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Statistics for
Business & Economics
14e
James J. Cochran
Thomas A. Williams University of Alabama
David R. Anderson Rochester Institute
University of Cincinnati
of Technology Michael J. Fry
Dennis J. Sweeney Jeffrey D. Camm
Wake Forest University Jeffrey W. Ohlmann
University of Iowa
Australia Brazil Mexico Singapore United Kingdom United States

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Print Number: 01 Print Year: 2019
Brief Contents
ABOUT THE AUTHORS xxi
PREFACE xxv
Chapter 1 Data and Statistics 1

Chapter 2 Descriptive Statistics: Tabular and Graphical Displays 33
Chapter 3 Descriptive Statistics: Numerical Measures 107
Chapter 4 Introduction to Probability 177
Chapter 5 Discrete Probability Distributions 223
Chapter 6 Continuous Probability Distributions 281
Chapter 7 Sampling and Sampling Distributions 319
Chapter 8 Interval Estimation 373
Chapter 9 Hypothesis Tests 417
Chapter 10 Inference About Means and Proportions with
Two Populations 481
Chapter 11 Inferences About Population Variances 525
Chapter 12 Comparing Multiple Proportions, Test
of Independence and Goodness of Fit 553
Chapter 13 Experimental Design and Analysis of Variance 597
Chapter 14 Simple Linear Regression 653
Chapter 15 Multiple Regression 731
Chapter 16 Regression Analysis: Model Building 799
Chapter 17 Time Series Analysis and Forecasting 859
Chapter 18 Nonparametric Methods 931
Chapter 19 Decision Analysis 981
Chapter 20 Index Numbers 1013
Chapter 21 Statistical Methods for Quality Control 1033
Chapter 22 Sample Survey (MindTap Reader) 22-1
Appendix A References and Bibliography 1068
Appendix B Tables 1070
Appendix C Summation Notation 1097
Appendix D Answers to Even-Numbered Exercises (MindTap Reader)
Appendix E Microsoft Excel 2016 and Tools for Statistical Analysis 1099
Appendix F Computing p-Values with JMP and Excel 1107
Index 1111
Contents
ABOUT THE AUTHORS xxi
PREFACE xxv
Chapter 1 Data and Statistics 1

Statistics in Practice: Bloomberg Businessweek 2
1.1 Applications in Business and Economics 3
Accounting 3
Finance 3
Marketing 4
Production 4
Economics 4
Information Systems 4
1.2 Data 5
Elements, Variables, and Observations 5
Scales of Measurement 5
Categorical and Quantitative Data 7
Cross-Sectional and Time Series Data 8
1.3 Data Sources 10
Existing Sources 10
Observational Study 11
Experiment 12
Time and Cost Issues 13
Data Acquisition Errors 13
1.4 Descriptive Statistics 13
1.5 Statistical Inference 15
1.6 Analytics 16
1.7 Big Data and Data Mining 17
1.8 Computers and Statistical Analysis 19
1.9 Ethical Guidelines for Statistical Practice 19
Summary 21
Glossary 21
Supplementary Exercises 22
Appendix 1.1 Opening and Saving DATA Files and Converting to Stacked
form with JMP 30
Appendix 1.2 Getting Started with R and RStudio (MindTap Reader)
Appendix 1.3 Basic Data Manipulation in R (MindTap Reader)
Chapter 2 Descriptive Statistics: Tabular and Graphical

Displays 33
Statistics in Practice: Colgate-Palmolive Company 34
2.1 Summarizing Data for a Categorical Variable 35
Frequency Distribution 35
Relative Frequency and Percent Frequency Distributions 36
Bar Charts and Pie Charts 37
Contents v
2.2 Summarizing Data for a Quantitative Variable 42

Frequency Distribution 42
Relative Frequency and Percent Frequency Distributions 44
Dot Plot 45
Histogram 45
Cumulative Distributions 47
Stem-and-Leaf Display 47
2.3 Summarizing Data for Two Variables Using Tables 57
Crosstabulation 57
Simpson’s Paradox 59
2.4 Summarizing Data for Two Variables Using Graphical
Displays 65
Scatter Diagram and Trendline 65
Side-by-Side and Stacked Bar Charts 66
2.5 Data Visualization: Best Practices in Creating Effective
Graphical Displays 71
Creating Effective Graphical Displays 71
Choosing the Type of Graphical Display 72
Data Dashboards 73
Data Visualization in Practice: Cincinnati Zoo
and Botanical Garden 75
Summary 77
Glossary 78
Key Formulas 79
Case Problem 1: Pelican Stores 85
Case Problem 2: Movie Theater Releases 86
Case Problem 3: Queen City 87
Case Problem 4: Cut-Rate Machining, Inc. 88
Appendix 2.1 Creating Tabular and Graphical Presentations with JMP 90
Appendix 2.2 Creating Tabular and Graphical Presentations
with Excel 93
Appendix 2.3 Creating Tabular and Graphical Presentations with R
(MindTap Reader)
Chapter 3 Descriptive Statistics: Numerical Measures 107

Statistics in Practice: Small Fry Design 108
3.1 Measures of Location 109
Mean 109
Weighted Mean 111
Median 112
Geometric Mean 113
Mode 115
Percentiles 115
Quartiles 116
vi Contents
3.2 Measures of Variability 122

Range 123
Interquartile Range 123
Variance 123
Standard Deviation 125
Coefficient of Variation 126
3.3 Measures of Distribution Shape, Relative Location,
and Detecting Outliers 129
Distribution Shape 129
z-Scores 130
Chebyshev’s Theorem 131
Empirical Rule 132
Detecting Outliers 134
3.4 Five-Number Summaries and Boxplots 137
Five-Number Summary 138
Boxplot 138
Comparative Analysis Using Boxplots 139
3.5 Measures of Association Between Two Variables 142
Covariance 142
Interpretation of the Covariance 144
Correlation Coefficient 146
Interpretation of the Correlation Coefficient 147
3.6 Data Dashboards: Adding Numerical Measures to
Improve Effectiveness 150
Summary 153
Glossary 154
Key Formulas 155
Case Problem 1: Pelican Stores 162
Case Problem 2: Movie Theater Releases 163
Case Problem 3: Business Schools of Asia-Pacific 164
Case Problem 4: Heavenly Chocolates Website Transactions 164
Case Problem 5: African Elephant Populations 166
Appendix 3.1 Descriptive Statistics with JMP 168
Appendix 3.2 Descriptive Statistics with Excel 171
Appendix 3.3 Descriptive Statistics with R (MindTap Reader)
Chapter 4 Introduction to Probability 177

Statistics in Practice: National Aeronautics and Space
Administration 178
4.1 Random Experiments, Counting Rules,
and Assigning Probabilities 179
Counting Rules, Combinations, and Permutations 180
Assigning Probabilities 184
Probabilities for the KP&L Project 185
4.2 Events and Their Probabilities 189
Contents vii
4.3 Some Basic Relationships of Probability 193

Complement of an Event 193
Addition Law 194
4.4 Conditional Probability 199
Independent Events 202
Multiplication Law 202
4.5 Bayes’ Theorem 207
Tabular Approach 210
Summary 212
Glossary 213
Key Formulas 214
Case Problem 1: Hamilton County Judges 219
Case Problem 2: Rob’s Market 221
Chapter 5 Discrete Probability Distributions 223

Statistics in Practice: Voter Waiting Times in Elections 224
5.1 Random Variables 225
Discrete Random Variables 225
Continuous Random Variables 225
5.2 Developing Discrete Probability Distributions 228
5.3 Expected Value and Variance 233
Expected Value 233
Variance 233
5.4 Bivariate Distributions, Covariance, and Financial Portfolios 238
A Bivariate Empirical Discrete Probability Distribution 238
Financial Applications 241
Summary 244
5.5 Binomial Probability Distribution 247
A Binomial Experiment 248
Martin Clothing Store Problem 249
Using Tables of Binomial Probabilities 253
Expected Value and Variance for the Binomial Distribution 254
5.6 Poisson Probability Distribution 258
An Example Involving Time Intervals 259
An Example Involving Length or Distance Intervals 260
5.7 Hypergeometric Probability Distribution 262
Summary 265
Glossary 266
Key Formulas 266
Case Problem 1: Go Bananas! Breakfast Cereal 272
Case Problem 2: McNeil’s Auto Mall 272
Case Problem 3: Grievance Committee at Tuglar Corporation 273
Appendix 5.1 Discrete Probability Distributions with JMP 275
viii Contents
Appendix 5.2 Discrete Probability Distributions with Excel 278

Appendix 5.3 Discrete Probability Distributions with R (MindTap Reader)
Chapter 6 Continuous Probability Distributions 281
Statistics in Practice: Procter & Gamble 282
6.1 Uniform Probability Distribution 283
Area as a Measure of Probability 284
6.2 Normal Probability Distribution 287
Normal Curve 287
Standard Normal Probability Distribution 289
Computing Probabilities for Any Normal Probability
Distribution 294
Grear Tire Company Problem 294
6.3 Normal Approximation of Binomial Probabilities 299
6.4 Exponential Probability Distribution 302
Computing Probabilities for the Exponential
Distribution 302
Relationship Between the Poisson and Exponential
Distributions 303
Summary 305
Glossary 305
Key Formulas 306
Case Problem 1: Specialty Toys 309
Case Problem 2: Gebhardt Electronics 311
Appendix 6.1 Continuous Probability Distributions with JMP 312
Appendix 6.2 Continuous Probability Distributions with Excel 317
Appendix 6.3 Continuous Probability Distribution with R
(MindTap Reader)
Chapter 7 Sampling and Sampling Distributions 319
Statistics in Practice: Meadwestvaco Corporation 320
7.1 The Electronics Associates Sampling Problem 321
7.2 Selecting a Sample 322
Sampling from a Finite Population 322
Sampling from an Infinite Population 324
7.3 Point Estimation 327
Practical Advice 329
7.4 Introduction to Sampling Distributions 331
7.5 Sampling Distribution of x 333
Expected Value of x 334
Standard Deviation of x 334
Form of the Sampling Distribution of x 335
Sampling Distribution of x for the EAI Problem 337
Practical Value of the Sampling Distribution of x 338
Relationship Between the Sample Size and the Sampling
Distribution of x 339
Contents ix
7.6 Sampling Distribution of p 343

Expected Value of p 344
Standard Deviation of p 344
Form of the Sampling Distribution of p 345
Practical Value of the Sampling Distribution of p 345
7.7 Properties of Point Estimators 349
Unbiased 349
Efficiency 350
Consistency 351
7.8 Other Sampling Methods 351
Stratified Random Sampling 352
Cluster Sampling 352
Systematic Sampling 353
Convenience Sampling 353
Judgment Sampling 354
7.9 Big Data and Standard Errors of Sampling Distributions 354
Sampling Error 354
Nonsampling Error 355
Big Data 356
Understanding What Big Data Is 356
Implications of Big Data for Sampling Error 357
Summary 360
Glossary 361
Key Formulas 362
Case Problem: Marion Dairies 366
Appendix 7.1 The Expected Value and Standard Deviation of x 367
Appendix 7.2 Random Sampling with JMP 368
Appendix 7.3 Random Sampling with Excel 371
Appendix 7.4 Random Sampling with R (MindTap Reader)
Chapter 8 Interval Estimation 373

