2 Test of Independence - I

Dr. A. Ramesh
DEPARTMENT OF MANAGEMENT STUDIES

1
 Agenda

• To understand 2 Test of Independence

2
 2 Test of Independence

• It is used to analyze the frequencies of two variables with multiple

categories to determine whether the two variables are independent.
• Qualitative Variables
• Nominal Data

3
 2 Test of Independence: Investment Example
• In which region of the country do you reside?
A. Northeast B. Midwest C. South D. West
• Which type of financial investment are you most likely to make today?
E. Stocks F. Bonds G. Treasury bills
Type of financial
Investment
Contingency Table
E F G
A O13 nA
Geographic B nB
Region C nC
D nD
nE nF nG N
4
 2 Test of Independence: Investment Example
e AF
= N  P( A  F )
n n n n 
If A and F are independent, P( A) = A
P( F ) = F
= N A  F
N N  N N 
P( A  F) = P( A)  P( F ) n n
P( A  F ) = A F
n n
N N = A F
N

Type of Financial
Contingency Table Investment
E F G
A e12 nA
Geographic B nB
Region C nC
D nD
nE nF nG N
5
 2 Test of Independence: Formulas

e =
ij
(n ) (n)j
i j
N
Expected where : i = the row
Frequencies j = the column
ni = the total of row i
nj = the total of column j
N = the total of all frequencies

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 2 Test of Independence: Formulas

( f o − f e)
2

Calculated   
2
=
(Observed ) f
where : df = (r - 1)(c - 1)
e

r = the numberr of rows

c = the numberr of columns

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Example for Independence

8
 2 Test of Independence

Ho : Type of gasoline is
independent of income
Ha : Type of gasoline is not
independent of income

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 2 Test of Independence

Type of
Gasoline
r=4 c=3 Extra
Income Regular Premium Premium
Less than $30,000
$30,000 to $49,999
$50,000 to $99,000
At least $100,000

10
2 Test of Independence: Gasoline Preference Versus
Income Category
 =.01
df = ( r − 1)( c − 1)
= ( 4 − 1)( 3 − 1)
=6

 2

.01, 6
= 16.812

If  2

Cal
 16.812, reject Ho.

If  2

Cal
 16.812, do not reject Ho.

11
Python code

12
Gasoline Preference Versus Income Category:
Observed Frequencies

Type of
Gasoline
Extra
Income Regular Premium Premium
Less than $30,000 85 16 6 107
$30,000 to $49,999 102 27 13 142
$50,000 to $99,000 36 22 15 73
At least $100,000 15 23 25 63
238 88 59 385

13
 Gasoline Preference Versus Income Category: Expected
Frequencies

e =
ij
(n )
N
(ni
) j
Type of
Gasoline Extra
=
(107 )(238 ) Income Regular Premium Premium
e11 385 Less than $30,000 (66.15) (24.46) (16.40)
= 66.15 85 16 6 107
(107 )(88 ) $30,000 to $49,999 (87.78) (32.46) (21.76)
e12 = 385
102 27 13 142
$50,000 to $99,000 (45.13) (16.69) (11.19)
= 24 .46 36 22 15 73
(107 )(59) At least $100,000 (38.95) (14.40) (9.65)
e 13 = 385 15 23 25 63
= 16.40 238 88 59 385
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Gasoline Preference Versus Income Category: 2
Calculation

(f o −f f e)
2

 = 
2

(85 −6666 .15 ) + (16 −2424 .46) + (6 −16.40) +

2 2 2

= .15 .46 16.40

(102 87
− 87.78) + (27 −3232 .46) + (13 − 21.76) +
2 2 2

.78 .46 21.76

(36 −454513 . )+ (22 −1616 .69 ) + (15 −1119. )+
2 2 2

.13 .69 11.19

(15 −3838 .95) + (23 −1414 .40) + (25 − 9.65)
2 2 2

.95 .40 9.65

= 7075
.
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Gasoline Preference Versus Income Category:
Conclusion

df = 6
0.01
Non rejection
region

16.812


2
= 70.78  16.812, reject Ho.
Cal

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 Contingency Tables

Contingency Tables
• Useful in situations involving multiple population proportions
• Used to classify sample observations according to two or more
characteristics
• Also called a cross-classification table.

