Analysis for Business

Chi-square Test
 Introduction
• we learned how to test hypotheses using data from
one or two samples.
• These tests are known as parametric tests, because
they involve testing the parameters of a population,
such as the mean and proportions.
• They use the parametric statistics of samples that
come from the population being tested.
• To formulate these tests, we make assumptions about
the population, for example, that the population is
normally distributed.
 Introduction
• There are certain kinds of data that cannot be tested in
this way such as: data which was not collected in a
random sample and therefore does not have a normal
distribution; ordinal data; ranked data; and data from
more than two populations.
• In business, we often encounter data of this type,
such as: the results of a survey of which brand of
washing powder consumers prefer, an analysis of the
arrival of customers at supermarket checkouts, a
survey of employees' attitudes towards performance
appraisal in different departments,
 Introduction
• a study of whether male staff have been more
successful in passing professional examinations
than female staff.
• For these types of data, it is necessary to use
tests which do not make restrictive assumptions
about the shape of population distributions.
• These are known as non-parametric tests. we are
going to consider one of the most commonly used non-
parametric tests, called the chi-squared test
 Chi-Square as a Statistical Test
• Chi-square test: an inferential statistics
technique designed to test for significant
relationships between two variables
organized in a bivariate table.

• Chi-square requires no assumptions about

the shape of the population distribution
from which a sample is drawn.
 The Chi Square Test
• A statistical method used to determine goodness of fit
– Goodness of fit refers to how close the observed data
are to those predicted from a hypothesis

• Note:
– The chi square test does not prove that a hypothesis is
correct
• It evaluates to what extent the data and the
hypothesis have a good fit
 Example
Left-Handed vs. Gender
Dominant Hand: Left vs. Right
Gender: Male vs. Female

 2 categories for each variable, so

called a 2 x 2 table

 Suppose we examine a sample of

300 children
 Example

Sample results organized in a contingency table:

Hand Preference
sample size = n = 300:
Gender Left Right
120 Females, 12
were left handed Female 12 108 120
180 Males, 24 were
left handed Male 24 156 180

36 264 300
 2 Test for the Difference
Between Two Proportions
H0: π1 = π2 (Proportion of females who are left
handed is equal to the proportion of
males who are left handed)
H1: π1 ≠ π2 (The two proportions are not the same)

• If H0 is true, then the proportion of left-handed females should be

the same as the proportion of left-handed males
• The two proportions above should be the same as the proportion of
left-handed people overall
 The Chi-Square Test
Statistic
The Chi-square test statistic is:
( fo  fe )2
2
χ STAT  
all cells
fe
• where:
fo = observed frequency in a particular cell
fe = expected frequency in a particular cell if H0 is true

2
χ STAT for the 2 x 2 case has 1 degree of freedom

(Assumed: each cell in the contingency table has expected

frequency of at least 5)
 Decision Rule
2
The χ STAT test statistic approximately follows a
chi-squared distribution with one degree of freedom

Decision Rule:
χ 2
If STAT  χ 2
α , reject H0,
otherwise, do not reject 
H0
0
Do notH Reject H0 2
reject
2α
0
 Computing the
Average Proportion
The average X1  X2 X
p 
proportion is: n1  n2 n

120 Females, 12 Here:

were left handed
12  24 36
180 Males, 24 were p   0.12
left handed
120  180 300

i.e., of all the children the proportion of left handers is 0.12,

that is, 12%
 Finding Expected
Frequencies
• To obtain the expected frequency for left handed
females, multiply the average proportion left handed (p)
by the total number of females
• To obtain the expected frequency for left handed males,
multiply the average proportion left handed (p) by the
total number of males

If the two proportions are equal, then

P(Left Handed | Female) = P(Left Handed | Male) = .12

i.e., we would expect (.12)(120) = 14.4 females to be left handed

(.12)(180) = 21.6 males to be left handed
 Observed vs. Expected
Frequencies
Hand Preference
Gender Left Right
Observed = 12 Observed = 108
Female 120
Expected = 14.4 Expected = 105.6
Observed = 24 Observed = 156
Male 180
Expected = 21.6 Expected = 158.4

36 264 300
 The Chi-Square Test Statistic
Hand Preference
Gender Left Right
Observed = 12 Observed = 108
Female 120
Expected = 14.4 Expected = 105.6
Observed = 24 Observed = 156
Male 180
Expected = 21.6 Expected = 158.4
36 264 300
The test statistic is:
(f o  f e ) 2
χ 2STAT  
all cells
fe
(12  14.4) 2 (108  105.6) 2 (24  21.6) 2 (156  158.4) 2
     0.7576
14.4 105.6 21.6 158.4
 Decision Rule
2
The test statistic is χ STAT  0.7576 ; χ 02.05 with 1 d.f.  3.841

