Nonparametric Methods:

Nominal Level Hypothesis Tests

Chapter 15

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 Learning Objectives
 LO15-1 Test a hypothesis about a population proportion.
 LO15-2 Test a hypothesis about two population
proportions.
 LO15-3 Test a hypothesis comparing an observed set of
frequencies to an expected frequency distribution.
 LO15-4 Explain the limitations of using the chi-square
statistic in goodness-of-fit tests.
 LO15-5 Test a hypothesis that an observed frequency
distribution is normally distributed.
 LO15-6 Perform a chi-square test for independence on a
contingency table.

15-2
 LO15-1 Test a hypothesis about a
population proportion.

Testing a Population Proportion

 Recall that when a variable is measured nominally, we can only
use statistics based on counts or frequencies.
 A way to represent counts or frequencies is with Proportions.
 A Proportion is the fraction or percentage that indicates the
part of the population or sample having a particular trait of
interest.
 The sample proportion is denoted by p and is found by x/n.
 x is the number of observations with the particular trait.
 n is the total number of observations.
 The population proportion is denoted by π.

15-3
 LO15-1

Testing a Population Proportion:

Assumptions
 A random sample is selected from a population that follows the
binomial distribution.
 The requirements of a binomial distribution (chapter 6) are:
 The data are counts of nominal variables,
 The outcome of each observation is classified into one of two
mutually exclusive categories—a “success” or a “failure”,
 The probability of a success is the same for each observed value,
 The observations are independent.
 When both n and n(1-  ) are at least 5 and the above
requirements are met, we can use the normal distribution as an
approximation to the binomial distribution to test hypotheses
about population proportions.

15-4
 LO15-1

Testing a Population Proportion

- Example

Suppose prior elections in a certain state

indicated it is necessary for a candidate
for governor to receive at least 80% of the
vote in the northern section of the state to
be elected. The incumbent governor is
interested in assessing his chances of
returning to office and plans to conduct a
survey of 2,000 registered voters in the
northern section of the state. Using the
hypothesis-testing procedure, assess the
governor’s chances of reelection.
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 LO15-1

Testing a Population Proportion

- Example
Step 1: State the null hypothesis and the alternate hypothesis.
Note the keyword in the problem is “at least”, and that a decision
to reject the null infers that the governor will not be re-elected.

H0:  ≥ .80
H1:  < .80

Step 2: Select the level of significance.

We select an α = 0.05.

Step 3: Select the test statistic.

Use the z-distribution since the assumptions are met:
n and n(1-) ≥ 5.

15-6
 LO15-1

Testing a Population Proportion

- Example
Calculating the z test statistic:

Sample proportion Hypothesized

population proportion

p 
z
 (1   )
n
Sample size

15-7
 LO15-1

Testing a Population Proportion -

Example
Step 4: Formulate the decision rule.

The hypothesis test is one-tailed so

we:

Reject H0 if z < -z

Reject H0 if z < -1.645
Step 5: Take a sample, do the analysis, make a decision.

The computed value of z (-2.80) is in the rejection region, so the null hypothesis is rejected
at the .05 level.

Step 6: Interpret the results. The difference of 2.5 percentage points between the sample
proportion (77.5%) and the hypothesized population proportion (80%) is statistically
significant. The evidence at this point does not support the claim that the incumbent
governor will return to the governor’s mansion for another four years.
15-8
 LO15-2 Test a hypothesis about
two population proportions.

Two-Sample Tests of Proportions

EXAMPLES
 The vice president of human resources wishes to know whether
there is a difference in the proportion of hourly employees who miss
more than 5 days of work per year at the Atlanta and the Houston
plants.
 General Motors is considering a new design for the Chevrolet
Camaro. The design is shown to a group of potential buyers under
30 years of age and another group over 60 years of age. Chevrolet
wishes to know whether there is a difference in the proportion of the
groups who like the new design.
 A consultant to the airline industry is investigating the fear of flying
among adults. Specifically, the company wishes to know whether
there is a difference in the proportion of men versus women who are
fearful of flying.

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 LO15-2

Two-Sample Tests of Proportions

 To test hypotheses about the difference between two
population proportions, we again use the normal
distribution to approximate the binomial distribution.
 The z test statistic is computed as:

Notice that the denominator, the standard deviation

of (p1 – p2), now includes pc which is the “pooled”
estimate of the population proportion.
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 LO15-2

Two-Sample Tests of Proportions

 Pooling, or estimating the population proportion.

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 LO15-2

Two-Sample Tests of Proportions

- Example
Manelli Perfume Company recently developed a
new fragrance that it plans to market under the
name Heavenly. A number of market studies
indicate that Heavenly has very good market
potential. The Sales Department at Manelli is
particularly interested in whether there is a
difference in the proportions of younger and
older women who would purchase Heavenly if it
were marketed. Samples are collected from each
of these independent groups. Each woman is
asked to smell Heavenly and indicate whether
she would purchase the fragrance.