Statistics in Practice: Food Lion 374
8.1 Population Mean: s Known 375
Margin of Error and the Interval Estimate 375
8.2 Population Mean: s Unknown 381
Margin of Error and the Interval Estimate 382
Using a Small Sample 385
Summary of Interval Estimation Procedures 386
8.3 Determining the Sample Size 390
8.4 Population Proportion 393
Determining the Sample Size 394
x Contents
8.5 Big Data and Confidence Intervals 398

Big Data and the Precision of Confidence Intervals 398
Implications of Big Data for Confidence Intervals 399
Summary 401
Glossary 402
Key Formulas 402
Case Problem 1: Young Professional Magazine 406
Case Problem 2: Gulf Real Estate Properties 407
Case Problem 3: Metropolitan Research, Inc. 409
Appendix 8.1 Interval Estimation with JMP 410
Appendix 8.2 Interval Estimation Using Excel 413
Appendix 8.3 Interval Estimation with R (MindTap Reader)
Chapter 9 Hypothesis Tests 417

Statistics in Practice: John Morrell & Company 418
9.1 Developing Null and Alternative Hypotheses 419
The Alternative Hypothesis as a Research Hypothesis 419
The Null Hypothesis as an Assumption to Be Challenged 420
Summary of Forms for Null and Alternative Hypotheses 421
9.2 Type I and Type II Errors 422
9.3 Population Mean: s Known 425
One-Tailed Test 425
Two-Tailed Test 430
Summary and Practical Advice 433
Relationship Between Interval Estimation and
Hypothesis Testing 434
9.4 Population Mean: s Unknown 439
One-Tailed Test 439
Two-Tailed Test 440
Summary and Practical Advice 441
9.5 Population Proportion 445
Summary 447
9.6 Hypothesis Testing and Decision Making 450
9.7 Calculating the Probability of Type II Errors 450
9.8 Determining the Sample Size for a Hypothesis Test
About a Population Mean 455
9.9 Big Data and Hypothesis Testing 459
Big Data, Hypothesis Testing, and p Values 459
Implications of Big Data in Hypothesis Testing 460
Summary 462
Glossary 462
Key Formulas 463
Case Problem 1: Quality Associates, Inc. 467
Contents xi
Case Problem 2: Ethical Behavior of Business Students

at Bayview University 469
Appendix 9.1 Hypothesis Testing with JMP 471
Appendix 9.2 Hypothesis Testing with Excel 475
Appendix 9.3 Hypothesis Testing with R (MindTap Reader)
Chapter 10 Inference About Means and Proportions with

Two Populations 481
Statistics in Practice: U.S. Food and Drug Administration 482
10.1 Inferences About the Difference Between Two
Population Means: s1 and s2 Known 483
Interval Estimation of m1 − m2 483
Hypothesis Tests About m1 − m2 485
Population Means: s1 and s2 Unknown 489
Interval Estimation of m1 − m2 489
Hypothesis Tests About m1 − m2 491
Population Means: Matched Samples 497
10.4 Inferences About the Difference Between Two Population
Proportions 503
Interval Estimation of p1 − p2 503
Hypothesis Tests About p1 − p2 505
Summary 509
Glossary 509
Key Formulas 509
Case Problem: Par, Inc. 514
Appendix 10.1 Inferences About Two Populations with JMP 515
Appendix 10.2 Inferences About Two Populations with Excel 519
Appendix 10.3 Inferences about Two Populations with R (MindTap Reader)
Chapter 11 Inferences About Population Variances 525

Statistics in Practice: U.S. Government Accountability Office 526
11.1 Inferences About a Population Variance 527
Interval Estimation 527
Hypothesis Testing 531
11.2 Inferences About Two Population Variances 537
Summary 544
Key Formulas 544
Case Problem 1: Air Force Training Program 546
xii Contents
Case Problem 2: Meticulous Drill & Reamer 547

Appendix 11.1 Population Variances with JMP 549
Appendix 11.2 Population Variances with Excel 551
Appendix 11.3 Population Variances with R (MindTap Reader)
Chapter 12 omparing Multiple Proportions, Test of

C
Independence and Goodness of Fit 553
Statistics in Practice: United Way 554
12.1 Testing the Equality of Population Proportions
for Three or More Populations 555
A Multiple Comparison Procedure 560
12.2 Test of Independence 565
12.3 Goodness of Fit Test 573
Multinomial Probability Distribution 573
Normal Probability Distribution 576
Summary 582
Glossary 582
Key Formulas 583
Case Problem 1: A Bipartisan Agenda for Change 587
Case Problem 2: Fuentes Salty Snacks, Inc. 588
Case Problem 3: Fresno Board Games 588
Appendix 12.1 Chi-Square Tests with JMP 590
Appendix 12.2 Chi-Square Tests with Excel 593
Appendix 12.3 Chi-Squared Tests with R (MindTap Reader)
Chapter 13 Experimental Design and Analysis

of Variance 597
Statistics in Practice: Burke Marketing Services, Inc. 598
13.1 An Introduction to Experimental Design
and Analysis of Variance 599
Data Collection 600
Assumptions for Analysis of Variance 601
Analysis of Variance: A Conceptual Overview 601
13.2 Analysis of Variance and the Completely
Randomized Design 604
Between-Treatments Estimate of Population Variance 605
Within-Treatments Estimate of Population Variance 606
Comparing the Variance Estimates: The F Test 606
ANOVA Table 608
Computer Results for Analysis of Variance 609
Testing for the Equality of k Population Means:
An Observational Study 610
13.3 Multiple Comparison Procedures 615
Fisher’s LSD 615
Type I Error Rates 617
Contents xiii
13.4 Randomized Block Design 621

Air Traffic Controller Stress Test 621
ANOVA Procedure 623
Computations and Conclusions 623
13.5 Factorial Experiment 627
ANOVA Procedure 629
Computations and Conclusions 629
Summary 635
Glossary 635
Key Formulas 636
Case Problem 1: Wentworth Medical Center 643
Case Problem 2: Compensation for Sales Professionals 644
Case Problem 3: Touristopia Travel 644
Appendix 13.1 Analysis of Variance with JMP 646
Appendix 13.2 Analysis of Variance with Excel 649
Appendix 13.3 Analysis Variance with R (MindTap Reader)
Chapter 14 Simple Linear Regression 653

Statistics in Practice: Alliance Data Systems 654
14.1 Simple Linear Regression Model 655
Regression Model and Regression Equation 655
Estimated Regression Equation 656
14.2 Least Squares Method 658
14.3 Coefficient of Determination 668
Correlation Coefficient 671
14.4 Model Assumptions 675
14.5 Testing for Significance 676
Estimate of s2 676
t Test 677
Confidence Interval for b1 679
F Test 679
Some Cautions About the Interpretation of Significance Tests 681
14.6 Using the Estimated Regression Equation
for Estimation and Prediction 684
Interval Estimation 685
Confidence Interval for the Mean Value of y 685
Prediction Interval for an Individual Value of y 686
14.7 Computer Solution 691
14.8 Residual Analysis: Validating Model Assumptions 694
Residual Plot Against x 695
Residual Plot Against ŷ 697
Standardized Residuals 698
Normal Probability Plot 699
xiv Contents
14.9 Residual Analysis: Outliers and Influential Observations 703

Detecting Influential Observations 704
14.10 Practical Advice: Big Data and Hypothesis Testing in Simple Linear
Regression 710
Summary 711
Glossary 711
Key Formulas 712
Case Problem 1: Measuring Stock Market Risk 721
Case Problem 2: U.S. Department of Transportation 721
Case Problem 3: Selecting a Point-and-Shoot Digital Camera 722
Case Problem 4: Finding the Best Car Value 723
Case Problem 5: Buckeye Creek Amusement Park 724
Appendix 14.1 Calculus-Based Derivation of Least Squares Formulas 726
Appendix 14.2 A Test for Significance Using Correlation 727
Appendix 14.3 Simple Linear Regression with JMP 727
Appendix 14.4 Regression Analysis with Excel 728
Appendix 14.5 Simple Linear Regression with R (MindTap Reader)
Chapter 15 Multiple Regression 731

Statistics in Practice: 84.51° 732
15.1 Multiple Regression Model 733
Regression Model and Regression Equation 733
Estimated Multiple Regression Equation 733
15.2 Least Squares Method 734
An Example: Butler Trucking Company 735
Note on Interpretation of Coefficients 737
15.3 Multiple Coefficient of Determination 743
15.4 Model Assumptions 746
15.5 Testing for Significance 747
F Test 747
t Test 750
Multicollinearity 750
15.6 Using the Estimated Regression Equation
for Estimation and Prediction 753
15.7 Categorical Independent Variables 755
An Example: Johnson Filtration, Inc. 756
Interpreting the Parameters 758
More Complex Categorical Variables 760
15.8 Residual Analysis 764
Studentized Deleted Residuals and Outliers 766
Influential Observations 767
Using Cook’s Distance Measure to Identify
Influential Observations 767
Contents xv
15.9 Logistic Regression 771

Logistic Regression Equation 772
Estimating the Logistic Regression Equation 773
Testing for Significance 774
Managerial Use 775
Interpreting the Logistic Regression Equation 776
Logit Transformation 778
15.10 Practical Advice: Big Data and Hypothesis Testing
in Multiple Regression 782
Summary 783
Glossary 783
Key Formulas 784
Case Problem 1: Consumer Research, Inc. 790
Case Problem 2: Predicting Winnings for NASCAR Drivers 791
Case Problem 3: Finding the Best Car Value 792
Appendix 15.1 Multiple Linear Regression with JMP 794
Appendix 15.2 Logistic Regression with JMP 796
Appendix 15.3 Multiple Regression with Excel 797
Appendix 15.4 Multiple Linear Regression with R (MindTap Reader)
Appendix 15.5 Logistics Regression with R (MindTap Reader)
Chapter 16 Regression Analysis: Model Building 799

Statistics in Practice: Monsanto Company 800
16.1 General Linear Model 801
Modeling Curvilinear Relationships 801
Interaction 805
Transformations Involving the Dependent Variable 807
Nonlinear Models That Are Intrinsically Linear 812
16.2 Determining When to Add or Delete Variables 816
General Case 818
Use of p-Values 819
16.3 Analysis of a Larger Problem 822
16.4 Variable Selection Procedures 826
Stepwise Regression 826
Forward Selection 828
Backward Elimination 828
Best-Subsets Regression 828
Making the Final Choice 829
16.5 Multiple Regression Approach to Experimental Design 832
16.6 Autocorrelation and the Durbin-Watson Test 836
Summary 840
Glossary 841
Key Formulas 841
xvi Contents

