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Unit-3 Iba

ANOVA, or Analysis of Variance, is a statistical technique used to compare the means of three or more independent groups to identify significant differences among them. It analyzes variance within and between groups and has various types, including one-way, two-way, and factorial ANOVA, each suited for different research scenarios. A key assumption of ANOVA is that data must be structured with one observation per cell to accurately calculate variance and determine statistical significance.

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10 views7 pages

Unit-3 Iba

ANOVA, or Analysis of Variance, is a statistical technique used to compare the means of three or more independent groups to identify significant differences among them. It analyzes variance within and between groups and has various types, including one-way, two-way, and factorial ANOVA, each suited for different research scenarios. A key assumption of ANOVA is that data must be structured with one observation per cell to accurately calculate variance and determine statistical significance.

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Kajal Singh
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© © All Rights Reserved
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Unit-3

Introduction to Business Analytics


What is ANOVA?
ANOVA stands for Analysis of Variance. It is a statistical technique used to
compare the means of three or more independent groups to determine
whether there are any statistically significant differences among them.

While a t-test compares the means between two groups, ANOVA can handle
multiple groups simultaneously, which avoids the problem of increasing
Type I error (false positives) from multiple t-tests.

‘ANOVA, or Analysis of Variance, is a test used to determine


differences between research results from three or more unrelated
samples or groups.”

How does ANOVA work?

ANOVA works by analysing the levels of variance within more than two groups through samples
taken from each of them.

In an ANOVA test you first examine the variance within each group defined by the independent
variable – this variance is calculated using the values of the dependent variable within each of
these groups. Then, you compare the variance within each group to the overall variance of the
group means.
‘’In general terms, a large difference in means combined with small variances within the groups
signifies a greater difference between the groups. Here the independent variable significantly
varies by dependent variable, and the null hypothesis is rejected.’’

Types of ANOVA

There are various approaches to using ANOVA for your data analysis. Here’s an introduction to
some of the most common ones.

One-way ANOVA
One-way ANOVA is its most simple form – testing differences between three or more groups
based on one independent variable. For example, comparing the sales performance of different
stores in a retail chain.
Two-way ANOVA
Used when there are two independent variables, two-way ANOVA allows for the evaluation of
the individual and joint effects of the variables. For example, it could be used to understand the
impact of both advertising spend and product placement on sales revenue.

Factorial ANOVA
This variant of ANOVA is used when there are more than two independent variables. For
example, a business might use a factorial ANOVA to examine the combined effects of age,
income and education level on consumer purchasing habits.

What Does “One Observation Per Cell” Mean

This refers to the structure of the data used in ANOVA:

Each cell in your data table should contain a single, raw, individual observation—not a
summary (like an average), not multiple values.

This is a key assumption of ANOVA:

ANOVA works by comparing the variance among individual data points within and across
different groups. So, it requires raw data (not grouped or aggregated data).

Example: Correct Data Format (One Observation Per


Cell)
Let’s say you're studying the effectiveness of three different diets on weight loss.

You have 4 participants in each diet group.

Diet Type Participant Weight Loss (kg)


A 1 4.5
A 2 5.2
A 3 3.8
A 4 4.9
B 1 2.1
B 2 2.5
B 3 1.9
B 4 2.4
C 1 6.3
C 2 5.9
C 3 6.7
C 4 6.1

Here:

• Each row is a unique observation (individual participant's result).


• Each cell contains only one data point: one person’s weight loss.
• This format allows ANOVA to calculate variance within each group and between
the groups.

Incorrect Format (Violates “One Observation


Per Cell”)

Diet Type Average Weight


Loss
A 4.6
B 2.2
C 6.25

Problem:

• Each cell here contains a summary value (mean).


• You can’t analyze variance within each group because that data is lost.
• ANOVA cannot work properly with this aggregated format.

Why This Rule Matters in ANOVA


ANOVA partitions the total variance into:
1. Between-group variance (differences between group means)
2. Within-group variance (how data points vary inside each group)

To calculate these accurately, ANOVA needs all individual data points.

If you only provide group means:

• You hide the spread of values (variance).


• ANOVA can’t determine if the differences are statistically significant or just due to
variability.

Think of it this way:


• ANOVA is like a teacher comparing student performance in 3 different classrooms.
• If the teacher only gets average scores, they can’t tell if a classroom had
consistently good students or mixed performance.
• But with every student’s score, the teacher can make a meaningful comparison.

Where It Applies:
This rule applies whether you're running:

• One-Way ANOVA (1 independent variable)


• Two-Way ANOVA (2 independent variables)
• Repeated Measures ANOVA, etc.
Two-way ANOVA
Used when there are two independent variables, two-way ANOVA allows for the evaluation of
the individual and joint effects of the variables. For example, it could be used to understand the
impact of both advertising spend and product placement on sales revenue.

Summary: Key Points


Point Explanation
Rule One observation per cell
Why? ANOVA calculates variance – needs raw data
Correct Data Each row = one individual, each cell = one value
Incorrect Data Cells with averages or multiple values
Impact Incorrect data format leads to invalid ANOVA
results
What is Two-Way ANOVA?
Two-Way ANOVA is a statistical method used to examine the effect of
two independent variables (factors) on a dependent variable at the
same time.

It helps answer:

1. Does Factor A have a significant effect?


2. Does Factor B have a significant effect?
3. Is there an interaction between Factor A and

Key Concepts:
Term Meaning
Factor A First independent variable (e.g., Teaching
Method)
Factor B Second independent variable (e.g., Gender)
Dependent The outcome you measure (e.g., Test Score)
Variable
Cell A unique combination of Factor A and B
Replication More than one observation in each cell
Example Scenario
You're studying the effects of:

• Teaching Method (Factor A): Online, Offline


• Gender (Factor B): Male, Female
• Test Score (Dependent Variable): Measured from students

Data Table (More than one observation per cell)

Teaching Method Gender Student Score


Online Male S1 85
Online Male S2 88
Online Female S3 90
Online Female S4 92
Offline Male S5 78
Offline Male S6 80
Offline Female S7 93
Offline Female S8 95

There are two observations per cell (e.g., 2 Male-Online students, 2 Female-Offline
students).

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