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# Quantitative Analysis

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• Classical approach revolve around examining the probability of data, given a specific hypothesis. Bayesian approach revolve around examining the probability of various hypotheses, given the data.
• Well, I hope this has been informative and has helped you decide whether you want to consider quantitative analysis in your research projects. I’ll take any final questions or comments. Thank you.
• ### Quantitative Analysis

1. 1. Jee Hwang, PhD Candidate in Economics December 1, 2012
2. 2. The use of methods or techniquesthat employ numerical data for thepurpose of investigating andunderstanding patterns of behavioror natural phenomena.
3. 3.  Objective, i.e. results tend to be independent from researcher bias. Provides numerical representations of behavior or phenomena being studied Emphasis on consistency (and efficiency) of results and not its validity Statistical probabilities are at the core of most(if not all) formal analyses
4. 4.  Examining central tendency and general patterns in data  Moments (e.g. mean, variance)  Quantiles (e.g. 50 percentile or median)  Correlations (degree of association)  Histograms (distribution of variable)  Plots (e.g. scatter, connected lines, time plots)
5. 5.  Examining differences between 2 or more groups  Student t test (difference in mean values)  Mann-Whitney U test (difference in median values)  Chi-Squared test (difference in proportions)  ANOVA (>2 groups, 1 variable)  ANCOVA (ANOVA with covariates)  MANOVA (>2 groups, 2 or more variables)  MANCOVA (MANOVA with covariates)  Bayesian approaches (the first three above are classical or “frequentist” approaches. The remaining four can be used in both Bayesian and classical contexts)
6. 6.  Exploring relationships  Cluster Analysis (forms groups using a set of attributes)  Principal Component Analysis (identify patterns in data with many dimensions, e.g. facial recognition)  Factor Analysis (models the observed variables using its relation to unobserved/latent factors, e.g. intelligence, health)  Canonical Correlation (uses correlations between variables to derive linear combos, e.g. responses from two different personality tests)  Finite Mixture Models (regression based cluster analysis, e.g. identify and explain the behavior of the “sickly” vs. “healthy” amongst health care users)
7. 7.  Testing a priori relationships and making predictions  Method of Least Squares (minimize the sum of squared residuals)  Maximum Likelihood Estimation (maximize the likelihood function) The above are common techniques for conducting regression analyses
8. 8.  Types of data  Nominal (e.g. gender, occupation, ethnicity/race)  Dichotomous (e.g. Yes/No responses, gender)  Ordinal (e.g. income range, education, level of satisfaction)  Integer/count (e.g. visitation to park, class absences, number of natural disasters, accidents, and other events/outcome data)  Continuous (e.g. age, height, weight)
9. 9.  Types of data sets  Cross-sectional (many individuals or events in a single time period)  Time series (one individual or event across many time periods)  Panel (many individuals or events across many time periods)
10. 10.  Formulate a specific question that you want answered (e.g. “What are the monetary benefits from advanced degrees?”) Identify the variables you need to conduct an investigation (wage, education, experience, other factors) Formulate a model with the variables that can be used to help answer your question, e.g.wage = f(education, experience, other factors)
11. 11.  Formulate a hypothesis  Hypothesis: wage and education share a positive relationship, i.e. benefits are positive. Use QA methods to test hypothesis  In classical inference, the statistical or “null” hypothesis being tested is: ‘no relationship’, against the alternative hypothesis: ‘positive relationship’ using p- values as a reference  In Bayesian inference, the ‘positive relationship’ hypothesis is tested directly against other hypotheses by evaluating its relative likelihood.