Case Problem 1: Analysis of LPGA Tour Statistics 845
Case Problem 2: Rating Wines from the Piedmont Region of Italy 846
Appendix 16.1 Variable Selection Procedures with JMP 848
Appendix 16.2 Variable Selection Procedures with R (MindTap Reader)
Chapter 17 Time Series Analysis and Forecasting 859

Statistics in Practice: Nevada Occupational Health Clinic 860
17.1 Time Series Patterns 861
Horizontal Pattern 861
Trend Pattern 863
Seasonal Pattern 863
Trend and Seasonal Pattern 864
Cyclical Pattern 864
Selecting a Forecasting Method 866
17.2 Forecast Accuracy 867
17.3 Moving Averages and Exponential Smoothing 872
Moving Averages 872
Weighted Moving Averages 874
Exponential Smoothing 875
17.4 Trend Projection 881
Linear Trend Regression 882
Nonlinear Trend Regression 886
17.5 Seasonality and Trend 891
Seasonality Without Trend 892
Seasonality and Trend 894
Models Based on Monthly Data 897
17.6 Time Series Decomposition 900
Calculating the Seasonal Indexes 902
Deseasonalizing the Time Series 905
Using the Deseasonalized Time Series to Identify Trend 905
Seasonal Adjustments 907
Models Based on Monthly Data 908
Cyclical Component 908
Summary 910
Glossary 911
Key Formulas 912
Case Problem 1: Forecasting Food and Beverage Sales 917
Case Problem 2: Forecasting Lost Sales 918
Appendix 17.1 Forecasting with JMP 920
Appendix 17.2 Forecasting with Excel 926
Appendix 17.3 Forecasting with R (MindTap Reader)
Contents xvii
Chapter 18 Nonparametric Methods 931

Statistics in Practice: West Shell Realtors 932
18.1 Sign Test 933
Hypothesis Test About a Population Median 933
Hypothesis Test with Matched Samples 938
18.2 Wilcoxon Signed-Rank Test 941
18.3 Mann-Whitney-Wilcoxon Test 947
18.4 Kruskal-Wallis Test 956
18.5 Rank Correlation 961
Summary 966
Glossary 966
Key Formulas 967
Case Problem: RainOrShine.Com 971
Appendix 18.1 Nonparametric Methods with JMP 972
Appendix 18.2 Nonparametric Methods with Excel 979
Appendix 18.3 Nonparametric Methods with R (MindTap Reader)
Chapter 19 Decision Analysis 981

Statistics in Practice: Ohio Edison Company 982
19.1 Problem Formulation 983
Payoff Tables 983
Decision Trees 984
19.2 Decision Making with Probabilities 985
Expected Value Approach 985
Expected Value of Perfect Information 987
19.3 Decision Analysis with Sample Information 992
Decision Tree 993
Decision Strategy 994
Expected Value of Sample Information 998
19.4 Computing Branch Probabilities Using Bayes’ Theorem 1002
Summary 1006
Glossary 1007
Key Formulas 1008
Case Problem 1: Lawsuit Defense Strategy 1010
Case Problem 2: Property Purchase Strategy 1011
Chapter 20 Index Numbers 1013

Statistics in Practice: U.S. Department of Labor, Bureau
of Labor Statistics 1014
20.1 Price Relatives 1014
20.2 Aggregate Price Indexes 1015
xviii Contents
20.3 Computing an Aggregate Price Index from Price Relatives 1019

20.4 Some Important Price Indexes 1021
Consumer Price Index 1021
Producer Price Index 1021
Dow Jones Averages 1022
20.5 Deflating a Series by Price Indexes 1023
20.6 Price Indexes: Other Considerations 1026
Selection of Items 1026
Selection of a Base Period 1026
Quality Changes 1027
20.7 Quantity Indexes 1027
Summary 1029
Glossary 1029
Key Formulas 1029
Chapter 21 tatistical Methods for Quality Control 1033

S
Statistics in Practice: Dow Chemical Company 1034
21.1 Philosophies and Frameworks 1035
Malcolm Baldrige National Quality Award 1036
ISO 9000 1036
Six Sigma 1036
Quality in the Service Sector 1038
21.2 Statistical Process Control 1039
Control Charts 1040
x Chart: Process Mean and Standard Deviation Known 1041
x Chart: Process Mean and Standard Deviation Unknown 1043
R Chart 1045
p Chart 1046
np Chart 1049
Interpretation of Control Charts 1049
21.3 Acceptance Sampling 1052
KALI, Inc.: An Example of Acceptance Sampling 1053
Computing the Probability of Accepting a Lot 1054
Selecting an Acceptance Sampling Plan 1056
Multiple Sampling Plans 1057
Summary 1059
Glossary 1060
Key Formulas 1060
Appendix 21.1 Control Charts with JMP 1064
Appendix 21.2 Control Charts with R (MindTap Reader)
Contents xix
Chapter 22 Sample Survey (MindTap Reader) 22-1

Statistics in Practice: Duke Energy 22-2
22.1 Terminology Used in Sample Surveys 22-2
22.2 Types of Surveys and Sampling Methods 22-3
22.3 Survey Errors 22-5
Nonsampling Error 22-5
Sampling Error 22-5
22.4 Simple Random Sampling 22-6
Population Mean 22-6
Population Total 22-7
Population Proportion 22-8
Determining the Sample Size 22-9
22.5 Stratified Simple Random Sampling 22-12
22.6 Cluster Sampling 22-21
22.7 Systematic Sampling 22-29
Summary 22-29
Glossary 22-30
Key Formulas 22-30
Supplementary Exercises 22-34
Case Problem: Medicament’s Predicament 22-36
Appendix A References and Bibliography 1068
Appendix B Tables 1070
Appendix C Summation Notation 1097
Appendix D Answers to Even-Numbered Exercises (MindTap Reader)
Appendix E Microsoft Excel 2016 and Tools for Statistical Analysis 1099
Appendix F Computing p-Values with JMP and Excel 1107
Index 1111
About the Authors
David R. Anderson. David R. Anderson is Professor Emeritus of Quantitative Analysis
in the College of Business Administration at the University of Cincinnati. Born in Grand
Forks, North Dakota, he earned his B.S., M.S., and Ph.D. degrees from Purdue University.
Professor Anderson has served as Head of the Department of Quantitative Analysis and
Operations Management and as Associate Dean of the College of Business Administration
at the University of Cincinnati. In addition, he was the coordinator of the College’s first
Executive Program.
At the University of Cincinnati, Professor Anderson has taught introductory statistics
for business students as well as graduate-level courses in regression analysis, multivari-
ate analysis, and management science. He has also taught statistical courses at the Depart-
ment of Labor in Washington, D.C. He has been honored with nominations and awards for
excellence in teaching and excellence in service to student organizations.
Professor Anderson has coauthored 10 textbooks in the areas of statistics, management
science, linear programming, and production and operations management. He is an active
consultant in the field of sampling and statistical methods.
Dennis J. Sweeney. Dennis J. Sweeney is Professor Emeritus of Quantitative Analysis and

Founder of the Center for Productivity Improvement at the University of Cincinnati. Born in
Des Moines, Iowa, he earned a B.S.B.A. degree from Drake University and his M.B.A. and
D.B.A. degrees from Indiana University, where he was an NDEA Fellow. Professor Sweeney
has worked in the management science group at Procter & Gamble and spent a year as a
visiting professor at Duke University. Professor Sweeney served as Head of the Department
of Quantitative Analysis and as Associate Dean of the College of B
usiness Administration at
the University of Cincinnati.
Professor Sweeney has published more than 30 articles and monographs in the area of
management science and statistics. The National Science Foundation, IBM, Procter & Gam-
ble, Federated Department Stores, Kroger, and Cincinnati Gas & Electric have funded his
research, which has been published in Management Science, Operations Research, Mathe-
matical Programming, Decision Sciences, and other journals.
Professor Sweeney has coauthored 10 textbooks in the areas of statistics, management
science, linear programming, and production and operations management.
Thomas A. Williams. Thomas A. Williams is Professor Emeritus of Management S cience