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 LO15-2

Two-Sample Tests of Proportions -

Example
Step 1: State the null and alternate hypotheses.
(keyword: “there is a difference”)
H 0:  1 =  2
H1:  1 ≠  2

Step 2: Select the level of significance.

We select an α = 0.05.

Step 3: Determine the appropriate test statistic.

We will use the z-distribution to approximate the binomial
distribution because the sample sizes are relatively large.

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 LO15-2

Two Sample Tests of Proportions -

Example
Step 4: Formulate the decision rule.
Reject H0 if z > z/2 or z < - z/2
z > z.05/2 or z < - z.05/2
z > 1.96 or z < -1.96

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 LO15-2

Two Sample Tests of Proportions -

Example
Step 5: Select a sample, do the analysis, and make a decision.
Let p1 equal the proportion of young women who would purchase the
fragrance; p2 equals the proportion of older women who would purchase
the fragrance.

The computed value of -2.207 is in the area of rejection. Therefore, the null
hypothesis is rejected at the .05 significance level.

Step 6: Interpret the result. The proportions of young and older women who
purchase Heavenly are different. By observation, the proportions indicate that
older women are more likely to prefer the fragrance.
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 LO15-3 Test a hypothesis comparing an observed set
of frequencies to an expected frequency distribution.

Comparing observed and expected

frequency distributions
Hypotheses:
H0: There is no difference between observed and
expected frequencies. Or, the two frequency
distributions are not different.
H1: There is a difference between observed and
expected frequencies. Or, the two frequency
distributions are different.

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 LO15-3

Comparing observed and expected

frequency distributions
The chi-square statistic is used to test hypotheses comparing
frequency distributions.

The major characteristics of

the chi-square distribution:
 It is positively skewed.
 It is non-negative.
 The shape of the
distribution depends on its
degrees of freedom.

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 LO15-3

Comparing observed and expected

frequency distributions:
The Goodness-of-Fit Test
Let f0 and fe be the observed and expected frequencies
respectively for each category in a frequency distribution. The
variable, k, is the number of categories.
The test statistic is:
 fo  fe  2 
 2
  
 fe



The value computed inside the brackets for each category is

summed for all categories.

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 LO15-3
Comparing observed and expected
frequency distributions:
The Goodness-of-Fit Test - Example
The Bubba’s Fish and Pasta is a chain of restaurants located along the Gulf
Coast of Florida. Bubba, the owner, is considering adding steak to his menu.
Before doing so he decides to hire Magnolia Research, LLC, to conduct a
survey of adults about their favorite entree when eating out. Magnolia selected
a sample of 120 adults and asked each to indicate their entrée when dining
out. The results are reported below.
Is it reasonable to conclude there is no preference among the four entrees?

Notice the we computed the expected frequencies so that they are equal
(120/4=30). The expected frequency distribution infers that adults have no
preference for any of the entrees; the probabilities that an adult would
choose any entrée are equal. 15-19
 LO15-3

Comparing observed and expected

frequency distributions:
The Goodness-of-Fit Test - Example
Step 1: State the null hypothesis and the alternate hypothesis.
H0: There is no difference between the expected and observed
frequency distributions of adults selecting each entrée.
H1: There is a difference between the expected and observed
frequency distributions of adults selecting each entrée.

Step 2: Select the level of significance.

α = 0.05 as stated in the problem.

Step 3: Select the test statistic.

The test statistic follows the chi-square distribution,
designated as χ2.

15-20
 LO15-3

Comparing observed and expected

frequency distributions:
The Goodness-of-Fit Test - Example
Step 4: Formulate the decision rule.
The critical value is a chi-square value with (k-1) degrees of
freedom, where k is the number of categories. In this example there
are 4 categories, so there are (4–1) or 3 degrees of freedom.
Reject H 0 if c 2 > c a2 ,k- 1
c 2 > c .05,3
2

c 2 > 7.815

15-21
 LO15-3

Comparing observed and expected

frequency distributions:
The Goodness-of-Fit Test - Example
Step 5: Select a sample, do the analysis, and make a decision.

 fo  fe  2 
2
   
 f e



The computed χ2 of 2.20 is less than the critical value of 7.815. The
decision, therefore, is to fail to reject H0 at the .05 level .

Step 6: Interpret the result. The difference between the observed and the
expected frequencies is due to chance. There appears to be no difference
in the preference among the four entrees.
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 LO15-3
Comparing observed and expected frequency
distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
The c 2goodness-of-fit test to compare an observed frequency
distribution to a frequency distribution of unequal expected
frequencies is exactly the same as the procedure for the test
with equal frequencies.

