Anderson PPT Ch03

Statistics for Business and Economics (14e, Metric Version)
Statistics for
Business and Economics (14e)
Metric Version
Anderson, Sweeney, Williams, Camm, Cochran, Fry, Ohlmann
© 2020 Cengage Learning
© 2020 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use. 1
Chapter 3 - Descriptive Statistics: Numerical Measures

3.1 - Measures of Location
3.2 - Measures of Variability
3.3 - Measures of Distribution Shape, Relative Location, and Detecting Outliers
3.4 - Five-Number Summaries and Box Plots
3.5 - Measures of Association Between Two Variables
3.6 - Data Dashboards: Adding Numerical Measures to Improve Effectiveness
© 2020 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a 2
password-protected website or school-approved learning management system for classroom use.
Numerical Measures
• If the measures are computed for data from a sample, they are called sample
statistics.
• If the measures are computed for data from a population, they are called
population parameters.
• A sample statistic is referred to as the point estimator of the corresponding
population parameter.
Measures of Location
• Mean
• Median
• Mode
• Weighted Mean
• Geometric Mean
• Percentiles
• Quartiles
Mean
• Perhaps the most important measure of location is the mean.
• The mean provides a measure of central location.
• The mean of a data set is the average of all the data values.
• The sample mean 𝑥ҧ is the point estimator of the population mean, 𝜇.
Sample Mean 𝑥ҧ
Seventy efficiency apartments were randomly sampled in a college town. The
monthly rents for these apartments are listed below.
• 525 • 540 • 550 • 572 • 590 • 635 • 700 • 540 • 550
• 540 • 550 • 570 • 590 • 625 • 700 • 535 • 550 • 565
• 550 • 570 • 590 • 625 • 700 • 535 • 545 • 565 • 580
• 565 • 585 • 625 • 690 • 535 • 545 • 560 • 580 • 610
• 580 • 615 • 680 • 535 • 545 • 560 • 580 • 600 • 670
• 610 • 675 • 535 • 545 • 560 • 575 • 600 • 670 • 715
• 675 • 530 • 545 • 550 • 575 • 600 • 650 • 715
• 530 • 540 • 550 • 575 • 600 • 649 • 700 • 540
Median (1 of 4)
• The median of a data set is the value in the middle when the data items are
arranged in ascending order.
• Whenever a data set has extreme values, the median is the preferred measure of
central location.
• The median is the measure of location most often reported for annual income
and property value data.
• A few extremely large incomes or property values can inflate the mean.
Median (2 of 4)
Here we have an odd number of observations:
7 observations: 26, 18, 27, 12, 14, 27, and 19.
Rewritten in ascending order: 12, 14, 18, 19, 26, 27, and 27.
The median is the middle value in this list, so the median = 19.
Median (3 of 4)
Here we have an even number of observations:
8 observations: 26, 18, 27, 12, 14, 27, 19, and 30.
Rewritten in ascending order: 12, 14, 18, 19, 26, 27, 27, and 30.
The median is the average of the two middle values in this list, so the median = (19
+ 26)/2 = 22.5.
Median (4 of 4)
Example: Apartment Rents
Notice that there are 70 values provided which are in ascending order.
Averaging the 35th and 36th values: Median (575 + 575)/2 = 575.
• 525 • 530 • 530 • 535 • 535 • 535 • 535 • 535 • 540 • 540
• 540 • 540 • 540 • 545 • 545 • 545 • 545 • 545 • 550 • 550
• 550 • 550 • 550 • 550 • 550 • 560 • 560 • 560 • 565 • 565
• 565 • 570 • 570 • 572 • 575 • 575 • 575 • 580 • 580 • 580
• 580 • 585 • 590 • 590 • 590 • 600 • 600 • 600 • 600 • 610
• 610 • 615 • 625 • 625 • 625 • 635 • 649 • 650 • 670 • 670
• 675 • 675 • 680 • 690 • 700 • 700 • 700 • 700 • 715 • 715
Mode
• The mode of a data set is the value that occurs with greatest frequency.
• The greatest frequency can occur at two or more different values.
• If the data have exactly two modes, the data are bimodal.
• If the data have more than two modes, the data are multimodal.
The mode is 550.
Weighted Mean (1 of 3)
• In some instances, the mean is computed by giving each observation a weight that
reflects its relative importance.
• The choice of weights depends on the application.
• The weights might be the number of credit hours earned for each grade, as in GPA.
• In other weighted mean computations, quantities such as kilograms, dollars, or
volume are frequently used.
Ron Butler, a home builder, is looking over the expenses he incurred for a house he
just built. For the purpose of pricing future projects, he would like to know the
average wage ($/hour) he paid the workers he employed. Listed below are the
categories of workers he employed, along with their respective wage and total
hours worked.
Worker Wage ($/hr) Total Hours
Carpenter 21.60 520
Electrician 28.72 230
Laborer 11.80 410
Painter 19.75 270
Plumber 24.16 160
Example: Construction Wages
Worker X subscript i W subscript i W subscript i baseline X