in the College of Business at Rochester Institute of Technology. Born in Elmira, New York,
he earned his B.S. degree at Clarkson University. He did his graduate work at Rensselaer
Polytechnic Institute, where he received his M.S. and Ph.D. degrees.
Before joining the College of Business at RIT, Professor Williams served for seven years
as a faculty member in the College of Business Administration at the University of Cincin-
nati, where he developed the undergraduate program in Information Systems and then served
as its coordinator. At RIT he was the first chairman of the Decision Sciences Department. He
teaches courses in management science and statistics, as well as graduate courses in regres-
sion and decision analysis.
Professor Williams is the coauthor of 11 textbooks in the areas of management s cience,
statistics, production and operations management, and mathematics. He has been a consul-
tant for numerous Fortune 500 companies and has worked on projects ranging from the use
of data analysis to the development of large-scale regression models.
Jeffrey D. Camm. Jeffrey D. Camm is the Inmar Presidential Chair and Associate Dean of
Analytics in the School of Business at Wake Forest University. Born in Cincinnati, Ohio, he
holds a B.S. from Xavier University (Ohio) and a Ph.D. from Clemson University. Prior to
xxii About the Authors
joining the faculty at Wake Forest, he was on the faculty of the University of Cincinnati. He
has also been a visiting scholar at Stanford University and a visiting professor of business
administration at the Tuck School of Business at Dartmouth College.
Dr. Camm has published over 40 papers in the general area of optimization applied to
problems in operations management and marketing. He has published his research in Science,
Management Science, Operations Research, Interfaces, and other professional journals. Dr.
Camm was named the Dornoff Fellow of Teaching Excellence at the University of Cincin-
nati and he was the 2006 recipient of the INFORMS Prize for the Teaching of Operations
Research Practice. A firm believer in practicing what he preaches, he has served as an oper-
ations research consultant to numerous companies and government agencies. From 2005 to
2010 he served as editor-in-chief of Interfaces. In 2017, he was named an INFORMS Fellow.
James J. Cochran. James J. Cochran is Professor of Applied Statistics and the Rogers-
Spivey Faculty Fellow at the University of Alabama. Born in Dayton, Ohio, he earned his
B.S., M.S., and M.B.A. degrees from Wright State University and a Ph.D. from the University
of Cincinnati. He has been at the University of Alabama since 2014 and has been a visiting
scholar at Stanford University, Universidad de Talca, the University of South Africa, and
Pole Universitaire Leonard de Vinci.
Professor Cochran has published over 40 papers in the development and application of
operations research and statistical methods. He has published his research in Management
Science, The American Statistician, Communications in Statistics—Theory and Methods,
Annals of operations Research, European Journal of Operational Research, Journal of Com-
binatorial Optimization. Interfaces, Statistics and Probability Letters, and other professional
journals. He was the 2008 recipient of the INFORMS Prize for the Teaching of Operations
Research Practice and the 2010 recipient of the Mu Sigma Rho Statistical Education Award.
Professor Cochran was elected to the International Statistics Institute in 2005 and named a
Fellow of the American Statistical Association in 2011. He received the Founders Award
in 2014 and the Karl E. Peace Award in 2015 from the American Statistical Association. In
2017 he received the American Statistical Association’s Waller Distinguished Teaching Ca-
reer Award and was named a Fellow of INFORMS, and in 2018 he received the INFORMS
President’s Award.
A strong advocate for effective statistics and operations research education as a means
of improving the quality of applications to real problems, Professor Cochran has organized
and chaired teaching effectiveness workshops in Montevideo, Uruguay; Cape Town, South
Africa; Cartagena, Colombia; Jaipur, India; Buenos Aires, Argentina; Nairobi, Kenya; Buea,
Cameroon; Kathmandu, Nepal; Osijek, Croatia; Havana, Cuba; Ulaanbaatar, Mongolia; and
Chis̹inău, Moldova. He has served as an operations research consultant to numerous compa-
nies and not-for-profit organizations. He served as editor-in-chief of INFORMS Transactions
on Education from 2006 to 2012 and is on the editorial board of Interfaces, International
Transactions in Operational Research, and Significance.
Michael J. Fry. Michael J. Fry is Professor of Operations, Business Analytics, and In-
formation Systems and Academic Director of the Center for Business Analytics in the Carl
H. Lindner College of Business at the University of Cincinnati. Born in Killeen, Texas, he
earned a BS from Texas A&M University and M.S.E. and Ph.D. degrees from the University
of Michigan. He has been at the University of Cincinnati since 2002, where he was previ-
ously Department Head and has been named a Lindner Research Fellow. He has also been a
visiting professor at the Samuel Curtis Johnson Graduate School of Management at Cornell
University and the Sauder School of Business at the University of British Columbia.
Professor Fry has published more than 25 research papers in journals such as Operations
Research, M&SOM, Transportation Science, Naval Research Logistics, IIE Transactions,
Critical Care Medicine and Interfaces. His research interests are in applying quantitative
About the Authors xxiii
management methods to the areas of supply chain analytics, sports analytics, and public-
policy operations. He has worked with many different organizations for his research, includ-
ing Dell, Inc., Starbucks Coffee Company, Great American Insurance Group, the Cincinnati
Fire Department, the State of Ohio Election Commission, the Cincinnati Bengals, and the
Cincinnati Zoo & Botanical Garden. He was named a finalist for the Daniel H. Wagner Prize
for Excellence in Operations Research Practice, and he has been recognized for both his
research and teaching excellence at the University of Cincinnati.
Jeffrey W. Ohlmann. Jeffrey W. Ohlmann is Associate Professor of Management Sci-

ences and Huneke Research Fellow in the Tippie College of Business at the University of
Iowa. Born in Valentine, Nebraska, he earned a B.S. from the University of Nebraska, and
MS and Ph.D. degrees from the University of Michigan. He has been at the University of
Iowa since 2003.
Professor Ohlmann’s research on the modeling and solution of decision-making problems
has produced more than 20 research papers in journals such as Operations Research, Math-
ematics of Operations Research, INFORMS Journal on Computing, Transportation Science,
the European Journal of Operational Research, and Interfaces. He has collaborated with
companies such as Transfreight, LeanCor, Cargill, the Hamilton County Board of Elections,
and three National Football League franchises. Because of the relevance of his work to in-
dustry, he was bestowed the George B. Dantzig Dissertation Award and was recognized as
a finalist for the Daniel H. Wagner Prize for Excellence in Operations Research Practice.
Preface
T
his text is the 14th edition of STATISTICS FOR BUSINESS AND ECONOMICS.
In this edition, we include procedures for statistical analysis using Excel 2016 and JMP
Student Edition 14. In MindTap Reader, we also include instructions for using the exceptionally
popular open-source language R to perform statistical analysis. We are excited to introduce
two new coauthors, Michael J. Fry of the University of Cincinnati and Jeffrey W. Ohlmann of
the University of Iowa. Both are accomplished teachers and researchers. More details on their
backgrounds may be found in the About the Authors section.
The remainder of this preface describes the authors’ objectives in writing STATISTICS
FOR BUSINESS AND ECONOMICS and the major changes that were made in developing
the 14th edition. The purpose of the text is to give students, primarily those in the fields of
business administration and economics, a conceptual introduction to the field of statistics
and its many applications. The text is applications-oriented and written with the needs of
the nonmathematician in mind; the mathematical prerequisite is understanding of algebra.
Applications of data analysis and statistical methodology are an integral part of the or-
ganization and presentation of the text material. The discussion and development of each
technique is presented in an application setting, with the statistical results providing insights
to decisions and solutions to problems.
Although the book is applications oriented, we have taken care to provide sound meth-
odological development and to use notation that is generally accepted for the topic being
covered. Hence, students will find that this text provides good preparation for the study of
more advanced statistical material. A bibliography to guide further study is included as an
appendix.
The text introduces the student to the software packages of JMP Student Edition 14e and
Microsoft® Office Excel 2016 and emphasizes the role of computer software in the application
of statistical analysis. JMP is illustrated as it is one of the leading statistical software packages
for both education and statistical practice. Excel is not a statistical software package, but the
wide availability and use of Excel make it important for students to understand the statistical
capabilities of this package. JMP and Excel procedures are provided in a ppendices so that in-
structors have the flexibility of using as much computer emphasis as desired for the course.
MindTap Reader includes appendices for using R for statistical analysis. R is an open-source
programming language that is widely used in practice to perform statistical analysis. The use of
R typically requires more training than the use of software such as JMP or Excel, but the soft-
ware is extremely powerful. To ease students’ introduction to the R language, we also use
RStudio which provides an integrated development environment for R.
Changes in the 14th Edition

We appreciate the acceptance and positive response to the previous editions of Statistics for
Business and Economics. Accordingly, in making modifications for this new edition, we
have maintained the presentation style and readability of those editions. There have been
many changes made throughout the text to enhance its educational effectiveness. The most
substantial changes in the new edition are summarized here.
Content Revisions
oftware. In addition to step-by-step instructions in the software appendices for
S
Excel 2016, we also provide instructions for JMP Student Edition 14 and R. This
provides students exposure to and experience with the current versions of several of
the most commonly used software for statistical analysis in business. Excel 2016 and
JMP appendices are contained within the textbook chapters, while R appendices are
provided in MindTap Reader. In this latest edition, we no longer provide discussion of
the use of Minitab.
xxvi Preface
ase Problems. We have added 12 new case problems in this edition; the total num-
C
ber of cases is now 42. One new case on graphical display has been added to Chapter
2. Two new cases using discrete probability distributions have been added to Chapter
5, and one new case using continuous probability distributions has been added to
Chapter 6. A new case on hypothesis testing has been added to Chapter 11, and two
new cases on testing proportions have been added to Chapter 12. The Chapter 16
case on regression model building has been updated. A new case utilizing nonpara-
metric procedures has been added to Chapter 18, and a new case on sample survey
has been added to Chapter 22. The 42 case problems in this book provide students
the opportunity to work on more complex problems, analyze larger data sets, and
prepare managerial reports based on the results of their analyses.
xamples and Exercises Based on Real Data. In this edition, we have added headers
E
to all Applications exercises to make the application of each problem more obvious.
We continue to make a substantial effort to update our text examples and exercises with
the most current real data and referenced sources of statistical information. We have
added more than 160 new examples and exercises based on real data and referenced
sources. Using data from sources also used by The Wall Street Journal, USA Today,
The Financial Times, and others, we have drawn from actual studies and applications
to develop explanations and create exercises that demonstrate the many uses of stat-
istics in business and economics. We believe that the use of real data from interesting
and relevant problems helps generate more student interest in the material and enables
the student to learn about both statistical methodology and its application. The 14th
edition contains more than 350 examples and exercises based on real data.
Features and Pedagogy

Authors Anderson, Sweeney, Williams, Camm, Cochran, Fry, and Ohlmann have continued many
of the features that appeared in previous editions. Important ones for students are noted here.
Methods Exercises and Applications Exercises

The end-of-section exercises are split into two parts, Methods and Applications. The Meth-
ods exercises require students to use the formulas and make the necessary computations. The
Applications exercises require students to use the chapter material in real-world situations.
Thus, students first focus on the computational “nuts and bolts” and then move on to the
subtleties of statistical application and interpretation.
Margin Annotations and Notes and Comments

Margin annotations that highlight key points and provide additional insights for the student are a
key feature of this text. These annotations, which appear in the margins, are designed to provide
emphasis and enhance understanding of the terms and concepts being presented in the text.
At the end of many sections, we provide Notes and Comments designed to give the
student additional insights about the statistical methodology and its application. Notes and
Comments include warnings about or limitations of the methodology, recommendations for
application, brief descriptions of additional technical considerations, and other matters.
Data Files Accompany the Text

Over 200 data files accompany this text. Data files are provided in Excel format and step-
by-step instructions on how to open Excel files in JMP are provided in Appendix 1.1. Files
for use with R are provided in comma-separated-value (CSV) format for easy loading into
the R environment. Step-by-step instructions for importing CSV files into R are provided in
MindTap Reader Appendix R 1.2.
The data files can be accessed from WebAssign within the resources section, directly
within the MindTap Reader by clicking on the DATAfile icon, or online directly at
www.cengage.com/decisionsciences/anderson/sbe/14e.
Preface xxvii
Acknowledgments
We would like to acknowledge the work of our reviewers, who provided comments and sug-
gestions of ways to continue to improve our text. Thanks to
AbouEl-Makarim Aboueissa, Reidar Hagtvedt Claudiney Pereira
University of Southern Maine University of Alberta Tulane University
Kathleen Arano School of Business J. G. Pitt
Fort Hays State University Clifford B. Hawley University of Toronto
Musa Ayar West Virginia University Scott A. Redenius
Uw-baraboo/Sauk County Vance A. Hughey Brandeis University
Kathleen Burke Western Nevada College Sandra Robertson
SUNY Cortland Tony Hunnicutt Thomas Nelson
Ouachita Technical College Community College
YC Chang
University of Notre Stacey M. Jones Sunil Sapra
Dame Albers School of Business California State University,
and Economics, Seattle Los Angeles
David Chen
University Kyle Vann Scott
Rosemont College and
Saint Joseph’s University Dukpa Kim Snead State Community
University of Virginia College
Margaret E. Cochran
Northwestern State University Rajaram Krishnan Rodney E. Stanley
of Louisiana Earlham College Tennessee State University
Thomas A. Dahlstrom Robert J. Lemke Jennifer Strehler
Eastern University Lake Forest College Oakton Community College
Anne Drougas Philip J. Mizzi Ronald Stunda
Dominican University Arizona State University Valdosta State University
Fesseha Gebremikael Strayer Mehdi Mohaghegh Norwich Cindy van Es
University/Calhoun Community University Cornell University
College Mihail Motzev Jennifer VanGilder
Malcolm C. Gold Walla Walla University Ursinus College
University of Wisconsin— Somnath Mukhopadhyay Jacqueline Wroughton
Marshfield/Wood County The University of Texas Northern Kentucky
Joel Goldstein at El Paso University
Western Connecticut State Kenneth E. Murphy Dmitry Yarushkin
University Chapman University Grand View University
Jim Grant Ogbonnaya John Nwoha David Zimmer
Lewis & Clark College Grambling State University Western Kentucky University
We continue to owe debt to our many colleagues and friends for their helpful c omments
and suggestions in the development of this and earlier editions of our text. Among them are:
Mohammad Ahmadi James Brannon Richard Claycombe

