MBA/510

Managerial Decision Making

Workshop One
Workshop One
! Agenda
! Introductions
! Overview and structure of course (syllabus)
! Team formation and charters
! Expectations
! Hypothesis testing (lecture, review, discussion &
PBL activities)
! Descriptive statistics, Probability (PBL activities)
! Introduction and discussion of scenario I (PBL
team & class activity & discussion)
Week One
! Confidence intervals
! Sample size
! Hypothesis testing in business research
Week One
! Confidence intervals determined by
! The sample size, n.
! The variability in the population
! The desired level of confidence
n
s
z X
n
p p
z p
) 1 ( !

n
s
t X
Example
! A sample of 500 executives who own
their own home revealed 175 planned
to sell their homes and retire to Arizona.
Develop a 98% confidence interval for
the proportion of executives that plan to
sell and move to Arizona.
0497 . 35 .
500
) 65 )(. 35 (.
33 . 2 35 . =
Example (local business)
! A sample of 225 GHC nurses revealed 75
planned to retire or quit in the next 5 years.
Of these 25 indicated they would stay as part
time if a part time pool were created. Develop
a 95% confidence interval for the proportion
of nurses that plan to quit or retire under the
different scenarios.
Week One
! Sample size
! Allowable error
! Confidence level
! Prior standard deviation or proportion data
2
!
"
#
$
%
&

=
E
s z
n
n p p
Z
E
= !
"
#
$
%
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2
Sample size example
Seattle city light would like to estimate
the mean monthly electricity charge for
a single family house in July within $5
using a 99 percent level of confidence.
Based on similar studies the standard
deviation is estimated to be $20.00.
How large a sample is required?
107
5
) 20 )( 58 . 2 (
2
=
!
"
#
$
%
&
= n
Sample size example
The DNC wants to estimate the proportion of
independents that will support a Democrat.
If the DNC wants the estimate to be within
3% of the population proportion, how
many independents would they need to
contact? Assume a 95% level of
confidence and that the DNC estimates 30%
of independents would support a
democratic candidate.
897
03 .
96 . 1
) 70 )(. 30 (.
2
=
!
"
#
$
%
&
= n
Sample size example (local)
GHC wants to estimate the proportion of
local temporary nurses that will sign up to
a new temp. pool. If GHC wants the
estimate to be within 4% of the population
proportion, how many local nurses would
they need to contact? Assume a 95%
level of confidence and that GHC estimates
50% of nurses would like to join.
Hypothesis testing
! What is it?
Hypothesis testing
! What is it?
Hypothesis testing is a procedure,
based on sample evidence and
probability theory, used to determine
whether the hypothesis is a
reasonable statement and should not
be rejected, or is unreasonable and
should be rejected.
Week One
! Hypothesis testing in business research
! State null and alternate hypotheses
! Select level of significance
! Select specific test
! State the decision rule
! Compute value of test statistic
Week One
! Hypothesis testing in business research
(cont.)
! Compute the p value
! Make decision about null hypothesis
! Interpret results
Hypothesis Testing
Do not reject null Reject null and accept alternate
Step 5: Take a sample, arrive at a decision
Step 4: Formulate a decision rule
Step 3: Identify the test statistic
Step 2: Select a level of significance
Step 1: State null and alternate hypotheses
Hypothesis testing definitions
! Null Hypothesis H
0
: A statement about the
value of a population parameter.
! Alternative Hypothesis H
1
: A statement that is
accepted if the sample data provide evidence
that the null hypothesis is false.
! Level of Significance: The probability of
rejecting the null hypothesis when it is
actually true.
! Type I Error: Rejecting the null hypothesis
when it is actually true.
Hypothesis testing definitions
! Type II Error: Accepting the null hypothesis
when it is actually false.
! Test statistic: A value, determined from
sample information, used to determine
whether or not to reject the null hypothesis.
! Critical value: The dividing point between the
region where the null hypothesis is rejected
and the region where it is not rejected.
Week One
! Test statistics
! One-sample z test of means (large sample)
! One-sample z test of proportions
! One-sample t test of means (small sample)
z
X
=
!
" / n
n s
X
t
/
!
=
!
z =
p "#
#(1"#)
n
One & Two Tailed Tests
! A test is one-tailed when the alternate
hypothesis, H
1
, states a direction, such
as:
! H
1
: Less than 20 percent of the customers
pay cash for their gasoline purchase.
(B<.20)
One Tailed Test
- 5
0 . 4
0 . 3
0 . 2
0 . 1
. 0
f
(
x
r a l i t r b u i o n : = 0 , !
2
= 1
0 1 2 3 4
Critical
Value
z=1.65
.95 probability
.05 region of
rejection
Sampling Distribution for the Statistic Z for a
One-Tailed Test, .05 Level of Significance
One & Two Tailed Tests
! A test is two-tailed when no direction is
specified in the alternate hypothesis H
1,
such as:
! H
1
: The mean price for a gallon of gasoline is
not equal to $1.54
- 5
0 . 4
0 . 3
0 . 2
0 . 1
. 0
f
(
x
r a l i t r b u i o n : = 0 , !
2
= 1
-4 -3 -2 -1 0 1 2 3 4
Critical
Value
z=1.96
.95 probability
Sampling Distribution for the Statistic Z for a
Two-Tailed Test, .05 Level of Significance
2 .025 regions
of rejection
Local Business Example
! In the past, 15% of direct mail (fax)
business solicitations resulted in new
business. A new solicitation letter
(fax) that has been targeted is sent to
a sample of 200 people and 45
responded positively. At the .05
significance level can it be concluded
that the new letter is more effective?
Business Example continued
! Step 1: State the null and the alternate
hypothesis.
H
0
: B ! .15 H
1
: B > .15
! Step 2: Select the level of significance.
It is .05.
! Step 3: Find a test statistic.
The z distribution is the test statistic.
Business Example continued
! Step 4: State the decision rule: The null
hypothesis is rejected if z is greater than 1.65.
! Step 5: Make a decision and interpret the
results.
97 . 2
200
) 15 . 1 ( 15 .
15 .
200
45
) 1 (
=
!
!
=
!
!
=
n
p
z
" "
"
Business Example concluded
! Step 5 (continued):
Interpretation:
The null hypothesis is rejected. More
than 15 percent are responding
positively. The new letter (fax) is more
effective.
Content (PBL activities)
! Descriptive statistics
! Probability concepts
! Correlation
PBL Scenario One: IPRM
(a)What is the situation?
(b) What challenges exist?
(c) What opportunities exist?
(d) What is the problem?
(e)Is there a problem?
(f)Is it worth solving?
(g)What statistical methodology will you use?
(a)What is the situation?
(b) What challenges exist?
(c) What opportunities exist?
(d) What is the problem?
(e)Is there a problem?
(f)Is it worth solving?
(g)What statistical methodology will you use?
PBL Scenario Two: Bank
Supervisors
Forty-eight male bank supervisors were each given
the same personal file and asked to judge whether
the person should be promoted to a branch
manager job that was described as "routine", or
the file held and other applicants interviewed. The
files were identical except that half of them showed
that the file was that of a female and half showed
that the file was that of a male. Of the 24 "male
files", 21 were recommended for promotion. Of the
24 "female files", 14 were recommended for
promotion. [Rosen and Jerdee, 1974].