Question

(b) Two hundred trials of a simulation were performed to see if the differences in the two mean asking prices

(friend-stranger) would happen only due to chance variation in random assignment, assuming that whether or
not you were selling to a friend or a stranger didn't matter in determining the asking price.
Difference in Mean Asking Price (Friend - Stranger)
-10
-
400
10
Difference
Use the results of the simulation above to determine if the difference in mean asking prices between selling to a
friend and selling to a stranger is statistically significant. Explain your reasoning.

Answer 1

The significance of the difference in mean asking prices in a sale to a friend versus a stranger is assessed by comparing the observed difference to the distribution of differences obtained from simulation trials. If the observed difference is outside the cluster of simulated differences, it may be considered statistically significant.

Step-by-step explanation:

To determine if the difference in mean asking prices between selling to a friend and selling to a stranger is statistically significant, we need to look at the results of the 200 trials of a simulation. If most of the simulated differences cluster around zero and the actual observed difference is within this cluster, we may conclude that the difference could be due to chance variation.

Alternatively, if the observed difference lies outside the range of most simulated differences, it might suggest that the difference is not due to chance and hence is statistically significant. Typically, we establish a level of significance (often 5%), and if the probability (p-value) of observing a difference as extreme as the actual difference under the null hypothesis is less than this level, we reject the null hypothesis and consider the result statistically significant.