Basic Business Statistics

(9th Edition)

Chapter 3
Numerical Descriptive Measures

© 2003 Prentice-Hall, Inc. Chap 3-1

 Chapter Topics
 Measures of Central Tendency
 Mean, Median, Mode, Geometric Mean
 Quartile
 Measure of Variation
 Range, Interquartile Range, Variance and Standard
Deviation, Coefficient of Variation
 Shape
 Symmetric, Skewed, Using Box-and-Whisker Plots

Chap 3-2
© 2003 Prentice-Hall, Inc.
 Chapter Topics
(continued)

 The Empirical Rule and the Bienayme-

Chebyshev Rule
 Coefficient of Correlation
 Pitfalls in Numerical Descriptive Measures and
Ethical Issues

Chap 3-3
© 2003 Prentice-Hall, Inc.
 Summary Measures
Summary Measures

Central Tendency Quartile Variation

Mean Mode
Median Range Coefficient of
Variation
Variance

Standard Deviation
Geometric Mean
Chap 3-4
© 2003 Prentice-Hall, Inc.
 Measures of Central Tendency
Central Tendency

Mean Median Mode

n

X i
Geometric Mean
X  i 1

n X G   X 1  X 2   X n 
N 1/ n

X i
 i 1

N
Chap 3-5
© 2003 Prentice-Hall, Inc.
 Mean (Arithmetic Mean)
 Mean (Arithmetic Mean) of Data Values
 Sample mean
n Sample Size
X i
X1  X 2    X n
X i 1

n n
 Population mean
N Population Size
X i
X1  X 2    X N
 i 1

N N
Chap 3-6
© 2003 Prentice-Hall, Inc.
 Mean (Arithmetic Mean)
(continued)

 The Most Common Measure of Central

Tendency
 Affected by Extreme Values (Outliers)

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

Mean = 5 Mean = 6

Chap 3-7
© 2003 Prentice-Hall, Inc.
 Mean (Arithmetic Mean)
(continued)

 Approximating the Arithmetic Mean

 Used when raw data are not available
c


m
j 1
j fj
X 
n
n  sample size
c  number of classes in the frequency distribution
m j  midpoint of the jth class
f j  frequencies of the jth class
Chap 3-8
© 2003 Prentice-Hall, Inc.
 Median
 Robust Measure of Central Tendency
 Not Affected by Extreme Values

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

Median = 5 Median = 5
 In an Ordered Array, the Median is the ‘Middle’
Number
 If n or N is odd, the median is the middle number
 If n or N is even, the median is the average of the 2
middle numbers

Chap 3-9
© 2003 Prentice-Hall, Inc.
 Mode
 A Measure of Central Tendency
 Value that Occurs Most Often
 Not Affected by Extreme Values
 There May Not Be a Mode
 There May Be Several Modes
 Used for Either Numerical or Categorical Data

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

Mode = 9 No Mode
Chap 3-10
© 2003 Prentice-Hall, Inc.
 Geometric Mean
 Useful in the Measure of Rate of Change of a
Variable Over Time
X G   X 1  X 2   X n 
1/ n

 Geometric Mean Rate of Return

 Measures the status of an investment over time

1/ n
RG  1  R1   1  R2     1  Rn  1
Chap 3-11
© 2003 Prentice-Hall, Inc.
 Example
An investment of $100,000 declined to $50,000 at the
end of year one and rebounded back to $100,000 at end
of year two:
R1  0.5 (or  50%) R2  1 (or 100% )
Average rate of return:
( 0.5)  (1)
R  0.25 (or 25%)
2
Geometric rate of return:
1/ 2
RG  1  0.5  1  1 1
1/ 2
 0.5    2   1  11/ 2  1  0 (or 0%)
Chap 3-12
© 2003 Prentice-Hall, Inc.
 Quartiles
 Split Ordered Data into 4 Quarters

25% 25% 25% 25%

Q1  Q2  Q3 
 Position of i-th Quartile i  n  1
Qi  
4
Data in Ordered Array: 11 12 13 16 16 17 18 21 22
19  1 12  13
Position of Q1   2.5 Q1   12.5

and 4
are Measures 2
of Noncentral Location
 Q1 = Median,
Q3 a Measure of Central Tendency
Q2
Chap 3-13
© 2003 Prentice-Hall, Inc.
 Measures of Variation
Variation

Variance Standard Deviation Coefficient

of Variation
Range Population Population
Variance Standard
Sample Deviation
Variance Sample
Standard
Interquartile Range
Deviation
Chap 3-14
© 2003 Prentice-Hall, Inc.
 Range
 Measure of Variation
 Difference between the Largest and the
Smallest Observations:
Range  X Largest  X Smallest
 Ignores How Data are Distributed
Range = 12 - 7 = 5 Range = 12 - 7 = 5

