Business Statistic & Analysis (PMT 3383)

Topic 8 Chi-Square Test & Hypothesis Test

Hypothesis Testing
Hypothesis testing involves the careful construction of two statements:
the null hypothesis and the alternative hypothesis.
The null hypothesis reflects that there will be no observed effect for our
experiment. In a mathematical formulation of the null hypothesis there
will typically be an equal sign. This hypothesis is denoted by H0.
The alternative or experimental hypothesis reflects that there will be an
observed effect for our experiment. In a mathematical formulation of the
alternative hypothesis there will typically be not equal to symbol. This
hypothesis is denoted by H1.
The following set of hypothesis testing may help when you are forming
your null and alternative hypotheses:
Null hypothesis
Alternative hypothesis

: x is equal to y.
: x is not equal to y.

Null hypothesis
Alternative hypothesis

: x is at least y.
: x is less than y.

Null hypothesis
Alternative hypothesis

: x is at most y.
: x is greater than y.

Prepared by Mr. Pang

Kok Sheng (Lecturer - SOBM)

Chi-Square Testing

Chi-square

is

statistical test commonly used to

compare observed data with data we would expect to obtain according to
a specific hypothesis. That is, chi-square is the sum of the squared
difference between observed (o) and the expected (e) data and then
divided by the expected data in all possible categories.
This is to measure on this common question: How much deviation can
occur? The researcher must conclude the chance causing the observed
values to be differed from the expected values. The chi-square test is
always testing what scientists call the null hypothesis, which states that
there is no significant difference between the expected and observed
result. And another will be alternative hypothesis, which states that there
is a significant difference between the expected and observed result.
But the crucial criteria to make sure the chi-square tests result is valid
and applicable is the sample size taken from a statistical population must
be large enough at sufficient level and having a normal distribution, then
there will be a well-known result.

Chi-Squared Tests Table

Prepared by Mr. Pang

Kok Sheng (Lecturer - SOBM)

This is Chi-Squared tests table. V is the degree of freedom and 5% and

1% are the significance level of the strength of the relationship.
How to read the table?
If calculated Chi-Squared Tests Result is:
Less than critical value 5% and 1%,

we

dont

not

reject

Null

Hypothesis because there is No relationship.

Less than critical value 1% but more than 5%, we reject Null
Hypothesis because there is Weak Relationship.
More than critical value 5% and 1%, we reject Null Hypothesis
because there is Strong Relationship.

Example of Chi-Square Test & Hypothesis Test

Prepared by Mr. Pang
Kok Sheng (Lecturer - SOBM)

An insurance company has advertises a special pension plan for retirees.

The advertisement includes a coupon which enables interested persons to
complete and return it to the company. The company then posts
information about the pension plan to the enquirer.
If there is no response from the enquirer after the first mailing, then
second mail will be sent to the enquirer. If there is no response, a
telephone call is made to the enquirer. All enquirers are divided by the
company into 3 categories: takes out the plan, shows interests in plan, and
not interested.
The company analysed a sample of 200 respondents who returned the
coupon to the company. The following data was obtained:

Answer:

Prepared by Mr. Pang

Kok Sheng (Lecturer - SOBM)

Step 1 Hypothesis Testing

Null Hypothesis

: No relationship between response and

interested in pension plan.

Alternative Hypothesis

: There is a relationship between response and

interested in pension plan.

Step 2 Degree of Freedom

(r - 1)(c - 1) r = 3 & c = 3
(3 - 1)(3 - 1) = 2 x 2 = 4
From Chi-Squared tests table 5% is 9.49 and 1% is 13.28.
Step 3 Calculation of X2
*Observed Frequencies*

*Expected Frequencies*

*Now use the given formula to find the Chi-Squared Tests results*

*Sum up all the Chi-Squared Tests results will be 18.189*

Step 4 Analysis of Critical Value

Prepared by Mr. Pang
Kok Sheng (Lecturer - SOBM)

Calculated chi-square tests result is 18.189 which are much greater than
9.49 (5%) and also 13.28 (1%) critical values. Therefore, the result is
highly significant and then we can reject null hypothesis.
Step 5 Conclusion
Eventually, we can conclude that there is strong evidence of a
relationship between responses and interested in pension plan.

Prepared by Mr. Pang

Kok Sheng (Lecturer - SOBM)