Decision Rule:
2
If χ STAT > 3.841, reject H0,
otherwise, do not reject H0

Here,
2 2
0.05 χ STAT = 0.7576< χ 0.05 = 3.841,
so we do not reject H0 and
0 conclude that there is not
Do notH
reject 0
Reject H0 2 sufficient evidence that the two
20.05 = 3.841 proportions are different at  =
0.05
 2 Test for Differences Among
More Than Two Proportions
• Extend the 2 test to the case with more
than two independent populations:

H0: π1 = π2 = … = πc
H1: Not all of the πj are equal (j = 1, 2, …, c)
 The Chi-Square Test
Statistic
The Chi-square test statistic is:
( fo  fe )2
2
χ STAT  
all cells
fe
• Where:
fo = observed frequency in a particular cell of the 2 x c table
fe = expected frequency in a particular cell if H0 is true

χ 2STAT for the 2 x c case has (2 - 1)(c - 1)  c - 1 degreesof freedom

(Assumed: each cell in the contingency table has expected

frequency of at least 1)
 Computing the
Overall Proportion
The overall X1  X2    Xc X
p 
proportion is: n1  n2    nc n

• Expected cell frequencies for the c

categories are calculated as in the 2 x 2
case, and the decision rule is the same:
2
χ
Where α is from the chi-
Decision Rule: squared distribution with
2
If χ STAT  χ α2 , reject H0, c – 1 degrees of freedom
otherwise, do not reject H0
 2 Test of Independence

• Similar to the 2 test for equality of more

than two proportions, but extends the
concept to contingency tables with r rows
and c columns

H0: The two categorical variables are independent

(i.e., there is no relationship between them)
H1: The two categorical variables are dependent
(i.e., there is a relationship between them)
 2 Test of Independence
(continued)

The Chi-square test statistic is:

( fo  fe )2
2
χ STAT  
all cells
fe
 where:
fo = observed frequency in a particular cell of the r x c table
fe = expected frequency in a particular cell if H0 is true

χ 2STAT for the r x c case has (r - 1)(c - 1) degrees of freedom

(Assumed: each cell in the contingency table has expected

frequency of at least 1)
 Expected Cell Frequencies

• Expected cell frequencies:

row total  column total

fe 
n

Where:
row total = sum of all frequencies in the row
column total = sum of all frequencies in the column
n = overall sample size
 Decision Rule

• The decision rule is

χ 2
If STAT  χ 2
α , reject H0,
otherwise, do not reject H0

2
Where χ α is from the chi-squared distribution
with (r – 1)(c – 1) degrees of freedom
 Example
• The meal plan selected by 200 students is shown below:

Number of meals per week

Class
Standing 20/week 10/week none Total
Fresh. 24 32 14 70
Soph. 22 26 12 60
Junior 10 14 6 30
Senior 14 16 10 40
Total 70 88 42 200
 Example
(continued)

• The hypothesis to be tested is:

H0: Meal plan and class standing are independent
(i.e., there is no relationship between them)
H1: Meal plan and class standing are dependent
(i.e., there is a relationship between them)
 Example:
Expected Cell Frequencies
(continued)
Observed:
Number of meals
Class per week
Expected cell
Standing 20/wk 10/wk none Total
Fresh. 24 32 14 70
frequencies if H0 is true:
Soph. 22 26 12 60
Number of meals
Junior 10 14 6 30 per week
Class
Senior 14 16 10 40
Standing 20/wk 10/wk none Total
Total 70 88 42 200
Fresh. 24.5 30.8 14.7 70
Example for one cell:
Soph. 21.0 26.4 12.6 60
row total  column total
fe  Junior 10.5 13.2 6.3 30
n
Senior 14.0 17.6 8.4 40
30  70
  10 .5 Total 70 88 42 200
200
 Example: The Test Statistic
(continued)

• The test statistic value is:

( f o  f e )2
2
χ STAT  
all cells
fe
( 24  24 .5 ) 2 ( 32  30 .8 ) 2 ( 10  8.4 ) 2
    0.709
24 .5 30 .8 8.4

χ 0.2 05 = 12.592 from the chi-squared distribution

with (4 – 1)(3 – 1) = 6 degrees of freedom
 Example:
Decision and Interpretation
(continued)

2
The test statistic is χ STAT  0.709 ; χ 02.05 with 6 d.f.  12.592

Decision Rule:
2
If χ STAT > 12.592, reject H0,
otherwise, do not reject H0

0.05 Here,
2 2
χ STAT = 0.709 < χ 0.05 = 12.592,
so do not reject H0
0
Do notH
reject Reject H0 2 Conclusion: there is not
0
sufficient evidence that meal
20.05=12.592 plan and class standing are
related at  = 0.05