What is Statistics?

Chapter 1

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Learning Objectives

LO1-1 Explain why knowledge of statistics is important.

LO1-2 Define statistics and provide an example of how statistics is applied.
LO1-3 Differentiate between descriptive and inferential statistics.
LO1-4 Classify variables as qualitative or quantitative, and discrete or continuous.
LO1-5 Distinguish between nominal, ordinal, interval, and ratio levels of measurement.
LO1-6 List the values associated with the practice of statistics.

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Why Study Statistics?

1. Numerical information is everywhere (Data are collected everywhere and require

statistical knowledge to make the information useful)
2. Statistical techniques are used to make decisions that affect our daily lives (Statistical
techniques are used to make professional and personal decisions)
3. The knowledge of statistical methods will help you understand how decisions are made
and give you a better understanding of how they affect you (A knowledge of statistics is
needed to understand the world and be conversant in your career)
No matter what line of work you select, you will find yourself faced with decisions where an
understanding of data analysis is helpful.
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What is Meant by Statistics? (Formal Definition of Statistics)

STATISTICS is the science of collecting, organizing, presenting,

analyzing, and interpreting numerical data to assist in making more
effective decisions (for effective decision-making)

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Why do Businesses need to learn Statistics?

Collecting FOR BUSINESSES, the information provided by

Organizing analyzing, presenting, and interpreting data gives
Presenting managers a better understanding of the business
Analyzing and economic environment which would enable
Interpreting them to make better decisions.

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What is Meant by Statistics?

Example:
The inflation rate for the calendar year was 0.7%. By applying
statistics, we could compare this year’s inflation rate to the past
observations of inflation. Is it higher, lower, or about the same? Is there
a trend of increasing or decreasing inflation?

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What is Meant by Statistics?

Example:
Traffic engineers regularly use statistics to monitor total traffic in
different areas of a city, which allows them to decide whether or not
they should add or remove roads to optimize traffic flow.

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What is Meant by Statistics?

Example:
A given investor might determine that there is a 5% chance that the
stock of company A will increase 100x during the upcoming year. Based
on this probability, they’ll decide how much of their portfolio to invest in
the stock.

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What is Meant by Statistics?

Example:
Medical professions often use correlation to analyze how factors like
weight, height, smoking habits, exercise habits, and diet are related.

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What is Meant by Statistics?

Example:
You are budgeting for a new car. You would like to own an electric car with a
small carbon footprint. The price for the Tesla Model S Sedan is $79,570. By
collecting additional data and applying statistics, you can analyze the
alternatives. For example, another choice is a hybrid car that runs on both gas
and electricity such as a 2015 Toyota Prius. It can be purchased for about
$28,659. Another hybrid, the Chevrolet Volt, costs $33,995. What are the
differences in the cars’ specifications? What additional information can be
collected and summarized so that you can make a good purchase decision?
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What is Meant by Statistics?

Example:
The amount of revenue (profit,…) the calendar year was 7 bil. By
applying statistics, we could compare this year’s amount of revenue to
past observations of revenue. Is it higher, lower, or about the same. Is
there a trend of increasing or decreasing revenue?

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Types of Statistics

Types of Statistics

Descriptive Statistics Inferential Statistics

describe data

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Types of Statistics – Descriptive Statistics

DESCRIPTIVE STATISTICS: Methods of organizing, summarizing, and presenting

data in an informative way.

• Descriptive statistics can be used to organize data into a meaningful form

• You can summarize data and provide information that is easy to understand

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Types of Statistics – Descriptive Statistics

Example 1: The United States government reports the population of the United States was
179,323,000 in 1960; 203,302,000 in 1970; 226,542,000 in 1980; 248,709,000 in 1990, and
265,000,000 in 2000.
Example 2: According to the Bureau of Labor Statistics, the average hourly earnings of production
workers was $17.90 for April 2008.
Example 3: There are a total of 46,837 miles of interstate highways in the U.S. The interstate
system represents 1% of the nations roads but carries more than 20% of the traffic. Texas has the
most interstate highways and Alaska doesn’t have any.

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 Types of Statistics – Population versus Sample

POPULATION
The entire set of individuals or objects of
interest or the measurements obtained from all
individuals or objects of interest

SAMPLE
A portion or part of the population of interest

Note: In statistics, the word population and sample have a broader meaning. A population or sample may consist
of individuals or objects
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Why take a sample instead of studying every member of the population?

1. Prohibitive cost of census

2. Destruction of item being studied may be required
3. Not possible to test or inspect all members of a population being studied

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Types of Statistics – Inferential Statistics

INFERENTIAL STATISTICS: The methods used to estimate a property of a

population on the basis of a sample.