baseline baseline subscript i baseline
Carpenter 21.60 520 11,232.0

Electrician 28.72 230 6,605.6
Laborer 11.80 410 4,838.0
Painter 19.75 270 5,332.5
Plumber 24.16 160 3,865.6
EMPTY CELL EMPTY CELL
1,590 31,873.7
FYI, the equally-weighted (simple) mean = $21.21
Geometric Mean (1 of 2)
• The geometric mean is calculated by finding the nth root of the product of n
values.
• It is often used in analyzing growth rates in financial data (where using the
arithmetic mean will provide misleading results).
• It should be applied anytime you want to determine the mean rate of change
over several successive periods (be it years, quarters, weeks, . . .).
• Other common applications include: changes in populations of species, crop
yields, pollution levels, and birth and death rates.
Geometric Mean (2 of 2)
Example: Rate of Return
Period Return in percentage Growth Factor

1 Negative 6.0 0.940
4 2.0 1.020
5 5.4 1.054
The average growth rate per period is (0.97752 – 1)(100) = –2.248%.
Percentiles
• A percentile provides information about how the data are spread over the
interval from the smallest value to the largest value.
• Admission test scores for colleges and universities are frequently reported in
terms of percentiles.
• The 𝑝th percentile of a data set is a value such that at least p percent of the items
take on this value or less and at least (100 – 𝑝) percent of the items take on this
value or more.
• Arrange the data in ascending order.
• Compute 𝐿𝑝 , the location of the 𝑝th percentile.
80th Percentile
The 80th percentile is the 56th value plus 0.8 times the difference between the 57th and 56th
values.
So the 80th percentile = 635 + 0.8(649 – 635) = 646.2.
• 525 • 530 • 530 • 535 • 535 • 535 • 535 • 535 • 540 • 540
• 540 • 540 • 540 • 545 • 545 • 545 • 545 • 545 • 550 • 550
• 550 • 550 • 550 • 550 • 550 • 560 • 560 • 560 • 565 • 565
• 565 • 570 • 570 • 572 • 575 • 575 • 575 • 580 • 580 • 580
• 580 • 585 • 590 • 590 • 590 • 600 • 600 • 600 • 600 • 610
• 610 • 615 • 625 • 625 • 625 • 635 • 649 • 650 • 670 • 670
• 675 • 675 • 680 • 690 • 700 • 700 • 700 • 700 • 715 • 715
80th Percentile, Part 2

