Hypothesis Testing & Variance
One of the items that businesses would like to be able to test is whether or not a change they make to their procedures is effective. Remember that when you create a hypothesis and then test it, you have to take into consideration that some variance between what you expect and what you collect as actual data is because of random chance. However, if the difference between what you expect and what you collect is large enough, you can more readily say that the variance is at least in part because of some other thing that you have done, such as a change in procedure.
For this submission, you will watch a video about the Chi-square test. This test looks for variations between expected and actual data and applies a relatively simple mathematical calculation to determine whether you are looking at random chance or if the variance can be attributed to a variable that you are testing for.
Imagine that a company wants to test whether it is a better idea to assign each sales representative to a defined territory or allow him or her to work without a defined territory. The company expects their sales reps to sell the same number of widgets each month, no matter where they work. The company creates a null and alternate hypothesis to test sales from defined territory sales versus open sales.
One of the best ways to test a hypothesis is through a Chi-square test of a null hypothesis. A null hypothesis looks for there to be no relationship between two items. Therefore, the company creates the following null hypothesis to test: There is no relationship between the amount of sales that a representative makes and the type of territory (defined or open) that a representative works in. The alternate hypothesis would be the following: There is a relationship between the kind of sales territory a sale representative has (defined or open) and the amount of sales he or she makes during a month.
Use the following data to conduct a Chi-square test for each region of the company in the same manner you viewed in the video:
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