University of Tennessee University of Wisconsin— McDaniel College
at Chattanooga Oshkosh Robert Cochran
Lari Arjomand John Bryant University of Wyoming
Clayton College and State University of Pittsburgh Robert Collins
University Peter Bryant Marquette University
Robert Balough University of Colorado David W. Cravens
Clarion University Terri L. Byczkowski Texas Christian University
Philip Boudreaux University of Cincinnati Tom Dahlstrom
University of Louisiana Robert Carver Eastern College
Mike Bourke Stonehill College
Houston Baptist University
xxviii Preface
Gopal Dorai John S. Loucks Bill Seaver

William Patterson University St. Edward’s University University of Tennessee
Nicholas Farnum David Lucking-Reiley Alan Smith
California State Vanderbilt University Robert Morris College
University—Fullerton Bala Maniam Willbann Terpening
Donald Gren Sam Houston State University Gonzaga University
Salt Lake Community Ted Tsukahara
College Don Marx
University of Alaska, St. Mary’s College of
Paul Guy
California State Anchorage California
University—Chico Tom McCullough Hroki Tsurumi
Clifford Hawley University of California— Rutgers University
Berkeley David Tufte
West Virginia University
Ronald W. Michener University of New Orleans
Jim Hightower University of Virginia Victor Ukpolo
California State Glenn Milligan Austin Peay State University
University, Fullerton Ohio State University Ebenge Usip
Alan Humphrey Mitchell Muesham Youngstown State
University of Rhode Island Sam Houston State University University
Ann Hussein Roger Myerson Cindy Van Es
Philadelphia College of Northwestern University Cornell University
Textiles and Science
Richard O’Connell Jack Vaughn
C. Thomas Innis Miami University of Ohio University of Texas-El Paso
Alan Olinsky Andrew Welki
Ben Isselhardt Bryant College John Carroll University
Rochester Institute of
Technology Ceyhun Ozgur Ari Wijetunga
Valparaiso University Morehead State University
Jeffery Jarrett
University of Rhode Island Tom Pray J. E. Willis
Rochester Institute Louisiana State University
Ronald Klimberg
St. Joseph’s University of Technology Mustafa Yilmaz
Harold Rahmlow Northeastern University
David A. Kravitz
George Mason University St. Joseph’s University Gary Yoshimoto
St. Cloud State University
David Krueger H. V. Ramakrishna
St. Cloud State University Yan Yu
Penn State University at Great University of Cincinnati
John Leschke Valley
University of Virginia Charles Zimmerman
Tom Ryan Robert Morris College
Martin S. Levy Case Western Reserve
University of Cincinnati University
We thank our associates from business and industry who supplied the Statistics in P ractice
features. We recognize them individually by a credit line in each of the articles. We are also
indebted to our senior product manager, Aaron Arnsparger; our learning designer, Brandon
Foltz; our content manager, Conor Allen; our project manager at MPS Limited, Manoj
Kumar; and others at Cengage for their editorial counsel and support during the prepartion
of this text.
David R. Anderson
Dennis J. Sweeney
Thomas A. Williams
Jeffrey D. Camm
James J. Cochran
Michael J. Fry
Jeffrey W. Ohlmann
Chapter 1
Data and Statistics
CONTENTS
STATISTICS IN PRACTICE:
Bloomberg bUSINESSWEEK
1.1 APPLICATIONS IN BUSINESS AND ECONOMICS

Accounting
Finance
Marketing
Production
Economics
Information Systems
1.2 DATA
Elements, Variables, and Observations
Scales of Measurement
Categorical and Quantitative Data
Cross-Sectional and Time Series Data
1.3 DATA SOURCES
Existing Sources
Observational Study
Experiment
Time and Cost Issues
Data Acquisition Errors
1.4 DESCRIPTIVE STATISTICS
1.5 STATISTICAL INFERENCE
1.6 ANALYTICS
1.7 BIG DATA AND DATA MINING
1.8 COMPUTERS AND STATISTICAL ANALYSIS
1.9 ETHICAL GUIDELINES FOR STATISTICAL PRACTICE
Summary 21
Glossary 21
Appendix 1.1 Opening and Saving DATA Files and
Converting to Stacked Form with JMP
2 Chapter 1 Data and Statistics
S TAT I S T I C S I N P R A C T I C E
Bloomberg Businessweek*
NEW YORK, NEW YORK
Bloomberg Businessweek is one of the most widely read
business magazines in the world. Along with feature
articles on current topics, the magazine contains articles
on international business, economic analysis, information
processing, and science and technology. Information in
the feature articles and the regular sections helps readers
stay abreast of current developments and assess the im-
pact of those developments on business and economic
conditions.
Most issues of Bloomberg Businessweek provide an
in-depth report on a topic of current interest. Often, the
in-depth reports contain statistical facts and summaries
that help the reader understand the business and eco-
nomic information. Examples of articles and reports in-
clude the impact of businesses moving important work
to cloud computing, the crisis facing the U.S. Postal
Service, and why the debt crisis is even worse than we Bloomberg Businessweek uses statistical facts and summaries
think. In addition, Bloomberg Businessweek provides a in many of its articles. AP Images/Weng lei-Imaginechina
variety of statistics about the state of the economy, in-
cluding production indexes, stock prices, mutual funds,
Businessweek managers to subscriber interest in articles
and interest rates.
about new developments in computers. The results
Bloomberg Businessweek also uses statistics and
of the subscriber survey are also made available to
statistical information in managing its own business.
potential advertisers. The high percentage of subscrib-
For example, an annual survey of subscribers helps
ers involved with computer purchases at work would be
the company learn about subscriber demographics,
an incentive for a computer manufacturer to consider
reading habits, likely purchases, lifestyles, and so on.
advertising in Bloomberg Businessweek.
Bloomberg Businessweek managers use statistical
In this chapter, we discuss the types of data available
summaries from the survey to provide better services
for statistical analysis and describe how the data are ob-
to subscribers and advertisers. One North American
tained. We introduce descriptive statistics and statistical
subscriber survey indicated that 64% of Bloomberg
inference as ways of converting data into meaningful
Businessweek subscribers are involved with computer
and easily interpreted statistical information.
purchases at work. Such statistics alert Bloomberg
*The authors are indebted to Charlene Trentham, Research Manager,

for providing the context for this Statistics in Practice.
Frequently, we see the following types of statements in newspapers and magazines:

●● Unemployment dropped to an 18-year low of 3.8% in May 2018 from 3.9% in
April and after holding at 4.1% for the prior six months (Wall Street Journal,
June 1, 2018).
●● Tesla ended 2017 with around $5.4 billion of liquidity. Analysts forecast it
will burn through $2.8 billion of cash this year (Bloomberg Businessweek,
April 19, 2018).
●● The biggest banks in America reported a good set of earnings for the first three
months of 2018. Bank of America and Morgan Stanley made quarterly net profits of
$6.9 billion and $2.7 billion, respectively (The Economist, April 21, 2018).
●● According to a study from the Pew Research Center, 15% of U.S. adults say they
have used online dating sites or mobile apps (Wall Street Journal, May 2, 2018).
1.1 Applications in Business and Economics 3
●● According to the U.S. Centers for Disease Control and Prevention, in the United
States alone, at least 2 million illnesses and 23,000 deaths can be attributed each year
to antibiotic-resistant bacteria (Wall Street Journal, February 13, 2018).
The numerical facts in the preceding statements—3.8%, 3.9%, 4.1%, $5.4 billion, $2.8
billion $6.9 billion, $2.7 billion, 15%, 2 million, 23,000—are called statistics. In this
usage, the term statistics refers to numerical facts such as averages, medians, percentages,
and maximums that help us understand a variety of business and economic situations.
However, as you will see, the subject of statistics involves much more than numerical facts.
In a broader sense, statistics is the art and science of collecting, analyzing, presenting,
and interpreting data. Particularly in business and economics, the information provided by
collecting, analyzing, presenting, and interpreting data gives managers and decision makers
a better understanding of the business and economic environment and thus enables them to
make more informed and better decisions. In this text, we emphasize the use of statistics
for business and economic decision making.
Chapter 1 begins with some illustrations of the applications of statistics in business
and economics. In Section 1.2 we define the term data and introduce the concept of a data
set. This section also introduces key terms such as variables and observations, discusses
the difference between quantitative and categorical data, and illustrates the uses of cross-
sectional and time series data. Section 1.3 discusses how data can be obtained from
existing sources or through survey and experimental studies designed to obtain new data.
The uses of data in developing descriptive statistics and in making statistical inferences are
described in Sections 1.4 and 1.5. The last four sections of Chapter 1 provide an introduc-
tion to business analytics and the role statistics plays in it, an introduction to big data and
data mining, the role of the computer in statistical analysis, and a discussion of ethical
guidelines for statistical practice.
1.1 Applications in Business and Economics

