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Business and Economics Statistics

Lecture 4:
One-way Analysis of Variance

Intro One-way ANOVA technique Case study

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Outline

• A problem context
• One-way ANOVA technique
• Case study

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A problem context
Which of two incentive packages will lead to higher use of a bank’s
credit cards? The bank designs a randomized comparative
experiment to compare two populations. Credit card customers are
assigned at random to receive one or the other incentive offer. After
six months, the bank compares the amounts charged.
For this problem:
• What are the populations to be compared?
• What inference technique should be considered?
change in 2 population (amt)
Mean (v)
Variance (v) / SD
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Proportion

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A problem context
Which of three incentive packages will lead to higher use of a bank’s
credit cards? The bank designs a randomized comparative
experiment to compare three populations. Credit card customers are
assigned at random to receive one of the three incentive offers. After
six months, the bank compares the amounts charged.
For this problem:
• What are the populations to be compared?
• Should we use the same inference technique as for the previous
problem?
1, Ha M1 =/= M2
2, M1 =/= M3
3, M2 =/= M3
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Objective of ANOVA

ANOVA objective: to compare 2 or more population

means using 1 hypothesis test (the F test)

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Terms and Notations

Factor: categorical variable used to define the groups
Factor levels: values of a factor (also called treatments or
groups)
Outcome variable: variable being compared

Please note that if the notations of slides and textbooks

differ, then follow your slides.

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Terms and Notations

A researcher wishes to know whether different running-pacing
strategies (slow-fast/ fast-slow/ constant) affect the time to
complete a marathon.

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Terms and Notations

Population 1 Population 2 Population k
Mean = µ1 Mean = µ2 Mean = µk
Variance =𝜎!" Variance =𝜎"" … Variance =𝜎#"
x11 x12 x1k
x21 x22 x2k Sample
. Sample . Sample …
. . size: nk
. size: n1 size: n2 .
. . %
.
xn1,1 xn2,2 𝑛 = & 𝑛# xnk,k
#$!

Mean =𝑥! Mean =𝑥" … Mean =𝑥#

Variance = 𝑠!" Variance = 𝑠"" Variance = 𝑠#"

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One-way ANOVA hypotheses

ANOVA Hypotheses:
• Ho: µ1= µ2=…= µk
• Ha: At least 2 population means differ

We need to assess difference among population means

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Comparing population means

Assessing difference among 3 population means

µ1 µ2 µ3

Ho: M1 = M2 = M3
Ha: at least 2 populations mean are differs
Estimate Estimate Estimate

Variation

𝑥' 𝑥( 𝑥)
Xbar1 = Xbar2 = Xbar3 --> Variance = 0
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Measuring variation

• Case 1: we have only 2 numbers: e.g. 7 and 5

• Case 2: If we have a sample of more than 2 values,

for example: 3, 5, 10

• Recall how to calculate the sample variance:

∑%"#$(𝑥" − 𝑥)! 𝑆𝑢𝑚 𝑜𝑓 𝑠𝑞𝑢𝑎𝑟𝑒𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛𝑠

𝑠! = =
𝑛−1 𝑑𝑒𝑔𝑟𝑒𝑒𝑠 𝑜𝑓 𝑓𝑟𝑒𝑒𝑑𝑜𝑚

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Measuring variation between sample means

𝑥̿

Variation
𝑥' 𝑥( 𝑥)

We measure variation 'between sample means by:

𝑆𝑆𝐺 = 9 𝑛& (𝑥& − 𝑥)̿ !
&#$

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Measuring variation between sample means

• For k = 3, we have:

𝑆𝑆𝐺 = 𝑛$ (𝑥$ − 𝑥)̿ ! +𝑛! (𝑥! − 𝑥)̿ ! +𝑛( (𝑥( − 𝑥)̿ !

• Similar to the variance, we divide SSG by its df to obtain MSG, the
mean square for groups.

𝑆𝑆𝐺
𝑀𝑆𝐺 =
𝑘−1
• MSG is a kind of variance, which tells the variation among
sample means.

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Measuring variation between sample means

o Ho: µ1 = µ2 =…= µk
o Ha: At least 2 population means differ

• First interpretation: Large value of MSG indicates large variation

between sample means, which provides evidence against Ho.

• Is MSG sufficient for us to make rejection decision?

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Sources of variation

Total
SSG (and MSG) variation SSE (and MSE)

Between
Error
Groups
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Sources of variation

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One-way ANOVA
assumptions

• Samples are independent, simple random samples

CHECK
• All populations in question are normally distributed
• All population standard deviations are equal (s1 = s2 = …= sk = s)
ASSUMPTION
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Let’s consider the t formula

To compare the means of 2 normal populations with unknown but
equal standard deviations, we have the formula:

(𝑥$ − 𝑥!)
𝑡=
1 1
𝑠* (𝑛 + 𝑛 )
$ !

𝑛$ − 1 𝑠$! + 𝑛! − 1 𝑠!!
where 𝑆*! =
𝑛$ + 𝑛! − 2

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One-way ANOVA F Test

• Analogous to the t formula, in one-way ANOVA, we use:
𝑆𝑆𝐸 = (𝑛$ −1)𝑠$! + (𝑛! −1)𝑠!! + ⋯ + (𝑛' −1)𝑠'!