12. 12. Descriptive Statistics of Hourly Wage by EducationHighest Level of Education OBS Mean Std. Dev. Median Min MaxNO HIGH SCHOOL DEGREE 3752 11.18 6.05 9.75 0.13 76.04HIGH SCHOOL DIPLOMA 12846 15.23 8.79 13.02 0.00 90.00SOME COLLEGE BUT NO DEGREE 8518 16.20 10.14 13.50 0.00 89.00ASSOCIATES DEGREE(OCCUP/VOC) 2305 18.43 9.61 16.34 0.59 76.04ASSOCIATES DEGREE(ACADEMIC) 2224 18.92 10.49 16.42 0.03 95.00BACHELORS DEGREE 8876 26.28 15.71 22.20 0.00 99.00MASTERS DEGREE 3343 31.60 16.94 27.87 0.00 104.39PROFFESSIONAL DEGREE 657 41.43 22.17 36.99 2.20 95.96DOCTORATES DEGREE 615 39.79 19.11 36.73 0.06 89.00TOTAL 43136 19.72 13.80 15.46 0.00 104.39Compiled using data from the October Current Population Survey (2005 to 2007) Not everyone in this sample were employed
13. 13. Graphs help you visualize relationships 25 20Hourly Wage 15 10 Note: Experience = age — yrs. of schooling —6 5 0 5 10 15 20 25 30 35 40 45 50 55 60 Experience 95% CI Fitted values
14. 14. Regression Results: Wage = f(experience, education) from Least Squares regression Source SS df MS Number of obs = 43136 F( 10, 43125)= 1866.93 Model 2481252.4 10 248125.24 Prob > F= 0.000 Residual 5731550.5 43125 132.905519 R-squared= 0.3021 Adj R-squared= 0.302 Total 8212802.9 43135 190.397656 Root MSE= 11.528 WAGE Coef. Std. Error t-Statistic [95% Conf. Interval] Shows allExperience EXPRNCE 0.900 0.0208 43.26 0.859 0.941variables (age- EXPRNCE_SQ -0.013 0.0004 -34.13 -0.014 -0.012 coefficientsy.o.s.-6) HS DIPLOMA 3.772 0.2140 17.63 3.352 4.191 are significant SOME COLLEGE 5.825 0.2264 25.73 5.381 6.269 (p-value<0.01) ASS DEG(OCCUP) 6.785 0.3054 22.21 6.186 7.384Education ASS DEG(ACADEMIC) 7.228 0.3088 23.41 6.622 7.833variables (NOHS DEGREE is BACH DEGREE 15.168 0.2252 67.34 14.727 15.610reference) MASTER DEGREE 19.908 0.2749 72.42 19.369 20.446 PROF DEGREE 30.475 0.4881 62.43 29.518 31.432 DOCT DEGREE 28.246 0.5019 56.27 27.262 29.229 Constant -1.509 0.3059 -4.93 -2.109 -0.910These can be viewed as the partialeffects on wage from a unit changein an independent variable.
15. 15.  Based on the results, an individual would receive (on average) an additional: • \$19.91/hr for a master’s degree • \$28.25/hr for a doctoral degree • \$30.48/hr for a professional degreecompared to someone who does nothave a high school degree, i.e. benefits are positive. We should be cautious in taking the results too seriously since we ignored “other factors” such as occupation and gender, which have been shown in previous studies to also affect wages, i.e. results may be sensitive to model specification
16. 16.  When transforming variables in your data, be aware of the mathematical consequences of:  Taking logarithm of zero or negative values  Dividing by zero values  Taking the square root of negative values The above appear as missing values when attempted with most statistical packages. Try rescaling variables when possible
17. 17.  Check the validity of your results using common sense or findings from similar studies. This may be harder to do when conducting exploratory analysis. Using Qualitative Analysis in tandem can help in choosing the best approach and translating the results into information that can be applied in the real word, e.g. public policy. Unfortunately, formal mixing of the two is not yet common at advanced levels perhaps because both methods require a certain degree of training.
18. 18.  One approach to help us decide is to evaluate what kind of return we could expect from the \$2 investment given the overall odds of winning one of the nine possible prizes (1 in 31.8 or about 3%). For simplicity, let’s assume that there are no other participants which would effect our expected return. In general the expected return from participating can be expressed as:Expected Return = Pr(win)*(prize minus cost) + (1 − Pr(win))*(zero minus cost) = Gain(win) + Loss(not win)If Expected Return greater than zero (>0), then play; ifless than or equal to zero (≤0), then don’t play.
19. 19.  Gain(win) can be found by taking the weighted sum of all prizes less the \$2 cost, i.e. each prize minus \$2 times the probability of winning the particular prize all added together.Gain(win) = (1/175,223,510)*(\$40 mil − \$2) + (1/5,153,633)*(\$1 mil − \$2) + (1/648,976)*(\$10K − \$2) + (1/19,088)*(\$100 − \$2) + (1/12,245)*(\$100 − \$2) + (1/360)*(\$7 − \$2) + (1/706)*(\$7 − \$2) + (1/111)*(\$4 − \$2) + (1/55)*(\$4 − \$2) = \$0.53
20. 20.  Loss(not win) is simply .97*(\$0 − \$2) = − \$1.94, i.e. the 97% chance you will not win times the loss of \$2.Your expected return is therefore:Expected Return = \$0.53 − \$1.94 = − \$1.41 (<0)So in the long run, you can expect to lose \$1.41 fromplaying this lottery and therefore, you should not play.If the secondary prizes are fixed, how large does the jackpot needto be in order for this lottery to be worth playing?Answer: more than \$287,728,678
21. 21. An example using STATA®(see supplementary documents)
22. 22. 8 8 6 5Frequency 4 2 2 22 22 2 2 1 1 1 1 1 1 1 0 0 20 40 60 Acc