In today’s global business and economic environment, anyone can access vast amounts of
statistical information. The most successful managers and decision makers understand the
information and know how to use it effectively. In this section, we provide examples that
illustrate some of the uses of statistics in business and economics.
Accounting
Public accounting firms use statistical sampling procedures when conducting audits for
their clients. For instance, suppose an accounting firm wants to determine whether the
amount of accounts receivable shown on a client’s balance sheet fairly represents the
actual amount of accounts receivable. Usually the large number of individual accounts
receivable makes reviewing and validating every account too time-consuming and expen-
sive. As common practice in such situations, the audit staff selects a subset of the accounts
called a sample. After reviewing the accuracy of the sampled accounts, the auditors draw
a conclusion as to whether the accounts receivable amount shown on the client’s balance
sheet is acceptable.
Finance
Financial analysts use a variety of statistical information to guide their investment
recommendations. In the case of stocks, analysts review financial data such as price/
earnings ratios and dividend yields. By comparing the information for an individual
stock with information about the stock market averages, an analyst can begin to draw
a conclusion as to whether the stock is a good investment. For example, the average
dividend yield for the S&P 500 companies for 2017 was 1.88%. Over the same period,
the average dividend yield for Microsoft was 1.72% (Yahoo Finance). In this case, the
statistical information on dividend yield indicates a lower dividend yield for Microsoft
than the average dividend yield for the S&P 500 companies. This and other information
about Microsoft would help the analyst make an informed buy, sell, or hold recommen-
dation for Microsoft stock.
Marketing
Electronic scanners at retail checkout counters collect data for a variety of marketing
research applications. For example, data suppliers such as The Nielsen Company and
IRI purchase point-of-sale scanner data from grocery stores, process the data, and then
sell statistical summaries of the data to manufacturers. Manufacturers spend hundreds of
thousands of dollars per product category to obtain this type of scanner data. Manufactur-
ers also purchase data and statistical summaries on promotional activities such as special
pricing and the use of in-store displays. Brand managers can review the scanner statistics
and the promotional activity statistics to gain a better understanding of the relationship
between promotional activities and sales. Such analyses often prove helpful in establishing
future marketing strategies for the various products.
Production
Today’s emphasis on quality makes quality control an important application of statistics in
production. A variety of statistical quality control charts are used to monitor the output of
a production process. In particular, an x-bar chart can be used to monitor the average out-
put. Suppose, for example, that a machine fills containers with 12 ounces of a soft drink.
Periodically, a production worker selects a sample of containers and computes the average
number of ounces in the sample. This average, or x-bar value, is plotted on an x-bar chart.
A plotted value above the chart’s upper control limit indicates overfilling, and a plotted
value below the chart’s lower control limit indicates underfilling. The process is termed “in
control” and allowed to continue as long as the plotted x-bar values fall between the chart’s
upper and lower control limits. Properly interpreted, an x-bar chart can help determine
when adjustments are necessary to correct a production process.
Economics
Economists frequently provide forecasts about the future of the economy or some aspect
of it. They use a variety of statistical information in making such forecasts. For instance,
in forecasting inflation rates, economists use statistical information on such indicators as
the Producer Price Index, the unemployment rate, and manufacturing capacity utilization.
Often these statistical indicators are entered into computerized forecasting models that
predict inflation rates.
Information Systems
Information systems administrators are responsible for the day-to-day operation of an
organization’s computer networks. A variety of statistical information helps administra-
tors assess the performance of computer networks, including local area networks (LANs),
wide area networks (WANs), network segments, intranets, and other data communication
systems. Statistics such as the mean number of users on the system, the proportion of time
any component of the system is down, and the proportion of bandwidth utilized at various
times of the day are examples of statistical information that help the system administrator
better understand and manage the computer network.
Applications of statistics such as those described in this section are an integral part of
this text. Such examples provide an overview of the breadth of statistical applications. To
supplement these examples, practitioners in the fields of business and economics provided
chapter-opening Statistics in Practice articles that introduce the material covered in each
chapter. The Statistics in Practice applications show the importance of statistics in a wide
variety of business and economic situations.
1.2 Data 5
1.2 Data
Data are the facts and figures collected, analyzed, and summarized for presentation and
interpretation. All the data collected in a particular study are referred to as the data set for
the study. Table 1.1 shows a data set containing information for 60 nations that participate
in the World Trade Organization. The World Trade Organization encourages the free flow
of international trade and provides a forum for resolving trade disputes.
Elements, Variables, and Observations

Elements are the entities on which data are collected. Each nation listed in Table 1.1 is an
element with the nation or element name shown in the first column. With 60 nations, the
data set contains 60 elements.
A variable is a characteristic of interest for the elements. The data set in Table 1.1
includes the following five variables:
●● WTO Status: The nation’s membership status in the World Trade Organization; this
can be either as a member or an observer.
●● Per Capita Gross Domestic Product (GDP) ($): The total market value ($) of all
goods and services produced by the nation divided by the number of people in the
nation; this is commonly used to compare economic productivity of the nations.
●● Fitch Rating: The nation’s sovereign credit rating as appraised by the Fitch Group1;
the credit ratings range from a high of AAA to a low of F and can be modified by
+ or −.
●● Fitch Outlook: An indication of the direction the credit rating is likely to move over
the upcoming two years; the outlook can be negative, stable, or positive.
Measurements collected on each variable for every element in a study provide the data.
The set of measurements obtained for a particular element is called an observation. Refer-
ring to Table 1.1, we see that the first observation (Armenia) contains the following mea-
surements: Member, 3615, BB-, and Stable. The second observation (Australia) contains
the following measurements: Member, 49755, AAA, and Stable and so on. A data set with
60 elements contains 60 observations.
Scales of Measurement
Data collection requires one of the following scales of measurement: nominal, ordinal,
interval, or ratio. The scale of measurement determines the amount of information con-
tained in the data and indicates the most appropriate data summarization and statistical
analyses.
When the data for a variable consist of labels or names used to identify an attribute
of the element, the scale of measurement is considered a nominal scale. For example,
referring to the data in Table 1.1, the scale of measurement for the WTO Status variable is
nominal because the data “member” and “observer” are labels used to identify the status
category for the nation. In cases where the scale of measurement is nominal, a numerical
code as well as a nonnumerical label may be used. For example, to facilitate data collec-
tion and to prepare the data for entry into a computer database, we might use a numerical
code for the WTO Status variable by letting 1 denote a member nation in the World Trade
Organization and 2 denote an observer nation. The scale of measurement is nominal even
though the data appear as numerical values.
The scale of measurement for a variable is considered an ordinal scale if the data
exhibit the properties of nominal data and in addition, the order or rank of the data is
meaningful. For example, referring to the data in Table 1.1, the scale of measurement for
1
The Fitch Group is one of three nationally recognized statistical rating organizations designated by the U.S. Securities
and Exchange Commission. The other two are Standard & Poor’s and Moody’s.
TABLE 1.1 Data Set for 60 Nations in the World Trade Organization
Nation WTO Per Capita Fitch Fitch
Status GDP ($) Rating Outlook
Armenia Member 3,615 BB2 Stable
Australia Member 49,755 AAA Stable
Austria Member 44,758 AAA Stable
Azerbaijan Observer 3,879 BBB2 Stable
Bahrain Member 22,579 BBB Stable
Belgium Member 41,271 AA Stable
Brazil Member 8,650 BBB Stable
Bulgaria Member 7,469 BBB2 Stable
Canada Member 42,349 AAA Stable
Cape Verde Member 2,998 B1 Stable
Chile Member 13,793 A1 Stable
China Member 8,123 A1 Stable
Colombia Member 5,806 BBB2 Stable
Costa Rica Member 11,825 BB+ Stable
Croatia Member 12,149 BBB2 Negative
Cyprus Member 23,541 B Negative
Nations Czech Republic Member 18,484 A1 Stable
Denmark Member 53,579 AAA Stable
Ecuador Member 6,019 B2 Positive
Egypt Member 3,478 B Negative
El Salvador Member 4,224 BB Negative
Estonia Member 17,737 A1 Stable
France Member 36,857 AAA Negative
Georgia Member 3,866 BB2 Stable
Germany Member 42,161 AAA Stable
Hungary Member 12,820 BB1 Stable
Iceland Member 60,530 BBB Stable
Ireland Member 64,175 BBB1 Stable
Israel Member 37,181 A Stable
Italy Member 30,669 A2 Negative
Japan Member 38,972 A1 Negative
Kazakhstan Observer 7,715 BBB1 Stable
Kenya Member 1,455 B1 Stable
Latvia Member 14,071 BBB Positive
Lebanon Observer 8,257 B Stable
Lithuania Member 14,913 BBB Stable
Malaysia Member 9,508 A2 Stable
Mexico Member 8,209 BBB Stable
Peru Member 6,049 BBB Stable
Philippines Member 2,951 BB1 Stable
Poland Member 12,414 A2 Positive
Portugal Member 19,872 BB1 Negative
South Korea Member 27,539 AA2 Stable
Romania Member 9,523 BBB2 Stable
Russia Member 8,748 BBB Stable
Rwanda Member 703 B Stable
Serbia Observer 5,426 BB2 Negative
Singapore Member 52,962 AAA Stable
Slovakia Member 16,530 A1 Stable
1.2 Data 7
Slovenia Member 21,650 A2 Negative

South Africa Member 5,275 BBB Stable
Spain Member 26,617 A2 Stable
Sweden Member 51,845 AAA Stable
Switzerland Member 79,888 AAA Stable
Thailand Member 5,911 BBB Stable
Turkey Member 10,863 BBB2 Stable
United Kingdom Member 40,412 AAA Negative
Uruguay Member 15,221 BB1 Positive
United States Member 57,638 AAA Stable
Zambia Member 1,270 B1 Negative
the Fitch Rating is ordinal because the rating labels, which range from AAA to F, can be
rank ordered from best credit rating (AAA) to poorest credit rating (F). The rating letters
provide the labels similar to nominal data, but in addition, the data can also be ranked or
ordered based on the credit rating, which makes the measurement scale ordinal. Ordinal
data can also be recorded by a numerical code, for example, your class rank in school.
The scale of measurement for a variable is an interval scale if the data have all the
properties of ordinal data and the interval between values is expressed in terms of a fixed
unit of measure. Interval data are always numerical. College admission SAT scores are
an example of interval-scaled data. For example, three students with SAT math scores
of 620, 550, and 470 can be ranked or ordered in terms of best performance to poorest
performance in math. In addition, the differences between the scores are meaningful. For
instance, student 1 scored 620 − 550 = 70 points more than student 2, while student 2
scored 550 − 470 = 80 points more than student 3.
The scale of measurement for a variable is a ratio scale if the data have all the properties
of interval data and the ratio of two values is meaningful. Variables such as distance, height,
weight, and time use the ratio scale of measurement. This scale requires that a zero value be
included to indicate that nothing exists for the variable at the zero point. For example, con-
sider the cost of an automobile. A zero value for the cost would indicate that the automobile
has no cost and is free. In addition, if we compare the cost of $30,000 for one automobile to
the cost of $15,000 for a second automobile, the ratio property shows that the first automo-
bile is $30,000/$15,000 = 2 times, or twice, the cost of the second automobile.
Categorical and Quantitative Data

