Skip to Content
OpenStax Logo
Introductory Business Statistics

10.4 Comparing Two Independent Population Proportions

Introductory Business Statistics10.4 Comparing Two Independent Population Proportions
Buy book
  1. Preface
  2. 1 Sampling and Data
    1. Introduction
    2. 1.1 Definitions of Statistics, Probability, and Key Terms
    3. 1.2 Data, Sampling, and Variation in Data and Sampling
    4. 1.3 Levels of Measurement
    5. 1.4 Experimental Design and Ethics
    6. Key Terms
    7. Chapter Review
    8. Homework
    9. References
    10. Solutions
  3. 2 Descriptive Statistics
    1. Introduction
    2. 2.1 Display Data
    3. 2.2 Measures of the Location of the Data
    4. 2.3 Measures of the Center of the Data
    5. 2.4 Sigma Notation and Calculating the Arithmetic Mean
    6. 2.5 Geometric Mean
    7. 2.6 Skewness and the Mean, Median, and Mode
    8. 2.7 Measures of the Spread of the Data
    9. Key Terms
    10. Chapter Review
    11. Formula Review
    12. Practice
    13. Homework
    14. Bringing It Together: Homework
    15. References
    16. Solutions
  4. 3 Probability Topics
    1. Introduction
    2. 3.1 Terminology
    3. 3.2 Independent and Mutually Exclusive Events
    4. 3.3 Two Basic Rules of Probability
    5. 3.4 Contingency Tables and Probability Trees
    6. 3.5 Venn Diagrams
    7. Key Terms
    8. Chapter Review
    9. Formula Review
    10. Practice
    11. Bringing It Together: Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  5. 4 Discrete Random Variables
    1. Introduction
    2. 4.1 Hypergeometric Distribution
    3. 4.2 Binomial Distribution
    4. 4.3 Geometric Distribution
    5. 4.4 Poisson Distribution
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  6. 5 Continuous Random Variables
    1. Introduction
    2. 5.1 Properties of Continuous Probability Density Functions
    3. 5.2 The Uniform Distribution
    4. 5.3 The Exponential Distribution
    5. Key Terms
    6. Chapter Review
    7. Formula Review
    8. Practice
    9. Homework
    10. References
    11. Solutions
  7. 6 The Normal Distribution
    1. Introduction
    2. 6.1 The Standard Normal Distribution
    3. 6.2 Using the Normal Distribution
    4. 6.3 Estimating the Binomial with the Normal Distribution
    5. Key Terms
    6. Chapter Review
    7. Formula Review
    8. Practice
    9. Homework
    10. References
    11. Solutions
  8. 7 The Central Limit Theorem
    1. Introduction
    2. 7.1 The Central Limit Theorem for Sample Means
    3. 7.2 Using the Central Limit Theorem
    4. 7.3 The Central Limit Theorem for Proportions
    5. 7.4 Finite Population Correction Factor
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  9. 8 Confidence Intervals
    1. Introduction
    2. 8.1 A Confidence Interval for a Population Standard Deviation, Known or Large Sample Size
    3. 8.2 A Confidence Interval for a Population Standard Deviation Unknown, Small Sample Case
    4. 8.3 A Confidence Interval for A Population Proportion
    5. 8.4 Calculating the Sample Size n: Continuous and Binary Random Variables
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  10. 9 Hypothesis Testing with One Sample
    1. Introduction
    2. 9.1 Null and Alternative Hypotheses
    3. 9.2 Outcomes and the Type I and Type II Errors
    4. 9.3 Distribution Needed for Hypothesis Testing
    5. 9.4 Full Hypothesis Test Examples
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  11. 10 Hypothesis Testing with Two Samples
    1. Introduction
    2. 10.1 Comparing Two Independent Population Means
    3. 10.2 Cohen's Standards for Small, Medium, and Large Effect Sizes
    4. 10.3 Test for Differences in Means: Assuming Equal Population Variances
    5. 10.4 Comparing Two Independent Population Proportions
    6. 10.5 Two Population Means with Known Standard Deviations
    7. 10.6 Matched or Paired Samples
    8. Key Terms
    9. Chapter Review
    10. Formula Review
    11. Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  12. 11 The Chi-Square Distribution
    1. Introduction
    2. 11.1 Facts About the Chi-Square Distribution
    3. 11.2 Test of a Single Variance
    4. 11.3 Goodness-of-Fit Test
    5. 11.4 Test of Independence
    6. 11.5 Test for Homogeneity
    7. 11.6 Comparison of the Chi-Square Tests
    8. Key Terms
    9. Chapter Review
    10. Formula Review
    11. Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  13. 12 F Distribution and One-Way ANOVA
    1. Introduction
    2. 12.1 Test of Two Variances
    3. 12.2 One-Way ANOVA
    4. 12.3 The F Distribution and the F-Ratio
    5. 12.4 Facts About the F Distribution
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  14. 13 Linear Regression and Correlation
    1. Introduction
    2. 13.1 The Correlation Coefficient r
    3. 13.2 Testing the Significance of the Correlation Coefficient
    4. 13.3 Linear Equations
    5. 13.4 The Regression Equation
    6. 13.5 Interpretation of Regression Coefficients: Elasticity and Logarithmic Transformation
    7. 13.6 Predicting with a Regression Equation
    8. 13.7 How to Use Microsoft Excel® for Regression Analysis
    9. Key Terms
    10. Chapter Review
    11. Practice
    12. Solutions
  15. A | Statistical Tables
  16. B | Mathematical Phrases, Symbols, and Formulas
  17. Index

When conducting a hypothesis test that compares two independent population proportions, the following characteristics should be present:

  1. The two independent samples are random samples that are independent.
  2. The number of successes is at least five, and the number of failures is at least five, for each of the samples.
  3. Growing literature states that the population must be at least ten or even perhaps 20 times the size of the sample. This keeps each population from being over-sampled and causing biased results.

