Statistics for Managers

using Microsoft Excel

3rd Edition

Chapter 3
Numerical Descriptive Measures

© 2002 Prentice-Hall, Inc. Chap 3-1

 Chapter Topics

 Measures of central tendency

 Mean, median, mode, geometric mean, midrange
 Quartile
 Measure of variation
 Range, interquartile range, variance and standard
deviation, coefficient of variation
 Shape
 Symmetric, skewed, using box-and-whisker plots

© 2002 Prentice-Hall, Inc. Chap 3-2

 Chapter Topics
(continued)

 Coefficient of correlation
 Pitfalls in numerical descriptive measures and
ethical considerations

© 2002 Prentice-Hall, Inc. Chap 3-3

 Summary Measures
Summary Measures

Central Tendency Quartile Variation

Mean Mode
Median Range Coefficient of
Variation
Variance

Standard Deviation
Geometric Mean
© 2002 Prentice-Hall, Inc. Chap 3-4
 Measures of Central Tendency

Central Tendency

Average 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
© 2002 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
© 2002 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

© 2002 Prentice-Hall, Inc. Chap 3-7

 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
two middle numbers

© 2002 Prentice-Hall, Inc. Chap 3-8

 Mode
 A measure of central tendency
 Value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may may be no mode
 There may be several modes

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

No Mode
Mode = 9
© 2002 Prentice-Hall, Inc. Chap 3-9
 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
© 2002 Prentice-Hall, Inc. Chap 3-10
 Example
An investment of $100,000 declined to $50,000 at the
end of year one and rebounded to $100,000 at end of
year two:
X1  $100,000 X 2  $50,000 X 3  $100,000
Average rate of return:
(50%)  (100%)
X  25%
2
Geometric rate of return:
RG  1   50%    1  100%   
1/ 2
1

  0.50    2  
1/ 2

© 2002 Prentice-Hall, Inc.

 1  1  1  0%
1/ 2
Chap 3-11
 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
© 2002 Prentice-Hall, Inc. Chap 3-12
 Measures of Variation
Variation

Variance Standard Deviation Coefficient

of Variation
Range Population Population
Variance Standard
Sample Deviation
Variance Sample
Standard
Interquartile Range
Deviation
© 2002 Prentice-Hall, Inc. Chap 3-13
 Range

 Measure of variation
 Difference between the largest and the
smallest observations:
Range  X Largest  X Smallest
 Ignores the way in which data are distributed
Range = 12 - 7 = 5 Range = 12 - 7 = 5

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

© 2002 Prentice-Hall, Inc. Chap 3-14

 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

© 2002 Prentice-Hall, Inc. Chap 3-15

 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

© 2002 Prentice-Hall, Inc.

N Chap 3-16
 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
© 2002 Prentice-Hall, Inc. Chap 3-17
 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

© 2002 Prentice-Hall, Inc. Chap 3-18

 Coefficient of Variation

 Measures relative variation

 Always in percentage (%)
 Shows variation relative to mean
 Is used to compare two or more sets of data
measured in different units
 S 
CV   100%
X 
© 2002 Prentice-Hall, Inc. Chap 3-19
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50
 Standard deviation = $5
 Stock B:
 Average price last year = $100
 Standard deviation = $5
 Coefficient of variation:
 Stock A: S   $5 
CV   100%   100%  10%
X   $50 
 Stock B:
S   $5 
CV   100%   100%  5%
© 2002 Prentice-Hall, Inc.
X   $100  Chap 3-20
 Shape of a Distribution

 Describes how data is distributed

 Measures of shape
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

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

© 2002 Prentice-Hall, Inc. Chap 3-21

 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
© 2002 Prentice-Hall, Inc. Chap 3-22
 Distribution Shape and
Box-and-Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1Q2Q3 Q1 Q2 Q3

© 2002 Prentice-Hall, Inc. Chap 3-23

 Coefficient of Correlation
 Measures the strength of the linear
relationship between two 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

© 2002 Prentice-Hall, Inc. Chap 3-24

 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 positive linear
relationship

© 2002 Prentice-Hall, Inc. Chap 3-25

 Scatter Plots of Data with
Various Correlation Coefficients
Y Y Y

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

X X
© 2002 Prentice-Hall, Inc.
r = .6 r=1 Chap 3-26
 Pitfalls in
Numerical Descriptive Measures
 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 fair, neutral and clear manner

© 2002 Prentice-Hall, Inc. Chap 3-27

 Ethical Considerations

Numerical descriptive measures:

 Should document both good and bad results

 Should be presented in a fair, objective and
neutral manner
 Should not use inappropriate summary
measures to distort facts

© 2002 Prentice-Hall, Inc. Chap 3-28

 Chapter Summary

 Described measures of central tendency

 Mean, median, mode, geometric mean, midrange
 Discussed quartile
 Described measure of variation
 Range, interquartile range, variance and standard
deviation, coefficient of variation
 Illustrated shape of distribution
 Symmetric, skewed, box-and-whisker plots

© 2002 Prentice-Hall, Inc. Chap 3-29

 Chapter Summary
(continued)

 Discussed correlation coefficient

 Addressed pitfalls in numerical descriptive
measures and ethical considerations

© 2002 Prentice-Hall, Inc. Chap 3-30