ANOVA http://org.elon.edu/econ/sac/anova.

htm

ANOVA
A. Overview of ANOVA
B. Step-by-step instructions for doing ANOVA in Excel
C. Interpreting your Excel output

A. OVERVIEW OF ANOVA
In statistics, we often want to know if the means of two populations are equal. For example, do men and
women earn equal wages on average? This is an easy thing to test using a two-sample t-test for the equality
of means. The problem with that test is we cannot deal with more than two populations. What if we want to
know whether Blacks, Latinos and Whites earn the same wages on average? To answer a question like this,
we need to use ANOVA. ANOVA means analysis of variance.

Of course, variance is a measure of dispersion, not central tendency (like the mean). So, why do we analyze
the variance in order to test to see if the means of three or more groups are equal? Remember, sample
means will differ for two reasons. One, due to random sampling error, we cannot expect multiple sample
means to be exactly equal even if the groups really do have the same population means. So, if the sample
means differ only because of mere sampling error, we expect those sample means to be "pretty close." If
they are "not very close", then we would conclude that the populations means really probably are different.
Thus, the variance in the sample means will provide a way of testing whether the sample means are "close
enough" or not. If the variance between the groups is relatively small, then we conclude that the sample
means are equal. If the variance between the groups is large, we will conclude they are not equal.

B. DOING ANOVA IN EXCEL

Consider the following example. In a study reported in the Journal of Small Business Management,
self-employed individuals were asked to report their degree of job-related stress. They were asked 15
questions about their work and they responded on a 1-5 scale as the amount of stress they felt. These
responses were added up in order to come up with a numeric measure of job stress (15 being the minimum
stress and 75 the maximum stress). Below is the Excel file with 3 of the groups' data: Real Estate Agent,
Architect and Stockbroker.

1 of 4 3/8/2010 6:24 AM
ANOVA http://org.elon.edu/econ/sac/anova.htm

In this case, we have what we call a "one-way ANOVA." That is, there is one factor (stress) we are looking at
across these 3 groups.

Step 1: State the null hypothesis. The null hypothesis in ANOVA is that the means of the groups are equal. In
other words,

If the null hypothesis is true, it means that these 3 groups are all from the same population. In other words,
these 3 groups with their different sample means simply represent 3 points on the same sampling distribution.
If the hypothesis is true, then the "between group variance" will be equal to the "within group variance." The
"between group variance" (or Mean Square due to Treatments or MSTR) is an estimate of the variance of the
population if the null hypothesis is true. We find it by calculating the variance between the 3 sample means,
using the mean of ALL the observations as the estimate for the population mean. the "within group variance"
(or Mean Square Error or MSE) is an average of the 3 actual sample variances found. If the null hypothesis is
true, the "between group variances" must be equal (close to) to the "within group variances."

The test statistic in this case is an F, where F is defined to be the ratio of the two variances (between and
within).

2 of 4 3/8/2010 6:24 AM
ANOVA http://org.elon.edu/econ/sac/anova.htm

Step 2: Choose a critical value (e.g., .05, .10) for your test.

Step 3: Calculate the F statistic using Excel's Data Analysis. Click on TOOLS and choose DATA ANALYSIS.
Under DATA ANALYSIS, choose the appropriate type of ANOVA:

There are 3 types used in Excel. "Single factor" ANOVA is the same as "one-way" ANOVA. That is what we
have in this example, since we are only considering one factor (Stress) across these groups. Excel can
handle any number of groups as long as they are in columns. After choosing "ANOVA: Single Factor" you
will see

In "Input Range" highlight the entire range of data. Be sure to include the labels (row 1) and click on "Labels in
First Row." Specify your critical level (see Step 2). Finally, clicking on "OK" will produce the following results:

3 of 4 3/8/2010 6:24 AM
ANOVA http://org.elon.edu/econ/sac/anova.htm

C. INTERPRETING YOUR EXCEL OUTPUT

As we can see, the mean level of stress reported by real estate agents (67.73) is higher than that of either
stockbrokers (65.8) or architects (61.33). But are these differences statistically significant? According to the
test result F = 1.19. With a critical value of .05, the critical F = 3.219. Therefore, since the F statistic is smaller
than the critical value, we fail to reject the null hypothesis. Remember from above, the null hypothesis was that
all 3 of these groups' means were equal. So, we fail to reject that real estate agents, stockbrokers and
architects have the same level of job-related stress. Apparently, the differences we saw in this sample were
simply due to random sampling error.

Elon University Last Modified: 08/07/03

Campus Box 2700 Copyright © Elon
Elon, NC 27244 (800) University
334-8448
E-mail: web@elon.edu

4 of 4 3/8/2010 6:24 AM