“At least 80% of the “At least 20% of the

items take on a items take on a
value of 646.2 or less.” value of 646.2 or more.”
• 525 • 530 • 530 • 535 • 535 • 535 • 535 • 535 • 540 • 540
• 540 • 540 • 540 • 545 • 545 • 545 • 545 • 545 • 550 • 550
• 550 • 550 • 550 • 550 • 550 • 560 • 560 • 560 • 565 • 565
• 565 • 570 • 570 • 572 • 575 • 575 • 575 • 580 • 580 • 580
• 580 • 585 • 590 • 590 • 590 • 600 • 600 • 600 • 600 • 610
• 610 • 615 • 625 • 625 • 625 • 635 • 649 • 650 • 670 • 670
• 675 • 675 • 680 • 690 • 700 • 700 • 700 • 700 • 715 • 715
Quartiles
Quartiles are specific percentiles.
1. First Quartile = 25th Percentile
2. Second Quartile = 50th Percentile = Median
3. Third Quartile = 75th Percentile
Third Quartile (75th Percentile)

The 75th percentile is the 53rd value plus 0.25 times the difference between
the 54th and 53rd values.
The 75th percentile = third quartile = 625 + 0.25(625 – 625) = 625.
• 525 • 530 • 530 • 535 • 535 • 535 • 535 • 535 • 540 • 540
• 540 • 540 • 540 • 545 • 545 • 545 • 545 • 545 • 550 • 550
• 550 • 550 • 550 • 550 • 550 • 560 • 560 • 560 • 565 • 565
• 565 • 570 • 570 • 572 • 575 • 575 • 575 • 580 • 580 • 580
• 580 • 585 • 590 • 590 • 590 • 600 • 600 • 600 • 600 • 610
• 610 • 615 • 625 • 625 • 625 • 635 • 649 • 650 • 670 • 670
• 675 • 675 • 680 • 690 • 700 • 700 • 700 • 700 • 715 • 715
Measures of Variability
• It is often desirable to consider measures of variability (dispersion), as well as
measures of location.
• For example, in choosing supplier A or supplier B we might consider not only the
average delivery time for each, but also the variability in delivery time for each.
• Common measures of variability are:
• Range
• Interquartile Range
• Variance
• Standard Deviation
• Coefficient of Variation
Range
• The range of a data set is the difference between the largest
and smallest data value.
• It is the simplest measure of variability.
• It is very sensitive to the smallest and largest data values.
Range = largest value – smallest value = 715 – 525 = 190.
• 525 • 530 • 530 • 535 • 535 • 535 • 535 • 535 • 540 • 540
• 540 • 540 • 540 • 545 • 545 • 545 • 545 • 545 • 550 • 550
• 550 • 550 • 550 • 550 • 550 • 560 • 560 • 560 • 565 • 565
• 565 • 570 • 570 • 572 • 575 • 575 • 575 • 580 • 580 • 580
• 580 • 585 • 590 • 590 • 590 • 600 • 600 • 600 • 600 • 610
• 610 • 615 • 625 • 625 • 625 • 635 • 649 • 650 • 670 • 670
• 675 • 675 • 680 • 690 • 700 • 700 • 700 • 700 • 715 • 715
Interquartile Range (IQR)

• The interquartile range of a data set is the difference between the third quartile
and the first quartile.
• It is the range for the middle 50% of the data.
• It overcomes the sensitivity to extreme data values.
3rd Quartile (Q3) = 625

1st Quartile (Q1) = 545
IQR = 625 – 545 = 80
Variance
• The variance is a measure of variability that utilizes all the data.
• It is based on the difference between the value of each observation (xi) and the
mean (𝑥ҧ for a sample, m for a population).
• The variance is useful in comparing the variability of two or more variables.
• The variance is the average of the squared deviations between each data value
and the mean.
• The variance of a sample is:
• The variance for a population is:
Standard Deviation
• The standard deviation of a data set is the positive square root of the variance.
• It is measured in the same units as the data, making it more easily interpreted than
the variance.
• The standard deviation of a sample is:
• The standard deviation of a population is:
Coefficient of Variation
• The coefficient of variation indicates how large the standard deviation is in
relation to the mean.
• The coefficient of variation of a sample is:
• The coefficient of variation of a population is:
Sample Variance, Standard Deviation, and Coefficient of Variation