Comparing two proportions, like comparing two means, is common. If two estimated proportions are different, it may be due to a difference in the populations or it may be due to chance in the sampling. A hypothesis test can help determine if a difference in the estimated proportions reflects a difference in the two population proportions.

Like the case of differences in sample means, we construct a sampling distribution for differences in sample proportions: (pA'-pB')(pA'-pB')where p A ' = X A n A p A ' = X A n A and p B ' = X B n B p B ' = X B n B are the sample proportions for the two sets of data in question. XA and XB are the number of successes in each sample group respectively, and nA and nB are the respective sample sizes from the two groups. Again we go the Central Limit theorem to find the distribution of this sampling distribution for the differences in sample proportions. And again we find that this sampling distribution, like the ones past, are normally distributed as proved by the Central Limit Theorem, as seen in Figure 10.5 .

Figure 10.5

Generally, the null hypothesis allows for the test of a difference of a particular value, 𝛿0, just as we did for the case of differences in means.

H0 : p1 p2 = 𝛿0 H0:p1p2=𝛿0
H1 : p1 p2 𝛿0 H1:p1p2𝛿0

Most common, however, is the test that the two proportions are the same. That is,

H 0 : p A = p B H 0 : p A = p B
H a : p A p B H a : p A p B

To conduct the test, we use a pooled proportion, pc.

The pooled proportion is calculated as follows:
p c = x A + x B n A + n B p c = x A + x B n A + n B


The test statistic (z-score) is:
Zc = ( p A p B ) δ0 p c (1 p c )( 1 n A + 1 n B ) Zc= ( p A p B ) δ0 p c (1 p c )( 1 n A + 1 n B )

where δ0 is the hypothesized differences between the two proportions and pc is the pooled variance from the formula above.

Example 10.6

A bank has recently acquired a new branch and thus has customers in this new territory. They are interested in the default rate in their new territory. They wish to test the hypothesis that the default rate is different from their current customer base. They sample 200 files in area A, their current customers, and find that 20 have defaulted. In area B, the new customers, another sample of 200 files shows 12 have defaulted on their loans. At a 10% level of significance can we say that the default rates are the same or different?

Solution 10.6

This is a test of proportions. We know this because the underlying random variable is binary, default or not default. Further, we know it is a test of differences in proportions because we have two sample groups, the current customer base and the newly acquired customer base. Let A and B be the subscripts for the two customer groups. Then pA and pB are the two population proportions we wish to test.

Random Variable:P′AP′B = difference in the proportions of customers who defaulted in the two groups.

H0:pA=pBH0:pA=pB

Ha:pApBHa:pApB

The words "is a difference" tell you the test is two-tailed.

Distribution for the test: Since this is a test of two binomial population proportions, the distribution is normal:

p c = x A + x B n A + n B = 20+12 200+200 =0.081 p c =0.92 p c = x A + x B n A + n B = 20+12 200+200 =0.081 p c =0.92

(p′Ap′B) = 0.04 follows an approximate normal distribution.

Estimated proportion for group A: p A = x A n A = 20 200 =0.1 p A = x A n A = 20 200 =0.1

Estimated proportion for group B: p B = x B n B = 12 200 =0.06 p B = x B n B = 12 200 =0.06

The estimated difference between the two groups is : p′Ap′B = 0.1 – 0.06 = 0.04.

Normal distribution curve of the difference in the percentages of adult patients who don't react to medication A and B after 30 minutes. The mean is equal to zero, and the values -0.04, 0, and 0.04 are labeled on the horizontal axis. Two vertical lines extend from -0.04 and 0.04 to the curve. The region to the left of -0.04 and the region to the right of 0.04 are each shaded to represent 1/2(p-value) = 0.0702.
Figure 10.6
Zc = (P′AP′B)δ0 Pc(1Pc) (1nA+1nB) = 0.54 Zc= (P′AP′B)δ0 Pc(1Pc) (1nA+1nB) =0.54

The calculated test statistic is .54 and is not in the tail of the distribution.

Make a decision: Since the calculate test statistic is not in the tail of the distribution we cannot reject H0.

Conclusion: At a 1% level of significance, from the sample data, there is not sufficient evidence to conclude that there is a difference between the proportions of customers who defaulted in the two groups.

Try It 10.6

Two types of valves are being tested to determine if there is a difference in pressure tolerances. Fifteen out of a random sample of 100 of Valve A cracked under 4,500 psi. Six out of a random sample of 100 of Valve B cracked under 4,500 psi. Test at a 5% level of significance.

Citation/Attribution

Want to cite, share, or modify this book? This book is Creative Commons Attribution License 4.0 and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/introductory-business-statistics/pages/1-introduction
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/introductory-business-statistics/pages/1-introduction
Citation information

© Nov 29, 2017 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License 4.0 license. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.