Mean Absolute Deviation

The mean absolute deviation (MAD) is a measure of variability that indicates the average distance between
observations and their mean. Larger values signify that the data points spread out further from the average.
Conversely, lower values correspond to data points bunching closer to it. The mean absolute deviation is also
known as the mean deviation and average absolute deviation. MAD uses the original units of the data, which
simplifies interpretation.

To calculate the Mean Absolute Deviation:

1. Find the mean (average) of the dataset.

2. For each data point, find the absolute difference between that data point and the mean.
3. Take the average of all these absolute differences.

MAD is calculated using the following formula:

\[ \text{MAD} = \frac{1}{n} \sum_{i=1}^{n} |x_i - \text{mean}| \]

Where:
- \( n \) is the number of data points in the dataset.
- \( x_i \) represents each individual data point.
- "mean" is the mean (average) of the dataset.
MAD provides a measure of how spread out the data points are around the mean, with a larger MAD indicating
greater variability in the data. It is particularly useful when dealing with datasets with outliers since it gives
equal weight to all deviations from the mean, regardless of their direction.

Step 1. Find the Mean (Average)

Let's say we have a dataset with \( n \) data points \( x_1, x_2, ..., x_n \). The mean of this dataset is given by:
\[ \text{Mean} = \frac{1}{n} \sum_{i=1}^{n} x_i \]

Step 2. Calculate deviations

Now, we find the deviation of each data point from the mean. The deviation of the \( i^{th} \) data point \( x_i \)
from the mean is:
\[ \text{Deviation}_i = x_i - \text{Mean} \]

Step 3. Find absolute deviations

We take the absolute value of each deviation to ensure we capture the magnitude of the difference, regardless
of direction:
\[ \text{Absolute Deviation}_i = |x_i - \text{Mean}| \]

Step 4. Calculate sum of absolute deviations

Next, we sum up all these absolute deviations:
\[ \text{Sum of Absolute Deviations} = \sum_{i=1}^{n} |x_i - \text{Mean}| \]

Step 5. Calculate the Mean Absolute Deviation:

Finally, we calculate the Mean Absolute Deviation by taking the average of these absolute deviations:
\[ \text{MAD} = \frac{1}{n} \sum_{i=1}^{n} |x_i - \text{Mean}| \]

This is the derived formula for Mean Absolute Deviation. It measures the average absolute deviation of each
data point from the mean of the dataset.

Mean Absolute Deviation (MAD) has several applications across various fields:

1. Finance and Economics- In finance, MAD is used to measure the dispersion or variability of returns on
investments. It helps investors understand the risk associated with an investment by quantifying how much the
returns deviate from the mean return.
- Economists use MAD to analyse economic data such as inflation rates, GDP growth rates, and
unemployment rates to assess the stability and variability of these indicators over time.

2. Quality Control- MAD is used in quality control to measure the variability of a process or product. For
example, in manufacturing, MAD can be used to assess the consistency of product dimensions or the quality
of output over time.

3. Retail and Supply Chain Management- Retailers use MAD to analyse sales data and forecast demand
variability for products. It helps them optimise inventory management and ensure sufficient stock levels to
meet customer demand while minimising excess inventory costs.
- Supply chain managers use MAD to evaluate the variability in lead times, transportation costs, and order
fulfilment times. This information is crucial for optimising supply chain operations and reducing the risk of
disruptions.
4. Meteorology and Climate Science- MAD is used in meteorology and climate science to analyse weather
and climate data. It helps researchers assess the variability of temperature, precipitation, and other
meteorological variables over time and across different geographic regions.

5. Education and Psychology- In educational research, MAD can be used to measure the variability in
student performance on standardised tests or academic assessments. It helps educators identify areas where
students may need additional support or intervention.
- Psychologists use MAD to analyse psychological test scores and assess the variability of responses within
a sample population. It helps them understand the distribution of traits or behaviours within a group.
Overall, Mean Absolute Deviation is a versatile statistical measure that provides valuable insights into the
variability and dispersion of data across a wide range of applications.

Hence, the MAD of the grouped data is \(5.056\).