Nonparametric Statistics

What Are Nonparametric Statistics?

• Nonparametric statistics refers to a statistical method in which the data

are not assumed to come from prescribed models that are determined
by a small number of parameters.
• Examples of such models include the normal distribution model and the
linear regression model
• Nonparametric statistics sometimes uses data that is ordinal, meaning it
does not rely on numbers, but rather on a ranking or order of sorts.
• For example, a survey conveying consumer preferences ranging from
like to dislike would be considered ordinal data.
• Nonparametric statistics includes nonparametric descriptive statistics,
statistical models, inference, and statistical tests. 
• The model structure of nonparametric models is not specified a
priori but is instead determined from data.
• The term nonparametric is not meant to imply that such models
completely lack parameters, but rather that the number and nature
of the parameters are flexible and not fixed in advance.
• A histogram is an example of a nonparametric estimate of a
probability distribution.
• Nonparametric statistics are easy to use but do not offer the pinpoint
accuracy of other statistical models.
• This type of analysis is often best suited when considering the order of
something, where even if the numerical data changes, the results will
likely stay the same.
Understanding Nonparametric Statistics

• Consider the data with unknown parameters µ (mean) and σ2 (variance). While
parametric statistics assume that the data were drawn from a normal distribution, a
nonparametric statistic does not assume that the data is normally distributed or
quantitative. In that regard, nonparametric statistics would estimate the shape of the
distribution itself instead of estimating the individual µ and σ2.
• On the other hand, parametric statistics would employ sample mean and sample
standard deviation to estimate the values of µ and σ2, respectively. The model
structure of nonparametric statistics is deduced from the observed data instead of a
specified priori. The term nonparametric itself implies that the number and nature of
parameters are flexible and not that they entirely lack parameters.
• Nonparametric statistics does not assume that data is drawn from a normal
distribution. Instead, the shape of the distribution is estimated under this form of
statistical measurement. 
• Nonparametric statistics makes no assumption about the sample size or whether the
observed data is quantitative.
Types of Nonparametric Statistics
• There are two main types of nonparametric statistical methods.
• The first method seeks to discover the unknown underlying distribution of
the observed data, while the second method attempts to make a statistical
inference regarding the underlying distribution.
• Kernel methods and histograms are commonly used to estimate the values
of the parameters in the first approach. In contrast, the latter method
involves testing hypotheses without the actual data values but rather based
on the rank ordering of the data.
• The nonparametric statistics tests tend to be easier to apply than parametric
statistics, given the lack of assumption about the population parameters.
Standard mathematical procedures for hypotheses testing make no
assumptions about the probability distributions – including distribution t-
tests, sign tests, and single-population inferences.
Examples of Nonparametric Statistics

• Consider a financial analyst who wishes to estimate the value-at-risk (VaR) of

an investment. The analyst gathers earnings data from 100’s of similar
investments over a similar time horizon. Rather than assume that the
earnings follow a normal distribution, they use the histogram to estimate the
distribution nonparametrically. The 5th percentile of this histogram then
provides the analyst with a nonparametric estimate of VaR.
• Tests on whether customers prefer a particular product because of its
nutritional value may include ranking its metrics as strongly agree, agree,
indifferent, disagree, and strongly disagree. In such a scenario, a
nonparametric method comes in handy.
• A researcher is interested in estimating the number of babies born with
jaundice in the Philippines. An analysis of the data set may be performed by
taking a sample of 5,000 babies. An estimate of the entire population of babies
bearing jaundice born the following year is the derived measurement.
Special Considerations
• Nonparametric statistics have gained appreciation due to their ease
of use. As the need for parameters is relieved, the data becomes more
applicable to a larger variety of tests.
• This type of statistics can be used without the mean, sample size,
standard deviation, or the estimation of any other related parameters
when none of that information is available.
• Since nonparametric statistics makes fewer assumptions about the
sample data, its application is wider in scope than parametric
statistics.
• In cases where parametric testing is more appropriate, nonparametric
methods will be less efficient. This is because nonparametric statistics
discard some information that is available in the data, unlike
parametric statistics.
Reasons to Use Nonparametric Tests
In order to achieve the correct results from the statistical analysis, we should
know the situations in which the application of nonparametric tests is appropriate.
The main reasons to apply the nonparametric test include the following:
1. The underlying data do not meet the assumptions about the population sample.
• Generally, the application of parametric tests requires various assumptions to be
satisfied. For example, the data follows a normal distribution and the population
variance is homogeneous. However, some data samples may show skewed
distributions.
• The skewness makes the parametric tests less powerful because the mean is no
longer the best measure of central tendency because it is strongly affected by
the extreme values. At the same time, nonparametric tests work well with
skewed distributions and distributions that are better represented by the
median.
2. The population sample size is too small
• The sample size is an important assumption in selecting the
appropriate statistical method. If a sample size is reasonably large, the
applicable parametric test can be used. However, if a sample size is
too small, it is possible that you may not be able to validate the
distribution of the data. Thus, the application of nonparametric tests
is the only suitable option.
3. The analyzed data is ordinal or nominal.
• Unlike parametric tests that can work only with continuous data,
nonparametric tests can be applied to other data types such as
ordinal or nominal data. For such types of variables, the
nonparametric tests are the only appropriate solution.
Types of Tests
• Nonparametric tests include numerous methods and models. Below are the
most common tests and their corresponding parametric counterparts:
1. Mann-Whitney U Test
• The Mann-Whitney U Test is a nonparametric version of the independent
samples t-test. The test primarily deals with two independent samples that
contain ordinal data.
2. Wilcoxon Signed Rank Test
• The Wilcoxon Signed Rank Test is a nonparametric counterpart of the paired
samples t-test. The test compares two dependent samples with ordinal data
3. The Kruskal-Wallis Test
• The Kruskal-Wallis Test is a nonparametric alternative to the one-way ANOVA.
It is used to compare more than two independent groups with ordinal data.