sample mean)

can be considered as a random variable.
The distribution of T is given by following table:
t
18
19
20
21
22
23
24

P(T=t)
1/16
2/16
3/16
4/16
3/16
2/16
1/16

In general, E ( x ) ,
Var ( x ) 2 n
E( x ) and Var ( x ) can also be obtained as follows:
1 n
1
1 n 1 n
E ( x ) E xi E ( xi ) n
n
n
n
n
i 1
i 1
i 1

t x P(T=t) t2 x P(T=t)
1.125
20.250
2.375
45.125
3.750
75.000
5.250 110.250
4.125
90.750
2.875
66.125
1.500
36.000
21.000 443.500

E(T) = 21
E(T2) = 443.5
Var(T) = E(T2) [E(T)]2
= 2.5

Var ( x ) n
i

i 1

i 1

1
2
n 2
2
n
n

Common Notation:

x E ( x ) , x2 Var ( x ) 2 n

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

Standard Error

Central Limit Theorem

Different samples of the same size from the same

population will yield different sample means.

When population distribution is N(, ),

then x ~ N , n .

A measure of the variability in different values of

sample mean is given by the Standard Error of the
sample mean.

standard error ( x ) x Var ( x )

Standard error of a statistic is the standard deviation

of its distribution.
In our example,

1 n 1
Var ( x ) Var xi 2
n i 1 n

When the population distribution is not normal,

then also x ~ N , n , provided n.

Practically, this result is true for n 30.

x 2.5 1.5811

Standard error decreases when sample size is

increased.
QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

1,800 Randomly Selected Values from a Uniform

Distribution
F250
r 200
e
150
q
u100
e 50
n0
c 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
X
y

1,800 Randomly Selected Values

from an Exponential Distribution

Distribution of Sample Mean

Distribution of Sample Mean

n=2

10
9
16
8
n=5
n=30
14
7
12
6
10
5
8
4
6
3
4
2
1
2
00.00
0
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00

QAM II by Gaurav Garg (IIM Lucknow)

F12
F10
F25
9
10
r8
r87
r 20
6
15
e6
e54
e10
4
q
q23
q5
2
u0
u10
u
0
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25 1.00
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
xe
x
e
x e
n=5
n=2
n=30
n
n
n
c
c
c
y
y
y
QAM II by Gaurav Garg (IIM Lucknow)

9/24/2015

Example:
Suppose a population has mean = 8 and standard
deviation = 3.
Suppose a random sample of size n = 36 is selected.
What is the probability that the sample mean is
between 7.75 and 8.25?
Even if the population is not normally distributed,
the central limit theorem can be used (n > 30).
So, the distribution of the sample mean is
approximately N(8, 3/6).
i.e, x ~ N (8, 3 / 6)

P[7.75 x 8.25] ?

Sampling Distribution of Proportion

(or Distribution of Sampling Proportion)
Let us consider that the population is divided into
two mutually exclusive and collectively exhaustive
classes.
One class possesses a particular attribute,
Other class does not posses that attribute.
For example a people in a city could be divided into
Smokers and Non-smokers.

QAM II by Gaurav Garg (IIM Lucknow)

Let
N= population size
X= no. of people out of N possessing a particular
attribute
= Actual proportion of the people possessing a
particular attribute = X/N

Let a sample is selected from this population.

n= sample size
x= no. of people in the sample possessing a
particular attribute
p= x/n = sample proportion
QAM II by Gaurav Garg (IIM Lucknow)

When the sample size n is large enough,

or

x n
~ N (0,1)
n (1 )

p
~ N (0,1)
(1 ) n

This is a particular case of central limit theorem.

Practically, this result is true for 30.
Or, when 5 as well as (1 ) 5.
QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

X, are population parameters.

x, p are sample statistics.
p provides an estimate of.
Note that, x ~ B(n, )
E(x) = n,
Var(x) = n(1 ),
This implies that
E(p) = E(x/n) = ,
Var(p) = Var(x/n) = n(1 )/n2 = (1 )/n.
Standard error (p) = [Var(p)] = [(1 )/n]
QAM II by Gaurav Garg (IIM Lucknow)

Example:
If the true proportion of voters who support ABC party
is 0.4.
What is the probability that a sample of size 200 yields a
sample proportion between 0.40 and 0.45?
= 0.4, 1 - = 1 0.4 = 0.6
n = 200.
Pr[ 0.40 < p < 0.45 ] =?

p
Z
~ N (0,1)
(1 ) n
QAM II by Gaurav Garg (IIM Lucknow)

9/24/2015

Finite Population Correction

Thus

For the application of central limit theorem, we

assumed that the sample size n is large.
If the population size N is small, sample size n can
not be sufficiently large.
And we can not apply central limit theorem.