Hypotheses:
H0: There is no difference between observed and expected
frequencies. Or, the two frequency distributions are not
different.
H1: There is a difference between observed and expected
frequencies. Or, the two frequency distributions are
different.

15-23
 LO15-3

Comparing observed and expected frequency

distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
The American Hospital Administrators Association (AHAA) reports the
following information concerning the number of times senior citizens
are admitted to a hospital during a one-year period. Forty percent are
not admitted; 30 percent are admitted once; 20 percent are admitted
twice, and the remaining 10 percent are admitted three or more times.

A survey of 150 residents of Bartow Estates, a community devoted to

active seniors located in central Florida, revealed 55 residents were not
admitted during the last year, 50 were admitted to a hospital once, 32
were admitted twice, and the rest of those in the survey were admitted
three or more times.

Can we conclude the survey at Bartow Estates is consistent with the

information suggested by the AHAA? Use the .05 significance level.

15-24
 LO15-3
Comparing observed and expected frequency
distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
For this problem, the set of observed frequencies is based on the
survey of the 150 residents.

The expected frequencies are computed based on the percentages

reported by the AHAA. They say that 40% of seniors are never
admitted to a hospital during a year. If this is true, then 40% of the 150
surveyed seniors, or 60 is the expected frequency of this category for
the Bartow residents. 30% of seniors are admitted once. So the
expected frequency for the Bartow Residents is 30% of the 150
surveyed or 45.

15-25
 LO15-3

Comparing observed and expected frequency

distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
Step 1: State the null hypothesis and the alternate hypothesis.
H0: There is no difference between the expected and observed
frequency distributions of number of times per year senior adults are
admitted to a hospital.
H1: There is a difference between the expected and observed
frequency distributions of number of times per year senior adults are
admitted to a hospital.
Step 2: Select the level of significance.
α = 0.05 as stated in the problem.

Step 3: Select the test statistic.

The test statistic follows the chi-square distribution,
designated as χ2.

15-26
 LO15-3
Comparing observed and expected frequency
distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
Step 4: Formulate the decision rule.
The critical value is a chi-square value with (k-1) degrees of
freedom, where k is the number of categories. In this example there
are 4 categories, so there are (4–1) or 3 degrees of freedom.

Reject H 0 if c 2 > c a2 ,k- 1

c 2 > c .05,3
2

c 2 > 7.815

15-27
 LO15-3
Comparing observed and expected frequency
distributions: The Goodness-of-Fit Test –
Unequal Expected Frequencies Example
Step 5: Select a sample, do the analysis, and make a decision.

 fo  fe  2 
2
   
 f e



The computed χ2 of 1.3723 is less the critical value of 7.815. The decision,
therefore, is to fail to reject H0 at the .05 level .

Step 6: Interpret the result. The difference between the observed and the
expected frequencies is due to chance. There appears to be no difference
in the distribution of hospital admittance for Bartow Estates Community.
15-28
 LO15-4 Explain the limitations of using the
chi-square statistic in goodness-of-fit tests.

Limitations of the Chi-square

Goodness-of-Fit tests
If there is an unusually small expected frequency in a cell, chi-square (if applied) might
result in an erroneous conclusion. This can happen because fe appears in the
denominator, and dividing by a very small number makes the quotient quite large! Two
generally accepted policies regarding small cell frequencies are:

1. If there are only two cells, the expected frequency in each cell should be at least 5.

2. For more than two cells, chi-square should not be used if more than 20% of the fe cells
have expected frequencies less than 5. According to this policy, it would not be
appropriate to use the goodness-of-fit test on the following data. Three of the seven cells,
or 43%, have expected frequencies (fe) of less than 5.

The issue can be resolved by

combining categories if it is
logical to do so. In this
example, we combine the
three vice president
categories, which satisfies the
20% policy.

15-29
 LO15-5 Test a hypothesis that an observed
frequency distribution is normally distributed.

Testing a hypothesis that an observed frequency

distribution fits an expected frequency distribution
that is normal.
To perform this Goodness-of-Fit test, the challenge is to compute the
normally distributed set of expected frequencies. To find this
distribution, we will use the familiar z-statistic and z-table to find the
relative expected frequencies. Then, apply the relative expected
frequencies to the total number of observations to compute the
expected frequencies, as we did in the Bartow Estates example.

15-30
 LO15-5

Testing a hypothesis that an observed frequency

distribution fits an expected frequency distribution
that is normal.
Recall the frequency distribution of Applewood’s profits from the sale
of 180 vehicles. The frequency distribution is repeated below.