Data can be classified as either categorical or quantitative. Data that can be grouped by spe-
cific categories are referred to as categorical data. Categorical data use either the nominal
or ordinal scale of measurement. Data that use numeric values to indicate how much or
how many are referred to as quantitative data. Quantitative data are obtained using either
the interval or ratio scale of measurement.
The statistical method A categorical variable is a variable with categorical data, and a quantitative variable is
appropriate for summarizing a variable with quantitative data. The statistical analysis appropriate for a particular variable
data depends upon whether
depends upon whether the variable is categorical or quantitative. If the variable is categorical,
the data are categorical or
quantitative.
the statistical analysis is limited. We can summarize categorical data by counting the num-
ber of observations in each category or by computing the proportion of the observations in
each category. However, even when the categorical data are identified by a numerical code,
arithmetic operations such as addition, subtraction, multiplication, and division do not provide
meaningful results. Section 2.1 discusses ways of summarizing categorical data.
Arithmetic operations provide meaningful results for quantitative variables. For
example, quantitative data may be added and then divided by the number of observations
to compute the average value. This average is usually meaningful and easily interpreted. In
general, more alternatives for statistical analysis are possible when data are quantitative.
Section 2.2 and Chapter 3 provide ways of summarizing quantitative data.
Cross-Sectional and Time Series Data

For purposes of statistical analysis, distinguishing between cross-sectional data and time
series data is important. Cross-sectional data are data collected at the same or approx-
imately the same point in time. The data in Table 1.1 are cross-sectional because they
describe the five variables for the 60 World Trade Organization nations at the same point
in time. Time series data are data collected over several time periods. For example, the
time series in Figure 1.1 shows the U.S. average price per gallon of conventional regular
gasoline between 2012 and 2018. From January 2012 until June 2014, prices fluctuated be-
tween $3.19 and $3.84 per gallon before a long stretch of decreasing prices from July 2014
to January 2015. The lowest average price per gallon occurred in January 2016 ($1.68).
Since then, the average price appears to be on a gradual increasing trend.
Graphs of time series data are frequently found in business and economic publications.
Such graphs help analysts understand what happened in the past, identify any trends over
time, and project future values for the time series. The graphs of time series data can take
on a variety of forms, as shown in Figure 1.2. With a little study, these graphs are usually
easy to understand and interpret. For example, Panel (A) in Figure 1.2 is a graph that shows
the Dow Jones Industrial Average Index from 2008 to 2018. Poor economic conditions
caused a serious drop in the index during 2008 with the low point occurring in February
2009 (7062). After that, the index has been on a remarkable nine-year increase, reaching its
peak (26,149) in January 2018.
The graph in Panel (B) shows the net income of McDonald’s Inc. from 2008 to 2017. The
declining economic conditions in 2008 and 2009 were actually beneficial to McDonald’s as
the company’s net income rose to all-time highs. The growth in McDonald’s net income
showed that the company was thriving during the economic downturn as people were
cutting back on the more expensive sit-down restaurants and seeking less-expensive
alternatives offered by McDonald’s. McDonald’s net income continued to new all-time
highs in 2010 and 2011, decreased slightly in 2012, and peaked in 2013. After three years of
relatively lower net income, their net income increased to $5.19 billion in 2017.
Panel (C) shows the time series for the occupancy rate of hotels in South Florida over
a one-year period. The highest occupancy rates, 95% and 98%, occur during the months
FIGURE 1.1 U.S. Average Price per Gallon for Conventional Regular Gasoline
$4.50
$4.00
Average Price per Gallon
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Date
Source: Energy Information Administration, U.S. Department of Energy.
1.2 Data 9
Figure 1.2 A Variety of Graphs of Time Series Data
Dow Jones Industrial Average Index

30000
25000
20000
15000
10000
5000
08
09
10
11
12
13
14
15
16
17
18
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n-
n-
n-
n-
n-
n-
n-
n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Date
(A) Dow Jones Industrial Average Index
5
Net Income ($ billions)
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
(B) Net Income for McDonald’s Inc.
100
80
Percentage Occupied
60
40
20
0
n
p
n
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ug
ar
pr
ay
ct
ov
l
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Month
(C) Occupancy Rate of South Florida Hotels
of February and March when the climate of South Florida is attractive to tourists. In fact,
January to April of each year is typically the high-occupancy season for South Florida hotels.
On the other hand, note the low occupancy rates during the months of August to October,
with the lowest occupancy rate of 50% occurring in September. High temperatures and the
hurricane season are the primary reasons for the drop in hotel occupancy during this period.
N O T E S + C O M M E N T S
1. A
n observation is the set of measurements obtained for 2. Quantitative data may be discrete or continuous. Quanti-
each element in a data set. Hence, the number of obser- tative data that measure how many (e.g., number of calls
vations is always the same as the number of elements. received in 5 minutes) are discrete. Quantitative data that
The number of measurements obtained for each element measure how much (e.g., weight or time) are continuous
equals the number of variables. Hence, the total number because no separation occurs between the possible data
of data items can be determined by multiplying the num- values.
ber of observations by the number of variables.
1.3 Data Sources

Data can be obtained from existing sources, by conducting an observational study, or by
conducting an experiment.
Existing Sources
In some cases, data needed for a particular application already exist. Companies maintain a va-
riety of databases about their employees, customers, and business operations. Data on employee
salaries, ages, and years of experience can usually be obtained from internal personnel records.
Other internal records contain data on sales, advertising expenditures, distribution costs, inventory
levels, and production quantities. Most companies also maintain detailed data about their custom-
ers. Table 1.2 shows some of the data commonly available from internal company records.
Organizations that specialize in collecting and maintaining data make available sub-
stantial amounts of business and economic data. Companies access these external data
sources through leasing arrangements or by purchase. Dun & Bradstreet, Bloomberg, and
Dow Jones & Company are three firms that provide extensive business database services to
clients. The Nielsen Company and IRI built successful businesses collecting and process-
ing data that they sell to advertisers and product manufacturers.
Data are also available from a variety of industry associations and special interest organiza-
tions. The U.S. Travel Association maintains travel-related information such as the number of
TABLE 1.2 Examples of Data Available from Internal Company Records

Source Some of the Data Typically Available
Employee records Name, address, social security number, salary, number of vacation
days, number of sick days, and bonus
Production records Part or product number, quantity produced, direct labor cost, and
materials cost
Inventory records Part or product number, number of units on hand, reorder level,
economic order quantity, and discount schedule
Sales records Product number, sales volume, sales volume by region, and sales
volume by customer type
Credit records Customer name, address, phone number, credit limit, and accounts
receivable balance
Customer profile Age, gender, income level, household size, address, and preferences
1.3 Data Sources 11
TABLE 1.3 Examples of Data Available from Selected Government Agencies

Government Agency Some of the Data Available
Census Bureau Population data, number of households, and household income
Federal Reserve Board Data on the money supply, installment credit, exchange rates,
and discount rates
Office of Management Data on revenue, expenditures, and debt of the federal
and Budget government
Department of Commerce Data on business activity, value of shipments by industry, level of
profits by industry, and growing and declining industries
Bureau of Labor Statistics Consumer spending, hourly earnings, unemployment rate,
safety records, and international statistics
DATA.GOV More than150,000 data sets including agriculture, consumer,
education, health and manufacturing data
tourists and travel expenditures by states. Such data would be of interest to firms and individ-
uals in the travel industry. The Graduate Management Admission Council maintains data on
test scores, student characteristics, and graduate management education programs. Most of the
data from these types of sources are available to qualified users at a modest cost.
The Internet is an important source of data and statistical information. Almost all com-
panies maintain websites that provide general information about the company as well as
data on sales, number of employees, number of products, product prices, and product spec-
ifications. In addition, a number of companies, including Google, Yahoo, and others, now
specialize in making information available over the Internet. As a result, one can obtain
access to stock quotes, meal prices at restaurants, salary data, and an almost infinite variety
of information. Some social media companies such as Twitter provide application program-
ming interfaces (APIs) that allow developers to access large amounts of data generated by
users. These data can be extremely valuable to companies who want to know more about
how existing and potential customers feel about their products.
Government agencies are another important source of existing data. For instance, the web-
site DATA.GOV was launched by the U.S. government in 2009 to make it easier for the public
to access data collected by the U.S. federal government. The DATA.GOV website includes
more than 150,000 data sets from a variety of U.S. federal departments and agencies, but there
are many other federal agencies who maintain their own websites and data repositories. Table
1.3 lists selected governmental agencies and some of the data they provide. Figure 1.3 shows
the home page for the DATA.GOV website. Many state and local governments are also now
providing data sets online. As examples, the states of California and Texas maintain open data
portals at data.ca.gov and data.texas.gov, respectively. New York City’s open data website is
opendata.cityofnewyork.us, and the city of Cincinnati, Ohio, is at data.cincinnati-oh.gov.
Observational Study
In an observational study we simply observe what is happening in a particular situation,
record data on one or more variables of interest, and conduct a statistical analysis of the
resulting data. For example, researchers might observe a randomly selected group of cus-
tomers that enter a Walmart supercenter to collect data on variables such as the length of
time the customer spends shopping, the gender of the customer, the amount spent, and so
on. Statistical analysis of the data may help management determine how factors such as the
length of time shopping and the gender of the customer affect the amount spent.
As another example of an observational study, suppose that researchers were interested
in investigating the relationship between the gender of the CEO for a Fortune 500 company
and the performance of the company as measured by the return on equity (ROE). To obtain
data, the researchers selected a sample of companies and recorded the gender of the CEO
FIGURE 1.3 DATA.GOV Homepage
U.S. BUREAU OF LABOR STATISTICS HOMEPAGE

and the ROE for each company. Statistical analysis of the data can help determine the
relationship between performance of the company and the gender of the CEO. This exam-
ple is an observational study because the researchers had no control over the gender of the
CEO or the ROE at each of the companies that were sampled.
Surveys and public opinion polls are two other examples of commonly used observa-
tional studies. The data provided by these types of studies simply enable us to observe
opinions of the respondents. For example, the New York State legislature commissioned
a telephone survey in which residents were asked if they would support or oppose an in-
crease in the state gasoline tax in order to provide funding for bridge and highway repairs.
Statistical analysis of the survey results will assist the state legislature in determining if it
should introduce a bill to increase gasoline taxes.
The largest experimental stat- Experiment

istical study ever conducted is
believed to be the 1954 Public The key difference between an observational study and an experiment is that an experiment
Health Service experiment for is conducted under controlled conditions. As a result, the data obtained from a well-designed
the Salk polio vaccine. Nearly experiment can often provide more information as compared to the data obtained from exist-
2 million children in grades 1,
ing sources or by conducting an observational study. For example, suppose a pharmaceutical
2, and 3 were selected from
throughout the United States. company would like to learn about how a new drug it has developed affects blood pressure.
To obtain data about how the new drug affects blood pressure, researchers selected a sample
In Chapter 13, we discuss
statistical methods appropriate of individuals. Different groups of individuals are given different dosage levels of the new
for analyzing the data from an drug, and before and after data on blood pressure are collected for each group. Statistical
experiment. analysis of the data can help determine how the new drug affects blood pressure.
The types of experiments we deal with in statistics often begin with the identification of a
particular variable of interest. Then one or more other variables are identified and controlled so
that data can be obtained about how the other variables influence the primary variable of interest.
1.4 Descriptive Statistics 13
Time and Cost Issues

