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IAI Actuarial Core Principles · Actuarial Statistics · Hypothesis testing and goodness of fit

In a chi-squared test of independence on a 3×3 table, several expected frequencies are below 5. Which action is the standard remedy?

Combine adjacent categories so that expected frequencies reach about 5 or more. The chi-squared approximation is unreliable with small expected counts, and merging categories restores validity, whereas the other options have no statistical basis.

  1. ACombine adjacent categories so that expected frequencies are at least 5Correct
  2. BIncrease the degrees of freedom to 9
  3. CUse the t-test for the difference of means instead
  4. DApply a Yates continuity correction to every cell
  5. Multiply the statistic by the number of small cells

Explanation

The chi-squared approximation is poor when expected counts are small, so categories are merged (where sensible) to lift expected counts to about 5 or more. Yates correction applies to 2×2 tables only, and the other choices have no justification.

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