• The variance is:
• The standard deviation is:
• The coefficient of variation is:
Measures of Distribution Shape, Relative Location, and

Detecting Outliers
• Distribution Shape
• z-Scores
• Chebyshev’s Theorem
• Empirical Rule
• Detecting Outliers
Distribution Shape: Skewness (1 of 2)

• An important numerical measure of the shape of a distribution is called
skewness.
• The formula for the skewness of sample data is
• Skewness can be easily computed using statistical software.
Distribution Shape: Skewness (2 of 2)

Highly Skewed Right
Moderately Skewed Left Symmetric (not skewed) Skewness is positive
Skewness is negative. Skewness is zero. (often above 1.0)
Mean will usually be Mean and median are Mean will usually be
less than the median. equal.
more than the median.
z-Scores (1 of 2)
• The z-score is often called the standardized value.
• It denotes the number of standard deviations a data value x i is from the mean.
• An observation’s z-score is a measure of the relative location of the observation in a data set.
• A data value less than the sample mean will have a z-score less than zero.
• A data value greater than the sample mean will have a z-score greater than zero.
• A data value equal to the sample mean will have a z-score of zero.
z-Scores (2 of 2)
z-Score of Smallest Value (525)
Standardized Values for Apartment Rents
• -120 • -1.02 • -0.84 • -0.75 • -0.47 • -0.29 • -0.01 • 0.35 • 1.06 • 1.81
(circled)
• -1.11 • -0.93 • -0.84 • -0.75 • -0.47 • -0.29 • -0.01 • 0.35 • 1.08 • 1.99
• -1.11 • -0.93 • -0.84 • -0.75 • -0.47 • -0.20 • -0.01 • 0.44 • 1.45 • 1.99
• -1.02 • -0.93 • -0.84 • -0.75 • -0.38 • -0.20 • 0.17 • 0.62 • 1.45 • 1.99
• -1.02 • -0.93 • -0.75 • -0.56 • -0.38 • -0.20 • 0.17 • 0.62 • 1.54 • 1.99
• -1.02 • -0.93 • -0.75 • -0.56 • -0.34 • -0.20 • 0.17 • 0.62 • 1.54 • 2.27
• -1.02 • -0.84 • -0.75 • -0.56 • -0.29 • -0.11 • 0.17 • 0.81 • 1.63 • 2.27
Chebyshev’s Theorem (1 of 2)
• At least (1 – 1/z2) of the data values must be within z standard deviations of the
mean, where z is any value greater than 1.
• Chebyshev’s theorem requires z > 1; but z need not be an integer.

• At least 75% of the data values must be within z = 2 standard deviations of the
mean.
mean.
mean.
Chebyshev’s Theorem (2 of 2)
Empirical Rule (1 of 2)
When the data are believed to approximate a bell-shaped distribution:
• The empirical rule can be used to determine the percentage of data values that must be
within a specified number of standard deviations of the mean.
• The empirical rule is based on the normal distribution, which is covered in Chapter 6.
For data having a bell-shaped distribution:

• Approximately 68% of the data values will be within one standard deviation of the mean.
• Approximately 95% of the data values will be within two standard deviations of the
mean.
• Almost all of the data values will be within three standard deviations of the mean.
© 2020 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
36
Empirical Rule (2 of 2)
Detecting Outliers (1 of 2)
• An outlier is an unusually small or unusually large value in a data set.
• A data value with a z-score less than –3 or greater than +3 might be considered
an outlier.
• It might be:
• an incorrectly recorded data value
• a data value that was incorrectly included in the data set
• a correctly recorded data value that belongs in the data set
Detecting Outliers (2 of 2)
• The most extreme z-scores are -1.20 and 2.27.
• Using |z| > 3 as the criterion for an outlier, there are no outliers in this data set.
Standardized Values for Apartment
Rents
• -120 • -1.02 • -0.84 • -0.75 • -0.47 • -0.29 • -0.01 • 0.35 • 1.06 • 1.81
(circled)
• -0.93 • -0.84 • -0.75 • -0.47 • -0.29 • -0.01 • 0.35 • 1.08 • 1.99
• -1.11
• -0.93 • -0.84 • -0.75 • -0.47 • -0.20 • -0.01 • 0.44 • 1.45 • 1.99
• -1.11
• -0.93 • -0.84 • -0.75 • -0.38 • -0.20 • 0.17 • 0.62 • 1.45 • 1.99
• -1.02
• -0.93 • -0.75 • -0.56 • -0.38 • -0.20 • 0.17 • 0.62 • 1.54 • 1.99
• -1.02
• -0.93 • -0.75 • -0.56 • -0.34 • -0.20 • 0.17 • 0.62 • 1.54 • 2.27
• -1.02
• -0.84 • -0.75 • -0.56 • -0.29 • -0.11 • 0.17 • 0.81 • 1.63 • 2.27
• -1.02 (circled)
Five-Number Summaries and Box Plots

• Summary statistics and easy-to-draw graphs can be used to quickly summarize
large quantities of data.
• Two tools that accomplish this are five-number summaries and box plots.
1. Smallest Value
2. First Quartile
3. Median
4. Third Quartile
5. Largest Value
Five-Number Summary

Lowest Value = 525 First Quartile = 545
Median = 575
Third Quartile = 625 Largest Value = 715
• 525 • 535 • 545 • 550 • 570 • 580 • 600 • 625 • 670 • 700
(circled)
• 540 • 545 • 550 • 570 • 580 • 600 • 625 • 675 • 700
• 530
• 540 • 545 • 560 • 572 • 580 • 600 • 625 • 675 • 715
• 530 (circled)
• 540 • 560 • 575 • 585 • 600 • 635 • 680 • 715
• 535 • 550 (circled) (circled) (circled)
• 540 • 560 • 590 • 610 • 649
• 535 • 550 • 575 • 690
• 545 • 565 (circled) • 590 • 610 • 650
• 535 • 550 • 700
• 545 • 565 • 575 • 590 • 615 • 670
• 535 • 550 • 700
Box Plot (1 of 3)
• A box plot is a graphical display of data that is based on a five-number summary.
• Box plots provide another way to identify outliers.
• A box is drawn with its ends located at the first and third quartiles.
• A vertical line is drawn in the box at the location of the median (second quartile).
Box Plot (2 of 3)
• Limits are located (not drawn) using the interquartile range (IQR).
• Data outside these limits are considered outliers.
• The location of each outlier is shown with the symbol * .
Box Plot (3 of 3)
• The lower limit is located 1.5(IQR) below Q1.
Lower Limit: Q1 – 1.5(IQR) = 545 – 1.5(80) = 425
• The upper limit is located 1.5(IQR) above Q3.

Upper Limit: Q3 + 1.5(IQR) = 625 + 1.5(80) = 745
• There are no outliers (values less than 425 or greater than 745) in the
apartment rent data.
Measures of Association Between Two Variables

• Thus far we have examined numerical methods used to summarize the data for
one variable at a time.
• Often a manager or decision maker is interested in the relationship between two
variables.
• Two descriptive measures of the relationship between two variables are
covariance and correlation coefficient.
n n
 i  i i → min
 2
i =1
= (Y − Y ) 2
i =1
n n
 T =   i2 =  [Yi − (  0 + 1 X i )]2 → min
i =1 i =1
  0 = Y − b1 X