++, .+/
𝑀𝑆𝐸 = %-' ; 𝐹 = .+,
• F distribution
• F ranges from 0 to ¥
• A family of distributions
• Depends on 2 degrees of freedom
o 𝑑𝑓$ = numerator degrees of freedom
o 𝑑𝑓! = denominator degrees of freedom
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Making rejection decision

.+/
• We use the ratio 𝐹 = .+, to make the decision.
• Differences among group means tend to make this ratio large.
• Therefore, we reject Ho if this ratio is large enough.
• If we can reject Ho à effect of the factor is significant
𝑝 − 𝑣𝑎𝑙𝑢𝑒 = 𝑃(𝐹 ≥ 𝐹𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 )
• We read p-value from software output, and compare it with our
significance level to make decision.

p-value < Alpha => reject Ho

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F statistic

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Exploring One-way ANOVA

via an applet

Exploring how F statistic and its p-value depend on both the variation
within the groups and the differences among the group means:
http://digitalfirst.bfwpub.com/stats_applet/stats_applet_1_anova.html

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Checking One-way ANOVA assumptions

Samples are All populations All population
simple random are normally standard deviations
samples distributed are equal

S largest < 2 x S smallest

If largest sample SD <

Observe how twice smallest sample
the samples are Use Q-Q Plot,
Histogram, etc. SD à assume equal
selected
population SDs
Recommendation: use equal sample sizes
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Limitation of ANOVA

An ANOVA F test only tells whether a difference exists

among population means, but does not tell where the
difference is.

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Case study
A natural product can help bones. Kudzu is a plant that
was imported to the US from Japan and now covers over
seven million acres in the South. The plant contains
chemicals called isoflavones that have been shown to have
beneficial effects on bones. One study used three groups of
rats to compare a control group with rats that were fed either
a low dose or a high dose of isoflavones from kudzu. One of
the outcomes examined was the bone mineral density in
the femur (in grams per square centimeter). The data is
provided in the file named kudzu.csv.

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Case study
bone Mineral bone Mineral bone Mineral
treatment treatment treatment
Density Density Density

1 Control 228 1 LowDose 211 1 HighDose 250

2 Control 207 2 LowDose 220 2 HighDose 237
3 Control 234 3 LowDose 211 3 HighDose 217
4 Control 220 4 LowDose 233 4 HighDose 206
5 Control 217 5 LowDose 219 5 HighDose 247
6 Control 228 6 LowDose 233 6 HighDose 228
7 Control 209 7 LowDose 226 7 HighDose 245
8 Control 221 8 LowDose 228 8 HighDose 232
9 Control 204 9 LowDose 216 9 HighDose 267
10 Control 220 10 LowDose 225 10 HighDose 261
11 Control 203 11 LowDose 200 11 HighDose 221
12 Control 219 12 LowDose 208 12 HighDose 219
13 Control 218 13 LowDose 198 13 HighDose 232
14 Control 245 14 LowDose 208 14 HighDose 209
15 Control 210 15 LowDose 203 15 HighDose 255
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Case study

Questions

a. Explain why one-way ANOVA should be considered for

analysis of these data?

b. Produce some descriptive statistics for the data

c. Examine the assumptions necessary for one-way ANOVA.

d. Run the ANOVA and interpret the findings

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R output
1-way frequency table of treatment variable:
Control LowDose HighDose
sample size = n = 15x3 = 45
15 15 15

The mean of boneMineralDensity for each level of treatment variable:

kudzu$treatment: Control
[1] 0.2188667 xbar1
---------------------------------------------------------------
kudzu$treatment: LowDose
[1] 0.2159333
xbar2
---------------------------------------------------------------
kudzu$treatment: HighDose xbar3
[1] 0.2350667

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s largest < 2 x s smallest

s3 < 2 x s2
The standard deviation of boneMineralDensity for each level of treatment
variable: 0.01877... 2x0.01151...
kudzu$treatment: Control
[1] 0.01158735 s1
---------------------------------------------------------------
kudzu$treatment: LowDose
[1] 0.01151066 s2
---------------------------------------------------------------
-> the variances of 3 population are
kudzu$treatment: HighDose
[1] 0.01877105
s3
equal
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R output
n1 = n2 = n3 = 15
Q-Q Plot of residuals
to examine normality
assumption

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One-way ANOVA output

3 groups => k =3
One-way ANOVA output from R:
MSG F p-value
Df Sum Sq Mean Sq F value Pr(>F)
treatment 2 0.003186 0.0015928 7.718 0.0014 **
Residuals 42 0.008668 0.0002064 reject Ho when p-value < alpha
group ---
of error
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

F(alpha, k-1, n-k)

F = MSG / MSE(error)
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The test procedure

Hypothesis M1 = M2 = M3
• H0 : All population means are equal (µ1 = µ1 = ... = µk )
• Ha : At least two population means are different.
Test statistic: F = MSG/MSE = 7.718
Assumptions:
1. Independent, simple random samples
2. All populations are normally distributed
3. All population variances are equal because s largest < 2x s smallest
Significance Level: α = 0.05

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The test procedure

Decision Rule:
• Reject H0 if 𝑝 − 𝑣𝑎𝑙𝑢𝑒 ≤ 𝛼 p-value (0.0014) < 0.05
• Reject H0 if 𝐹 > 𝐹0,2+ ,2,
Conclusion: 7.718 > F(0.05,2,42) = 3.23

(Do not) reject H0

There is (not) enough evidence to conclude that at least two
population means are different.

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Solution
Hypothesis
• H0: All population means are equal (µ1 = µ1 = ... = µk)
• Ha: At least two population means are different.
Test statistic: F =
Assumptions:
1. Independent, simple random samples
2. All populations are normally distributed
3. All population variances are equal
Significance Level: α
Decision Rule: Reject H0 if 𝑝 − 𝑣𝑎𝑙𝑢𝑒 ≤ 𝛼
Conclusion:
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Conclusion

• A problem context
• One-way ANOVA technique
• Case study

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