• Complete Case 4.1Simpsons Paradox. Write a summary analysis of the problems and answers

Suppose that the population is the set of managers in a large company. We categorize the managers as those with an MBA degree (theBs) and those without an MBA degree (theBs). These categories are the two "treatment" groups. We also categorize the managers as those who were hired directly out of school by this company (theCs) and those who worked with another company first (theCs). These two categories form the two "subpopulations." Finally, we use as a measure

of effectiveness those managers who have been promoted within the past year (theAs).

Joan Seymour, the head of personnel at this company, is trying to understand these figures. From the probabilities in Equation (4.12), she

sees that among the subpopulation of workers hired directly out of school, those with an MBA degree are twice as likely to be promoted as

those without an MBA degree. Similarly, from the probabilities in Equation (4.13), she sees that among the subpopulation of workers hired after working with another company, those with an MBA degree arealmosttwice as likely to be promoted as thosewithout an MBA degree. The information provided by the probabilities in Equation (4.14) is somewhat different. From these, she sees that employees with MBA degrees are three times as likely as those without MBA degrees to have been hired directly out of school.

P1A0B2=0.125, P1A0B2=0.155(4.15)In words, those employeeswithoutMBA degrees

P1A0BandC2=0.10,P1A0BandC2=0.05P1A0BandC2=0.35,P1A0BandC2=0.20

P1C0B2=0.90,P1C0B2=0.30(4.14)

Joan can hardly believe it when a whiz-kid analyst uses these probabilities to showcorrectlythat

Assume the following conditional probabilities are given:

Each of these can be interpreted as a proportion. For example, the probabilityP1A|B and C2implies that 10% of all managers who have an MBA degree and

(4.12) (4.13)

are more likely to be promoted than those with MBA degrees.This appears to go directly against the evidence in Equations (4.12) and (4.13), both of which imply that MBAs have an advantage in being promoted. Can you derive the probabilities in Equation (4.15)? Can you shed any light on this "paradox"?

Reference:

S Christian Albright, & Winston, W. L. (2020). Business analytics : data analysis and decision making. Boston, Ma: Cengage.