Basic Business Statistics

(9th Edition)

Chapter 3
Numerical Descriptive Measures

© 2004 Prentice-Hall, Inc. Chap 3-1

 Chapter Topics

 Measures of Central Tendency

 Mean, Median, Mode, Geometric Mean
 Quartiles
 Measures of Variation
 Range, Interquartile Range, Variance and Standard
Deviation, Coefficient of Variation
 The Empirical Rule and the Bienayme-
Chebyshev Rule

© 2004 Prentice-Hall, Inc. Chap 3-2

 Chapter Topics
(continued)

 Shape
 Symmetric, Skewed
 Using Box-and-Whisker Plots
 Coefficient of Correlation
 Pitfalls in Numerical Descriptive Measures and
Ethical Issues

© 2004 Prentice-Hall, Inc. Chap 3-3

 Summary Measures
Summary Measures

Central Tendency Quartiles Variation

Mean Mode
Median Range Coefficient of
Variation
Variance

Standard Deviation
Geometric Mean
© 2004 Prentice-Hall, Inc. Chap 3-4
 Measures of Central Tendency

Central Tendency

Mean Median Mode

n

X i
Geometric Mean
X  i 1

n X G   X1  X 2   Xn 
N 1/ n

X i
 i 1

N
© 2004 Prentice-Hall, Inc. Chap 3-5
 Mean (Arithmetic Mean)

 Mean (Arithmetic Mean) of Data Values

 Sample mean
n Sample Size
X i
X1  X 2   Xn
X i 1

n n
 Population mean
N Population Size
X i
X1  X 2   XN
 i 1

N N
© 2004 Prentice-Hall, Inc. Chap 3-6
 Mean (Arithmetic Mean)
(continued)

 The Most Common Measure of Central

Tendency
 Affected by Extreme Values (Outliers)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 12 14

Mean = 5 Mean = 6

© 2004 Prentice-Hall, Inc. Chap 3-7

 Mean (Arithmetic Mean)
From a Frequency Distribution
(continued)

 Approximating the Arithmetic Mean

 Used when raw data are not available
c

m
j 1
j fj
X


n
n  sample size
c  number of classes in the frequency distribution
m j  midpoint of the jth class
f j  frequencies of the jth class
© 2004 Prentice-Hall, Inc. Chap 3-8
 Median
 Robust Measure of Central Tendency
 Not Affected by Extreme Values
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 12 14

Median = 5 Median = 5

 In an Ordered Array, the Median is the ‘Middle’

Number
 If n or N is odd, the median is the middle number
 If n or N is even, the median is the average of the
2 middle numbers
© 2004 Prentice-Hall, Inc. Chap 3-9
 Mode
 A Measure of Central Tendency
 Value that Occurs Most Often
 Not Affected by Extreme Values
 There May Not Be a Mode
 There May Be Several Modes
 Used for Either Numerical or Categorical Data

0 1 2 3 4 5 6
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Mode = 9 No Mode
© 2004 Prentice-Hall, Inc. Chap 3-10
 Geometric Mean

 Useful in the Measure of Rate of Change of a

Variable Over Time
X G   X1  X 2   Xn 
1/ n

 Geometric Mean Rate of Return

 Measures the status of an investment over time

RG  1  R1   1  R2    1  Rn  
1/ n
1
© 2004 Prentice-Hall, Inc. Chap 3-11
 Example
An investment of $100,000 declined to $50,000 at the
end of year one and rebounded back to $100,000 at end
of year two:
R1  0.5 (or  50%) R2  1 (or 100% )
Average rate of return:
( 0.5)  (1)
R  0.25 (or 25%)
2
Geometric rate of return:
RG  1  0.5  1  1 
1/ 2
1

  0.5   2  
1/ 2
 1  11/ 2  1  0 (or 0%)
© 2004 Prentice-Hall, Inc. Chap 3-12
 Quartiles
 Split Ordered Data into 4 Quarters
25% 25% 25% 25%

 Q1   Q2  Q3 
Position of i-th Quartile i  n  1

 Qi  
4
Data in Ordered Array: 11 12 13 16 16 17 18 21 22
1 9  1 12  13
Position of Q1   2.5 Q1   12.5
4 2
 Q1 and Q3 are Measures of Noncentral Location
 Q = Median, a Measure of Central Tendency
2
© 2004 Prentice-Hall, Inc. Chap 3-13
 Measures of Variation
Variation

Range Variance Standard Coefficient

Deviation of Variation
Interquartile
Range Population Population
Variance Standard
Deviation
Sample Sample
Variance Standard
Deviation
© 2004 Prentice-Hall, Inc. Chap 3-14
 Range

 Measure of Variation
 Difference between the Largest and the
Smallest Observations:
Range  X Largest  X Smallest
 Ignores How Data are Distributed
Range = 12 - 7 = 5 Range = 12 - 7 = 5

7 8 9 10 11 12 7 8 9 10 11 12

© 2004 Prentice-Hall, Inc. Chap 3-15

 Interquartile Range

 Measure of Variation
 Also Known as Midspread
 Spread in the middle 50%
 Difference between the First and Third
Quartiles

Data in Ordered Array: 11 12 13 16 16 17 17 18 21

Interquartile Range  Q3  Q1  17.5  12.5  5
 Not Affected by Extreme Values

© 2004 Prentice-Hall, Inc. Chap 3-16

 Variance

 Important Measure of Variation

 Shows Variation about the Mean
 Sample Variance: n

 X X
2
i
S 
2 i 1

n 1
 Population Variance:
N

 X 
2
i
 
2 i 1

© 2004 Prentice-Hall, Inc.