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 Contingency Table Example

Hand Preference vs. Gender

Dominant Hand: Left vs. Right
Gender: Male vs. Female

• 2 categories for each variable, so the table is called a 2 x 2 table

• Suppose we examine a sample of 300 college students

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 Contingency Table Example

Sample results organized in a contingency table:

Gender
sample size = n = 300:
Hand
120 Females, 12 were Preference
Female Male
left handed
Left 12 24 36
180 Males, 24 were
left handed Right 108 156 264

120 180 300

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 Contingency Table Example

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 Hand preference is
not independent of gender)

• 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.

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 The Chi-Square Test Statistic

The Chi-square test statistic is:

(f − f ) 2
χ2 =  o e

all cells fe
where:
fo = observed frequency in a particular cell
fe = expected frequency in a particular cell if H0 is true

2 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
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 The Chi-Square Test Statistic

The 2 test statistic approximately follows a chi-square

distribution with one degree of freedom

Decision Rule:
If 2 > 2U, reject H0,
otherwise, do not reject 
H0
0 Do not Reject H0 
reject H0 2U
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 Observed vs. Expected Frequencies
Gender
Hand
Female Male
Preference

Observed = 12 Observed = 24
Left 36
Expected = 14.4 Expected = 21.6

Observed = 108 Observed = 156

Right 264
Expected = 105.6 Expected = 158.4

120 180 300

 The Chi-Square Test Statistic
Gender
Hand
Female Male
Preference

Observed = 12 Observed = 24
Left 36
Expected = 14.4 Expected = 21.6

Observed = 108 Observed = 156

Right 264
Expected = 105.6 Expected = 158.4
120 180 300
The test statistic is:
( fo − fe )2
2 = 
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
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 The Chi-Square Test Statistic

The test statistic is  2 = 0.7576 , U2 with 1 d.f. = 3.841

Decision Rule:
If 2 > 3.841, reject H0, otherwise, do not
reject H0
Here,
2 = 0..7576 < 2U = 3.841,
=.05
so you do not reject H0 and
conclude that there is
0 Do not Reject H0  
insufficient evidence that the
reject H0
2U=3.841 two proportions are different.

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2 Test for The 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)

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 The Chi-Square Test Statistic

The Chi-square test statistic is:

( fo − fe )2
2 = 
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
• 2 for the 2 x c case has (2-1)(c-1) = c - 1 degrees of freedom

Assumed: each cell in the contingency table has expected frequency of at least 5
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 2 Test with More Than Two Proportions: Example

The sharing of patient records is a controversial issue in health care. A survey

of 500 respondents asked whether they objected to their records being
shared by insurance companies, by pharmacies, and by medical researchers.
The results are summarized on the following table:

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2 Test with More Than Two Proportions: Example
Organization
Object to Insurance Pharmacies Medical
Record Companies Researchers
Sharing

Yes 410 295 335

No 90 205 165
2 Test with More Than Two Proportions: Example
Organization
Object to Insurance Pharmacies Medical Row Sum
Record Companies Researchers
Sharing

Yes 410 295 335 1040

No 90 205 165 460

Column 500 500 500 1500

Sum
 2 Test with More Than Two Proportions: Example
The overall proportion is:
X 1 + X 2 + ... + X c 410 + 295 + 335
p= = = 0.6933
n1 + n2 + ... + nc 500 + 500 + 500

Organization
Object to Record Insurance Pharmacies Medical
Sharing Companies Researchers

Yes fo = 410 fo = 295 fo = 335

fe = 346.667 fe = 346.667 fe = 346.667
No fo = 90 fo = 205 fo = 165
fe = 153.333 fe = 153.333 fe = 153.333
 2 Test with More Than Two Proportions: Example
Organization
Object to Insurance Pharmacies Medical
Record Companies Researchers
Sharing

Yes ( fo − fe )
2
= 11.571 ( f o − f e )2 ( f o − f e )2
= 7.700 = 0.3926
fe fe fe

No ( f o − f e )2 ( fo − fe )
2
= 17.409
( fo − fe )
2
= 0.888
= 26.159
fe fe fe

( fo − fe )2
The Chi-square test statistic is:  2
=  = 64.1196
all cells fe
 2 Test with More Than Two Proportions: Example
H0: π1 = π2 = π3
H1: Not all of the πj are equal (j = 1, 2, 3)

Decision Rule: 2U = 5.991 is from the chi-square

If 2 > 2U, reject H0, otherwise, distribution with 2 degrees of
do not reject H0 freedom.

Conclusion: Since 64.1196 > 5.991, you reject H0 and you conclude that at
least one proportion of respondents who object to their records being shared
is different across the three organizations

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Thank You

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