n
  ( X i − X )(Yi − Y )
XY − X Y
 1 = =
i =1
n 2
X −X

2
 ( X − X ) 2

i
i =1
  0 = Y − b1 X
 Xi n
 XY − X Y X =
 1 = 2 2
i =1 n
 X −X
Covariance
• The covariance is a measure of the linear association between two variables.
• Positive values indicate a positive relationship.
• Negative values indicate a negative relationship.
• The covariance is computed as follows:
For samples:
For populations:
Correlation Coefficient (1 of 2)
• Correlation is a measure of linear association and not necessarily causation.
• Just because two variables are highly correlated, it does not mean that one
variable is the cause of the other.
• The correlation coefficient is computed as follows:
For samples:
For populations:
Correlation Coefficient (2 of 2)
• The coefficient can take on values between –1 and +1.
• Values near –1 indicate a strong negative linear relationship.
• Values near +1 indicate a strong positive linear relationship.
• The closer the correlation is to zero, the weaker the relationship.
Covariance and Correlation Coefficient (1 of 3)

A golfer is interested in investigating the relationship, if any, between driving
distance and 18-hole score.
Average Driving
Distance (yards) Average 18-Hole Score
277.6 69
259.5 71
269.1 70
267.0 70
255.6 71
272.9 69

Example: Golfing Study
X Y (x subscript i (y subscript i (x subscript i

baseline minus x baseline minus y baseline minus x
overbar) overbar) overbar)(y
subscript i baseline
minus y overbar)
277.6 69 10.65 Negative 1.0 Negative 10.65
259.5 71 Negative 7.45 1.0 Negative 7.45
269.1 70 2.15 0 0
267.0 70 0.05 0 0
255.6 71 Negative 11.35 1.0 Negative 11.35
272.9 69 5.95 Negative 1.0 Negative 5.95

Example: Golfing Study
• Sample Covariance:
• Sample Correlation Coefficient:
Data Dashboards: Adding Numerical Measures to Improve

Effectiveness (1 of 2)
• Data dashboards are not limited to graphical displays.
• The addition of numerical measures, such as the mean and standard deviation of
KPIs, to a data dashboard is often critical.
• Dashboards are often interactive.
• Drilling down refers to functionality in interactive dashboards that allows the user
to access information and analyses at an increasingly detailed level.
Data Dashboards: Adding Numerical Measures to Improve

Effectiveness (2 of 2)

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Statistics for Business and Economics (14e, Metric Version)

Chapter 3 - Descriptive Statistics: Numerical Measures

7 observations: 26, 18, 27, 12, 14, 27, and 19.

The mode is 550.

Electrician 28.72 230

Laborer 11.80 410

Painter 19.75 270

Plumber 24.16 160

Worker X subscript i W subscript i W subscript i baseline X

Carpenter 21.60 520 11,232.0

FYI, the equally-weighted (simple) mean = $21.21

Period Return in percentage Growth Factor

The average growth rate per period is (0.97752 – 1)(100) = –2.248%.

80th Percentile, Part 2

“At least 80% of the “At least 20% of the

Third Quartile (75th Percentile)

Interquartile Range (IQR)

3rd Quartile (Q3) = 625

IQR = 625 – 545 = 80

• The variance of a sample is:

• The variance for a population is:

• The standard deviation of a population is:

• The coefficient of variation of a population is:

Sample Variance, Standard Deviation, and Coefficient of Variation

Example: Apartment Rents

• The standard deviation is:

• The coefficient of variation is:

Measures of Distribution Shape, Relative Location, and

Distribution Shape: Skewness (1 of 2)

• Skewness can be easily computed using statistical software.

Distribution Shape: Skewness (2 of 2)

Standardized Values for Apartment Rents

• Chebyshev’s theorem requires z > 1; but z need not be an integer.

For data having a bell-shaped distribution:

Five-Number Summaries and Box Plots

Example: Apartment Rents

• The upper limit is located 1.5(IQR) above Q3.

Measures of Association Between Two Variables

Covariance and Correlation Coefficient (1 of 3)

Covariance and Correlation Coefficient (2 of 3)

X Y (x subscript i (y subscript i (x subscript i

Covariance and Correlation Coefficient (3 of 3)

• Sample Correlation Coefficient:

Data Dashboards: Adding Numerical Measures to Improve

Data Dashboards: Adding Numerical Measures to Improve

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