N Chap 3-17
 Standard Deviation
 Most Important Measure of Variation
 Shows Variation about the Mean
 Has the Same Units as the Original Data
 Sample Standard Deviation: n

 X X
2
i
S i 1

n 1
 Population Standard Deviation: N

 X 
2
i
 i 1

N
© 2004 Prentice-Hall, Inc. Chap 3-18
 Standard Deviation
From a Frequency Distribution
(continued)

 Approximating the Standard Deviation

 Used when the raw data are not available and the
only source of data is a frequency distribution

m  X  fj
c
2
j

j 1
S
n 1
n  sample size
c  number of classes in the frequency distribution
m j  midpoint of the jth class
f j  frequencies of the jth class
© 2004 Prentice-Hall, Inc. Chap 3-19
 Comparing Standard Deviations
Data A Mean = 15.5
s = 3.338
11 12 13 14 15 16 17 18 19 20 21

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = .9258
Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.57

© 2004 Prentice-Hall, Inc. Chap 3-20

 Coefficient of Variation
 Measure of Relative Variation
 Always in Percentage (%)
 Shows Variation Relative to the Mean
 Used to Compare Two or More Sets of Data
Measured in Different Units
 S 
CV   100%
X 
 Sensitive to Outliers
© 2004 Prentice-Hall, Inc. Chap 3-21
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50
 Standard deviation = $2
 Stock B:
 Average price last year = $100
 Standard deviation = $5
 Coefficient of Variation:
 Stock A: S   $2 
CV    100%    100%  4%
X   $50 
 Stock B:
S   $5 
CV   100%   100%  5%
© 2004 Prentice-Hall, Inc.
X   $100  Chap 3-22
 Shape of a Distribution

 Describe How Data are Distributed

 Measures of Shape
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median < Mode Mean = Median =Mode Mode < Median < Mean

© 2004 Prentice-Hall, Inc. Chap 3-23

 Exploratory Data Analysis
 Box-and-Whisker Plot
 Graphical display of data using 5-number summary

Median( Q2) Xlargest

X smallest Q Q3
1

4 6 8 10 12
© 2004 Prentice-Hall, Inc. Chap 3-24
 Distribution Shape &
Box-and-Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1Q2Q3 Q1 Q2 Q3

© 2004 Prentice-Hall, Inc. Chap 3-25

 The Empirical Rule

 For Data Sets That Are Approximately Bell-

shaped:
 Roughly 68% of the Observations Fall Within 1
Standard Deviation Around the Mean
 Roughly 95% of the Observations Fall Within 2
Standard Deviations Around the Mean
 Roughly 99.7% of the Observations Fall Within 3
Standard Deviations Around the Mean

© 2004 Prentice-Hall, Inc. Chap 3-26

 The Bienayme-Chebyshev Rule
 The Percentage of Observations Contained
Within Distances of k Standard Deviations
Around the Mean Must Be at Least 1  1/ k 2 100%
 Applies regardless of the shape of the data set
 At least 75% of the observations must be contained
within distances of 2 standard deviations around the
mean
 At least 88.89% of the observations must be
contained within distances of 3 standard deviations
around the mean
 At least 93.75% of the observations must be
contained within distances of 4 standard deviations
around the mean
© 2004 Prentice-Hall, Inc. Chap 3-27
 Coefficient of Correlation
 Measures the Strength of the Linear
Relationship between 2 Quantitative Variables
n

 X i  X Yi  Y 
 r i 1
n n

 X X  Y  Y 
2 2
i i
i 1 i 1

© 2004 Prentice-Hall, Inc. Chap 3-28

 Features of Correlation
Coefficient
 Unit Free
 Ranges between –1 and 1
 The Closer to –1, the Stronger the Negative
Linear Relationship
 The Closer to 1, the Stronger the Positive
Linear Relationship
 The Closer to 0, the Weaker Any Linear
Relationship
© 2004 Prentice-Hall, Inc. Chap 3-29
 Scatter Plots of Data with
Various Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0
Y Y

X X
© 2004 Prentice-Hall, Inc.
r = .6 r=1 Chap 3-30
 Pitfalls in Numerical Descriptive
Measures and Ethical Issues
 Data Analysis is Objective
 Should report the summary measures that best
meet the assumptions about the data set
 Data Interpretation is Subjective
 Should be done in a fair, neutral and clear manner
 Ethical Issues
 Should document both good and bad results
 Presentation should be fair, objective and neutral
 Should not use inappropriate summary measures
to distort the facts Chap 3-31
© 2004 Prentice-Hall, Inc.
 Chapter Summary

 Described Measures of Central Tendency

 Mean, Median, Mode, Geometric Mean
 Discussed Quartiles
 Described Measures of Variation
 Range, Interquartile Range, Variance and Standard
Deviation, Coefficient of Variation
 Described the Empirical Rule and the
Bienayme-Chebyshev Rule

© 2004 Prentice-Hall, Inc. Chap 3-32

 Chapter Summary
(continued)

 Illustrated Shape of Distribution

 Symmetric, Skewed
 Using Box-and-Whisker Plots
 Discussed Correlation Coefficient
 Addressed Pitfalls in Numerical Descriptive
Measures and Ethical Issues

© 2004 Prentice-Hall, Inc. Chap 3-33