Is it reasonable to conclude that the observed frequency distribution of

profits is normally distributed?

15-31
 LO15-5

Testing a hypothesis that an observed frequency

distribution fits an expected frequency
distribution that is normal.
Step 1: State the null hypothesis and the alternate hypothesis.
H0: There is no difference between the expected and observed
frequency distributions. There is no evidence to conclude that the
expected frequency distribution is not normal.
H1: There is a difference between the expected and observed
frequency distributions. The expected observed frequency
distributions are different! The observed distribution is not normal.
Step 2: Select the level of significance.
α = 0.05 as stated in the problem.

Step 3: Select the test statistic.

The test statistic follows the chi-square distribution,
designated as χ2.

15-32
 LO15-5

Testing a hypothesis that an observed frequency

distribution fits an expected frequency
distribution that is normal.
Step 4: Formulate the decision rule.
The critical value is a chi-square value with (k-2-1) degrees of
freedom, where k is the number of categories. The “2” represents
the two sample statistics (mean and standard deviation) that we will
use to compute the normal, expected frequency distribution. In this
example there are 8 categories, so there are (8-2-1) or 5 degrees of
freedom.
Reject H 0 if c 2 > c a2 ,k- 2- 1
c 2 > c .05,5
2

c 2 >11.070

15-33
 LO15-5

Testing a hypothesis that an observed frequency

distribution fits an expected frequency
distribution that is normal.

We know from the data

that the sample mean profit
is $1,843.17 and the
=.0214 ´ 180
sample standard deviation
is $643.63.
Convert each class limit
into a z-score using the
mean of $1,843.17 and =.2367 ´ 180
standard deviation of
$643.63.
Calculate the probabilities
for each class based on
the z-values for the class
limits.

15-34
 LO15-5

Testing a hypothesis that an observed frequency

distribution fits an expected frequency
distribution that is normal.
Step 5: Select a sample, do the analysis, and make a decision.
 fo  fe  2 
2   
fe

 

The computed χ2 of 5.220 is less the critical value of 11.070. The decision,
therefore, is to fail to reject H0 at the .05 level .

Step 6: Interpret the result. There appears to be no difference between

the observed distribution of profits and the expected, normal distribution of
profits. We assume that the observed distribution is normally distributed.
15-35
 LO15-6 Perform a chi-square test for
independence on a contingency table.

Contingency Table Analysis

A contingency table is used to present observed frequencies
for two traits or characteristics. Each observation is classified
according to two nominally scaled criteria. We are interested to
know if there is a relationship between the two variables.
We can analyze a contingency table to determine if a
relationship exists between the two variables. For example, we
might be interested in the relationship between income level
and a person’s decision to play the lottery. The results of a
survey of 140 people are illustrated below. Note that the table
displays an observed frequency distribution based on two
variables.

15-36
 LO15-6

Contingency Table Analysis - Example

 Rainbow Chemical, Inc. employs hourly and salaried
employees. The vice president of human resources
surveyed a random sample of 380 employees about
his/her satisfaction level with the current health care
benefits program. At the .05 significance level, is it
reasonable to conclude that pay type and level of
satisfaction with the health care benefits are related?

15-37
 LO15-6

Contingency Table Analysis - Example

Step 1: State the null hypothesis and the alternate hypothesis.
H0: There is no relationship between pay type and level of
satisfaction with the health care benefits.
H1: There is a relationship between pay type and level of
satisfaction with the health care benefits.

Step 2: Select the level of significance.

α = 0.05 as stated in the problem.

Step 3: Select the test statistic.

The test statistic follows the chi-square distribution,
designated as χ2.

 fo  fe  2 
2
   
 fe



15-38
 LO15-6

Contingency Table Analysis - Example

Step 4: Formulate the decision rule.
The critical value is a chi-square statistic. The degrees of freedom
are: (number of rows – 1)(number of columns – 1). In this example
there are 2 rows and 3 columns. So the degrees of freedom are (2-
1)(3-1) = (1)(2) is 2.

Reject H 0 if c 2 > c a2 ,(r- 1)(c- 1)

c 2 > c .05,2
2

c 2 > 5.991

15-39
 LO15-6

Contingency Table Analysis:

Computing Expected Frequencies (fe)

For example, the expected frequency for salaried personnel who

are satisfied with their health care benefits is:

15-40
 LO15-6

Contingency Table Analysis - Example

Step 5: Select a sample, do the analysis, and make a decision.

 fo  fe  2 
2
   
 fe



The computed χ2 of 2.506 is less the critical value of 5.991. The decision,
therefore, is to fail to reject H0 at the .05 level .

Step 6: Interpret the result. There is no relationship between type of pay

and satisfaction with health care benefits.
15-41