146 13 opportunity_cost online
TRANSCRIPT
MATH& 146
Lesson 13
Section 2.2
Randomization Case Study:
Opportunity Cost
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Opportunity Cost
How rational and consistent is the behavior of the
typical American college student?
For this case study, we'll explore whether college
student consumers always consider an obvious
fact: money not spent now can be spent later.
In particular, we are interested in whether or not
reminding students about this well-known fact
about money causes them to be a little thriftier.
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Opportunity Cost
There are two main possible conclusions from a
study like this:
1) Reminding students had no observable impact
on their spending decisions. Any results we
might see from the study was likely random
chance alone.
2) Reminding students caused them to be thriftier.
The results we see from the study was large
enough that chance alone cannot explain it.
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Opportunity Cost
We can summarize these two perspectives using the
null and alternative hypothesis framework.
H0: Null hypothesis. Reminding students that they
can save money for later purchases will not have any
impact on students' spending decisions. This would
be the skeptic's position.
HA: Alternative hypothesis. Reminding students that
they can save money for later purchases will reduce
the chance they will continue with a purchase. This
would be the researcher's position.
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The Study
150 students were recruited, and each was given the
following statement:
Imagine that you have been saving some extra money on the
side to make some purchases, and on your most recent visit
to the video store you come across a special sale on a new
video. This video is one with your favorite actor or actress,
and your favorite type of movie (such as a comedy, drama,
thriller, etc.). This particular video that you are considering is
one you have been thinking about buying for a long time. It is
available for a special sale price of $14.99.
What would you do in this situation? Please circle one of the
options below.
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The Study
Half of the 150 students were randomized into a
control group and were given the following two
options:
(A) Buy this entertaining video.
(B) Not buy this entertaining video.
The remaining 75 students were placed in the
treatment group, and they saw a slightly modified
option (B):
(A) Buy this entertaining video.
(B) Not buy this entertaining video. Keep the $14.99 for other
purchases.6
The Study
Would the extra statement reminding students of an
obvious fact impact the purchasing decision? The
table below summarizes the study results.
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decision
buy DVD not buy DVD Total
control group 56 19 75
treatment group 41 34 75
Total 97 53 150
The Study
It might be a little easier to review the results using row
proportions, specifically considering the proportion of
participants in each group who said they would buy or
not buy the DVD. These summaries are given below.
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decision
buy DVD not buy DVD Total
control group 0.747 0.253 1.000
treatment group 0.547 0.453 1.000
Total 0.647 0.353 1.000
The Study
We will define a success in this study as a student
who chooses not to buy the DVD. Then, the value
of interest is the change in DVD purchase rates
that results by reminding students that not
spending money now means they can spend the
money later.
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decision
buy DVD not buy DVD Total
control group 0.747 0.253 1.000
treatment group 0.547 0.453 1.000
Total 0.647 0.353 1.000
The Study
We can construct a point estimate for this
difference as
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decision
buy DVD not buy DVD Total
control group 0.747 0.253 1.000
treatment group 0.547 0.453 1.000
Total 0.647 0.353 1.000
34 19ˆ ˆ 0.453 0.253 0.200
75 75trmt ctrlp p
The Study
The proportion of students who chose not to buy
the DVD was 20% higher in the treatment group
than the control group. The question we should be
asking is whether this result is statistically
significant?
In other words, is a 20% difference between the
two groups so prominent that it is unlikely to have
occurred from chance alone?
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Results From Chance Alone
The primary goal in this data analysis is to
understand what sort of differences we might see if
the null hypothesis were true: that the treatment
had no effect on students.
To achieve this, we will use the same
randomization procedure we applied before, with
the gender discrimination case study.
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Results From Chance Alone
If the null hypothesis (H0) was true and the
treatment had no impact on student decisions,
then the observed difference between the two
groups of 20% could be attributed entirely to
chance.
If, on the other hand, the alternative hypothesis
(HA) is true, then the difference indicates that
reminding students about saving for later
purchases actually impacts their buying decisions.
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Results From Chance Alone
While we would in reality do this simulation on a
computer, it might be useful to think about how we
would go about carrying out the simulation without
a computer.
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decision
buy DVD not buy DVD Total
control group 75
treatment group 75
Total 97 53 150
Results From Chance Alone
We start with 150 index cards and label each card
to indicate the treatment and control groups. That
is, 75 cards will be labeled "treatment" and 75 will
be labeled "control."
15
decision
buy DVD not buy DVD Total
control group 75
treatment group 75
Total 97 53 150
Results From Chance Alone
Then we shuffle these cards thoroughly and deal
out 53 cards, representing the simulated decision
to not buy the DVD. Any observed difference
between the proportions not buying the DVD
(what we earlier defined as success) can be
attributed entirely to chance.
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decision
buy DVD not buy DVD Total
control group 75
treatment group 75
Total 97 53 150
Example 1
If we are randomly assigning the cards into the
simulated treatment and control groups, how many
"not buy DVD" cards would we expect to end up
with in each simulated group? What would be the
expected difference between the proportions of
"not buy DVD" cards in each group?
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decision
buy DVD not buy DVD Total
control group 75
treatment group 75
Total 97 53 150
Results From Chance Alone
The results of one randomization from chance
alone is shown below. From this table, we can
compute a difference that occurred from chance
alone:
18
decision
buy DVD not buy DVD Total
control group 46 29 75
treatment group 51 24 75
Total 97 53 150
, ,
24 29ˆ ˆ 0.32 0.387 0.067
75 75trmt simulated ctrl simulatedp p
Results From Chance Alone
Just one simulation will not be enough to get a
sense of what sorts of differences would happen
from chance alone.
We'll simulate another set of groups and compute
the new difference: 0.013.
And again: 0.067.
And again: –0.173.
We'll do this 1,000 times.
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Results From Chance Alone
The results are summarized in a dot plot below,
where each point represents a simulation.
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Results From Chance Alone
Since there are so many points, it is more
convenient to summarize the results in a
histogram, where the height of each histogram bar
represents the fraction of observations in that
group.
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Results From Chance Alone
If there was no treatment effect, then we'd only
observe a difference of at least +20% about 0.6%
of the time, or about 1-in-150 times. That is really
rare!
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Results From Chance Alone
We will conclude the data provide strong evidence
there is a treatment effect: reminding students
before a purchase that they could instead spend
the money later on something else lowers the
chance that they will continue with the purchase.
Notice that we are able to make a causal
statement for this study since the study is an
experiment with random assignment.
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