And

In this situation, we multiply the standard error by

Finite Population Correction (fpc),
which is given by

fpc

N n
N 1

x ~ N , fpc

p
(1 )
n

x
N n
n N 1

n or

fpc

~ N (0,1).

(1 )
n

~ N 0,1.

N n
N 1

fpc should be used when n / N >0.05

Clearly, when N , fpc 1.

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

Degree of Freedom

Assume four numbers:

a, b, c, and d,
such that,
a+b+c+d = m.
You are free to vary any 3 numbers.
But 4th one must be chosen so that sum is m.
Thus your degree of freedom is 3.
The no. of independent observations which make up a
statistic, is known as the degrees of freedom (d.f.)
associated with that statistic.
d.f. is the number of values in the final calculation of a
statistic that are free to vary.
d.f. of a statistic

Students t Distribution
Let us take a sample x1 , x2 ,..., xn
Define the statistic
T

from N(,).

x
1 n
1 n
, where x xi , s12
( xi x )2 .
n i 1
n 1 i 1
s1 n

Then T follows Students t Distribution with (n-1)

d.f. and range (- ,).
It is denoted as T ~ t( n1)
If

T ~ t( k ) , then

E (T ) 0, Var (T )

k
, (k 2)
k 2

= (no. of independent observations) (no. of parameters estimated)

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

pdf of Students t distribution with k d.f.

Note: t(n-1) N(0,1) as n increases

Standard Normal
(t with df = )
t (df = 13)

t-distributions are bellshaped and symmetric, but

have fatter tails than the
normal

This distribution is symmetric about 0.

Mean=Median=Mode=0
QAM II by Gaurav Garg (IIM Lucknow)

t (df = 5)

QAM II by Gaurav Garg (IIM Lucknow)

9/24/2015

Chi Square Distribution

Let us take a sample

from N(,).

x1 , x2 ,..., xn
x
i

i 1
n

Define the statistic

If X ~ (2k ) , then E( X ) k ,

Var ( X ) 2k.

Plot of p.d.f. of Chi-Square distribution with d.f. k

The symbol is read as Chi-Square and has a Chi-Square

Distribution with n degree of freedom and range (0,).
2

This distribution is denoted as

(n2 ).

If we define the statistic as

xi x

i 1
n

The distribution of this statistic is

(2n1)

The modes are at T = k-2 (k>1).

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

Distribution of Sample Variance

Let us take a sample x1 , x2 ,..., xn from N(,).
Sample variance
s2

1 n
1 n
( xi x ) 2 or s12

( xi x )2
n i 1
n 1 i 1

Using Chi square distribution,

ns 2

(n 1) s12

i 1

( xi x ) 2

n
x x
2
i
~ ( n 1)

i 1

Snedecors F Distribution
Let X and Y be two independent random
variables such that X ~ (2d ) and Y ~ (2d )
1

F follows Snedecors F Distribution with d1 and

d2 d.f. and range (0,).
It is denoted as F~F(d1,d2) .
d2
2d 2 (d 2 d1 2)
, d 2 2 and Var ( F )
, d2 4
d2 2
d1 (d 2 2) 2 (d 2 4)
2

E(F )

QAM II by Gaurav Garg (IIM Lucknow)

QAM II by Gaurav Garg (IIM Lucknow)

pdf of Snedecors F distribution with d1 and d2 d.f.

QAM II by Gaurav Garg (IIM Lucknow)

X d1
Define the statistic F
Y d2

Summary
Parameter and Statistic
Unbiasedness
Distribution of sample mean
Distribution of sample proportion
Distribution of sample variance
Central limit theorem
Finite population correction
Degree of Freedom
Students t, Chi-Square and Snedecors Fdistributions
QAM II by Gaurav Garg (IIM Lucknow)