• Inferential statistics can be used to estimate properties of a population

• You can make decisions based on a limited set of data

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Types of Statistics – Inferential Statistics

Example 1: TV networks constantly monitor the popularity of their programs by

hiring Nielsen to sample the preferences of TV viewers. For example, 9% of a
sample of households with television watched The Big Bang Theory during the
week of November 2, 2015.

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Types of Variables

Types of Variables

Qualitative (or Attribute) Variable Quantitative Variable

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Types of Variables - Qualitative Variable

QUALITATIVE VARIABLE: An object or individual is observed and recorded

as a non-numeric characteristic or attribute.

• Examples: Gender, religious affiliation, type of automobile owned, eye color,…

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Types of Variables - Quantitative Variable

QUANTITATIVE VARIABLE: A variable that is reported numerically.

• Examples: balance in your checking account, the life of a car battery, minutes
remaining in class, or number of children in a family, the number of people
employed by a company,…

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Quantitative Variables - Classifications

Quantitative Variables

Discrete variables Continuous variables

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Quantitative Variables - Classifications

DISCRETE VARIABLES: are typically the result of counting

• Can only assume certain values and there are usually “gaps” between values
• Examples: the number of bedrooms in a house, the number of students in a
statistics course

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Quantitative Variables - Classifications

CONTINUOUS VARIABLES: are usually the result of measuring something

• Can assume any value within a specific range

• Examples: the air pressure in a tire, duration of flights from Orlando to San
Diego

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Types of Variables Summary

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 Levels of Measurement

• There are four levels of

measurement Ratio
• The level of measurement
determines the type of statistical
Named variables
+
analysis that can be performed Interval Ordered variables
+
Named variables
Propotionate
+
Ordinal
interval between
Ordered variables
variables
+
Named variables +
Propotionate
+ Can accommodate
interval between
Nominal Ordered variables variables
absolute zero

Named variables Discrete Continous

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Levels of Measurement – Nominal level

NOMINAL LEVEL OF MEASUREMENT Data recorded at the nominal level of

measurement is represented as labels or names. They have no order.
They can only be classified and counted.

• Examples: Gender, religious affiliation, type of automobile owned, eye color,…

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Levels of Measurement – Nominal level

Properties:
• Nominal is the lowest level of percentages
for each color

measurement
of M&M
candies

• Observations of a qualitative variable can

only be classified and counted.
• There is no particular order to the labels.

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Levels of Measurement – Ordinal level

ORDINAL LEVEL OF MEASUREMENT Data recorded at the ordinal level of

measurement is based on a relative ranking or rating of items based
on a defined attribute or qualitative variable. Variables based on this
level of measurement are only ranked and counted.

• Examples: the list of top ten states for best business climate, student ratings
of professors,…
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Levels of Measurement – Ordinal level

Properties:
• After Nominal, the ordinal is the next level of
measurement
• Data classifications are represented by sets of labels or
names (high, medium, low) that have relative values.
• Because of the relative values, the data classified can be
ranked or ordered but not the magnitude of differences
between groups (the differences between data values
cannot be determined or are meaningless)
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Levels of Measurement – Interval level

INTERVAL LEVEL OF MEASUREMENT For data recorded at the interval level

of measurement, the interval or the distance between values is
meaningful. The interval level of measurement is based on a scale with
a known unit of measurement.

• Examples: the Fahrenheit temperature scale, dress sizes,…

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Levels of Measurement – Interval level

Properties:
• After Ordinal, the interval is the next level of Women’s dress sizes listed on the table
measurement
• This data has all the characteristics of ordinal
level data plus the differences between the
values are meaningful (meaningful amounts of
differences between data values can be
determined)
• There is no natural 0 point
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Levels of Measurement – Ratio level

RATIO LEVEL OF MEASUREMENT Data recorded at the ratio level of

measurement are based on a scale with a known unit of measurement
and a meaningful interpretation of zero on the scale.

• Examples: wages, changes in stock prices, and weight,…

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Levels of Measurement – Interval level

Properties:
• Ratio level is the “highest” level of measurement
• The data has all the characteristics of the interval scale and ratios between numbers are
meaningful
• Practically all quantitative data is recorded on the ratio level of measurement
• The 0 point represents the absence of the characteristic (then ratios between numbers
are meaningful)

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Levels of Measurement Summary

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Ethics and Statistics

Practice statistics with integrity and honesty when collecting, organizing, summarizing,
analyzing, and interpreting numerical information
Maintain an independent and principled point of view when analyzing and reporting finding
and results
Question reports that are based on data that:
• do not fairly represent the population
• does not include all relevant statistics
• introduces bias in an attempt to mislead or misrepresent

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Chapter Summary

Statistics Collecting
Organizing
Presenting
Analyzing
interpreting

Four levels of
Two types of statistics Two types of variables
measurement
Nominal
Descriptive Qualitative Ordinal
Inferential Quantitative Interval
Ratio

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