Anyone wanting to use data and statistical analysis as aids to decision making must be
aware of the time and cost required to obtain the data. The use of existing data sources is
desirable when data must be obtained in a relatively short period of time. If important data
are not readily available from an existing source, the additional time and cost involved
in obtaining the data must be taken into account. In all cases, the decision maker should
consider the contribution of the statistical analysis to the decision-making process. The cost
of data acquisition and the subsequent statistical analysis should not exceed the savings
generated by using the information to make a better decision.
Data Acquisition Errors

Managers should always be aware of the possibility of data errors in statistical studies. Us-
ing erroneous data can be worse than not using any data at all. An error in data acquisition
occurs whenever the data value obtained is not equal to the true or actual value that would
be obtained with a correct procedure. Such errors can occur in a number of ways. For
example, an interviewer might make a recording error, such as a transposition in writing
the age of a 24-year-old person as 42, or the person answering an interview question might
misinterpret the question and provide an incorrect response.
Experienced data analysts take great care in collecting and recording data to ensure that
errors are not made. Special procedures can be used to check for internal consistency of the
data. For instance, such procedures would indicate that the analyst should review the ac-
curacy of data for a respondent shown to be 22 years of age but reporting 20 years of work
experience. Data analysts also review data with unusually large and small values, called
outliers, which are candidates for possible data errors. In Chapter 3 we present some of the
methods statisticians use to identify outliers.
Errors often occur during data acquisition. Blindly using any data that happen to be
available or using data that were acquired with little care can result in misleading informa-
tion and bad decisions. Thus, taking steps to acquire accurate data can help ensure reliable
and valuable decision-making information.
1.4 Descriptive Statistics

Most of the statistical information in the media, company reports, and other publications
consists of data that are summarized and presented in a form that is easy for the reader to
understand. Such summaries of data, which may be tabular, graphical, or numerical, are
referred to as descriptive statistics.
Refer to the data set in Table 1.1 showing data for 60 nations that participate in the World
Trade Organization. Methods of descriptive statistics can be used to summarize these data.
For example, consider the variable Fitch Outlook, which indicates the direction the nation’s
credit rating is likely to move over the next two years. The Fitch Outlook is recorded as being
negative, stable, or positive. A tabular summary of the data showing the number of nations
with each of the Fitch Outlook ratings is shown in Table 1.4. A graphical summary of the
same data, called a bar chart, is shown in Figure 1.4. These types of summaries make the data
TABLE 1.4 requencies and Percent Frequencies for the Fitch Credit
F
Rating Outlook of 60 Nations
Fitch Outlook Frequency Percent Frequency (%)

Positive 4 6.7
Stable 44 73.2
Negative 12 20.0
FIGURE 1.4 Bar Chart for the Fitch Credit Rating Outlook for 60 Nations
80
70
Percentage Frequency
60
50
40
30
20
10
0
Negative Stable Positive
Fitch Outlook
easier to interpret. Referring to Table 1.4 and Figure 1.4, we can see that the majority of Fitch
Outlook credit ratings are stable, with 73.3% of the nations having this rating. More nations
have a negative outlook (20%) than a positive outlook (6.7%).
A graphical summary of the data for the quantitative variable Per Capita GDP in Table 1.1,
called a histogram, is provided in Figure 1.5. Using the histogram, it is easy to see that
FIGURE 1.5 Histogram of Per Capita Gdp for 60 Nations
30
25
20
Frequency
15
10
0
0–9,999 10,000– 20,000– 30,000– 40,000– 50,000– 60,000– 70,000–
19,999 29,999 39,999 49,999 59,999 69,999 79,999
Per Capita GDP ($)
1.5 Statistical Inference 15
Per Capita GDP for the 60 nations ranges from $0 to $80,000, with the highest concentration
between $0 and $10,000. Only one nation had a Per Capita GDP exceeding $70,000.
In addition to tabular and graphical displays, numerical descriptive statistics are used
to summarize data. The most common numerical measure is the average, or mean. Using
Chapters 2 and 3 devote atten- the data on Per Capita GDP for the 60 nations in Table 1.1, we can compute the average by
tion to the tabular, graphical, adding Per Capita GDP for all 60 nations and dividing the total by 60. Doing so provides
and numerical methods of
an average Per Capita GDP of $21,279. This average provides a measure of the central
descriptive statistics.
tendency, or central location of the data.
There is a great deal of interest in effective methods for developing and presenting
descriptive statistics.
1.5 Statistical Inference

Many situations require information about a large group of elements (individuals, compa-
nies, voters, households, products, customers, and so on). But, because of time, cost, and
other considerations, data can be collected from only a small portion of the group. The
larger group of elements in a particular study is called the population, and the smaller
group is called the sample. Formally, we use the following definitions.
POPULATION
A population is the set of all elements of interest in a particular study.
SAMPLE
A sample is a subset of the population.
The U.S. government conducts The process of conducting a survey to collect data for the entire population is called a
a census every 10 years.
census. The process of conducting a survey to collect data for a sample is called a sample
Market research firms conduct
sample surveys every day.
survey. As one of its major contributions, statistics uses data from a sample to make
estimates and test hypotheses about the characteristics of a population through a process
referred to as statistical inference.
As an example of statistical inference, let us consider the study conducted by Rogers
Industries. Rogers manufactures lithium batteries used in rechargeable electronics such as
laptop computers and tablets. In an attempt to increase battery life for its products, Rogers
has developed a new solid-state lithium battery that should last longer and be safer to use.
In this case, the population is defined as all lithium batteries that could be produced using
the new solid-state technology. To evaluate the advantages of the new battery, a sample of
200 batteries manufactured with the new solid-state technology were tested. Data collected
from this sample showed the number of hours each battery lasted before needing to be
recharged under controlled conditions. See Table 1.5.
Suppose Rogers wants to use the sample data to make an inference about the average
hours of battery life for the population of all batteries that could be produced with the
new solid-state technology. Adding the 200 values in Table 1.5 and dividing the total by
200 provides the sample average battery life: 18.84 hours. We can use this sample result
to estimate that the average lifetime for the batteries in the population is 18.84 hours.
Figure 1.6 provides a graphical summary of the statistical inference process for Rogers
Industries.
Whenever statisticians use a sample to estimate a population characteristic of interest,
they usually provide a statement of the quality, or precision, associated with the estimate.
For the Rogers Industries example, the statistician might state that the point estimate of the
average battery life is 18.84 hours ±.68 hours. Thus, an interval estimate of the average
battery life is 18.16 to 19.52 hours. The statistician can also state how confident he or she
is that the interval from 18.16 to 19.52 hours contains the population average.
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sweep
100 broom
101 washing
103 woods
snow
good-by
104 points
six
105 east
west
south
north
from
106 bright
107 barn
behind
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Statistics for Business & Economics

14e Edition David R. Anderson

Essentials of Statistics for Business & Economics 9th

Statistics For Business & Economics 13th Revised

Essentials of Modern Business Statistics with Microsoft

Applied Statistics in Business and Economics 5th

Applied Statistics in Business and Economics, 7e ISE

EBOOK: Economics for Business, 6e David Begg

Statistics for Business and Economics, 10th Global

Statistics for Business & Economics, Global Edition,

Australia Brazil Mexico Singapore United Kingdom United States

Senior Vice President, Higher Ed Product,

Content Manager: Conor Allen

Product Assistant: Renee Schnee Library of Congress Control Number: 2018965692

Marketing Manager: Chris Walz

To learn more about Cengage platforms and services, register or access

Printed in the United States of America

Chapter 1 Data and Statistics 1

Chapter 1 Data and Statistics 1

Chapter 2 Descriptive Statistics: Tabular and Graphical

2.2 Summarizing Data for a Quantitative Variable 42

Chapter 3 Descriptive Statistics: Numerical Measures 107

3.2 Measures of Variability 122

Chapter 4 Introduction to Probability 177

4.3 Some Basic Relationships of Probability 193

Chapter 5 Discrete Probability Distributions 223

Appendix 5.2 Discrete Probability Distributions with Excel 278

7.6 Sampling Distribution of p 343

Chapter 8 Interval Estimation 373

8.5 Big Data and Confidence Intervals 398

Chapter 9 Hypothesis Tests 417

Case Problem 2: Ethical Behavior of Business Students

Chapter 10 Inference About Means and Proportions with

Chapter 11 Inferences About Population Variances 525

Case Problem 2: Meticulous Drill & Reamer 547

Chapter 12  omparing Multiple Proportions, Test of

Chapter 13 Experimental Design and Analysis

13.4 Randomized Block Design 621

Chapter 14 Simple Linear Regression 653

14.9 Residual Analysis: Outliers and Influential Observations 703

Chapter 15 Multiple Regression 731

15.9 Logistic Regression 771

Chapter 16 Regression Analysis: Model Building 799

Supplementary Exercises 841

Chapter 17 Time Series Analysis and Forecasting 859

Chapter 18 Nonparametric Methods 931

Chapter 19 Decision Analysis 981

Chapter 20 Index Numbers 1013

20.3 Computing an Aggregate Price Index from Price Relatives 1019

Chapter 21  tatistical Methods for Quality Control 1033

Chapter 22 Sample Survey (MindTap Reader) 22-1

Appendix A References and Bibliography 1068

Appendix C Summation Notation 1097

Appendix D Answers to Even-Numbered Exercises (MindTap Reader)

Appendix F Computing p-Values with JMP and Excel 1107

Dennis J. Sweeney. Dennis J. Sweeney is Professor Emeritus of Quantitative Analysis and

Thomas A. Williams. Thomas A. Williams is Professor Emeritus of Management S ­ cience

Jeffrey W. Ohlmann. Jeffrey W. Ohlmann is Associate Professor of Management Sci-

Changes in the 14th Edition

Chapter 2 Descriptive Statistics: Tabular and Graphical

3.2 Measures of Variability 122

4.3 Some Basic Relationships of Probability 193

Appendix 5.2 Discrete Probability Distributions with Excel 278

Case Problem 2: Ethical Behavior of Business Students

Chapter 10 Inference About Means and Proportions with

Chapter 12 omparing Multiple Proportions, Test of

Chapter 13 Experimental Design and Analysis

13.4 Randomized Block Design 621

14.9 Residual Analysis: Outliers and Influential Observations 703

15.9 Logistic Regression 771

20.3 Computing an Aggregate Price Index from Price Relatives 1019

Chapter 21 tatistical Methods for Quality Control 1033

Appendix D Answers to Even-Numbered Exercises (MindTap Reader)

Appendix F Computing p-Values with JMP and Excel 1107

Thomas A. Williams. Thomas A. Williams is Professor Emeritus of Management S cience

1.1 Applications in Business and Economics

1.3 Data Sources

TABLE 1.2 Examples of Data Available from Internal Company Records

TABLE 1.3 Examples of Data Available from Selected Government Agencies

1.4 Descriptive Statistics

1.5 Statistical Inference