A Guide to Business Statistics

Chapter 10Hypothesis Tests Comparing Two Parameters

Remember Derek “Burger” Hamburger from Chapter 7 on confidence intervals? Burger was interested in how much money he could expect to earn after graduating from college. This makes sense because Burger is going to have some hefty student loans to pay off. Suppose Burger has narrowed his choices to economics or accounting. He is debating whether he wants to be labeled a “dismal scientist” or a “bean counter.”¹ Part of the decision process is a comparison of the average starting salaries between the two fields. Derek Hamburger can rely on the hypothesis tests of two means described in this section in order to determine if there is a significant difference in average salaries between economics and accounting.

Burger might also be interested in comparing the variability in salary amounts between the two majors. It could be the case that the averages are pretty similar, but there is more variation in one of the majors. If he is a gambling type, maybe he chooses the field with bigger risk but bigger potential reward. Or, if he is a more conservative type, he might want to choose a major with less variability in salary amounts. For this comparison, he can rely on the hypothesis tests of two variances described in this chapter to compare the variation in starting salaries between economics and accounting majors.

Finally, it is also possible that Burger is interested in the likelihood he actually lands a job with either a major in economics ...