7 8 9 10 11 7 8 9 10 11
12 12
Chap 3-15
© 2003 Prentice-Hall, Inc.
 Interquartile Range
 Measure of Variation
 Also Known as Midspread
 Spread in the middle 50%
 Difference between the First and Third
Quartiles

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

Interquartile Range  Q3  Q1  17.5  12.5  5
 Not Affected by Extreme Values
Chap 3-16
© 2003 Prentice-Hall, Inc.
 Variance
 Important Measure of Variation
 Shows Variation about the Mean
 Sample Variance: n

X X
2
i
2
S  i 1

n 1
 Population Variance:
N

X 
2
i
2
  i 1

N Chap 3-17
© 2003 Prentice-Hall, Inc.
 Standard Deviation
 Most Important Measure of Variation
 Shows Variation about the Mean
 Has the Same Units as the Original Data
 Sample Standard Deviation: n

X X
2
i
S i 1

n 1
 Population Standard Deviation: N

X 
2
i
 i 1

N
Chap 3-18
© 2003 Prentice-Hall, Inc.
 Standard Deviation
(continued)

 Approximating the Standard Deviation

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

 m  X  fj
2

 j
j 1
S
n 1
n  sample size
c  number of classes in the frequency distribution
m j  midpoint of the jth class
f j  frequencies of the jth class
Chap 3-19
© 2003 Prentice-Hall, Inc.
 Comparing Standard Deviations
Data A Mean = 15.5
s = 3.338
11 12 13 14 15 16 17 18 19 20 21

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

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

Chap 3-20
© 2003 Prentice-Hall, Inc.
 Coefficient of Variation
 Measure of Relative Variation
 Always in Percentage (%)
 Shows Variation Relative to the Mean
 Used to Compare Two or More Sets of Data
Measured in Different Units

S 
CV   100%
X 
 Sensitive to Outliers
Chap 3-21
© 2003 Prentice-Hall, Inc.
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50
 Standard deviation = $2
 Stock B:
 Average price last year = $100
 Standard deviation = $5
 Coefficient of Variation:
 Stock A: S   $2 
CV    100%    100%  4%
X   $50 
 Stock B:
S   $5 
CV   100%   100%  5%
© 2003 Prentice-Hall, Inc.
X   $100  Chap 3-22
 Shape of a Distribution
 Describe How Data are Distributed
 Measures of Shape
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

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

Chap 3-23
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 Exploratory Data Analysis
 Box-and-Whisker
 Graphical display of data using 5-number summary

Median( Q2) Xlargest

X smallest Q Q3
1

4 6 8 10 12
Chap 3-24
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 Distribution Shape &
Box-and-Whisker

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1Q2Q3 Q1 Q2 Q3

Chap 3-25
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 The Empirical Rule
 For Most Data Sets, Roughly 68% of the
Observations Fall Within 1 Standard Deviation
Around the Mean
 Roughly 95% of the Observations Fall Within
2 Standard Deviations Around the Mean
 Roughly 99.7% of the Observations Fall
Within 3 Standard Deviations Around the
Mean

Chap 3-26
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 The Bienayme-Chebyshev Rule
 The Percentage of Observations Contained
Within Distances of k Standard Deviations
Around the Mean Must Be at Least 1  1/ k 2 100%
 Applies regardless of the shape of the data set
 At least 75% of the observations must be contained
within distances of 2 standard deviations around the
mean
 At least 88.89% of the observations must be
contained within distances of 3 standard deviations
around the mean
 At least 93.75% of the observations must be
contained within distances of 4 standard deviations
around the mean Chap 3-27
© 2003 Prentice-Hall, Inc.
 Coefficient of Correlation
 Measures the Strength of the Linear
Relationship between 2 Quantitative Variables
n

X i  X Yi  Y 
 r i 1
n n

X X  Y  Y 
2 2
i i
i 1 i 1

Chap 3-28
© 2003 Prentice-Hall, Inc.
 Features of Correlation
Coefficient
 Unit Free
 Ranges between –1 and 1
 The Closer to –1, the Stronger the Negative
Linear Relationship
 The Closer to 1, the Stronger the Positive
Linear Relationship
 The Closer to 0, the Weaker Any Linear
Relationship
Chap 3-29
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 Scatter Plots of Data with
Various Correlation Coefficients
Y Y Y

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

X X
r = .6 r=1 Chap 3-30
© 2003 Prentice-Hall, Inc.
 Pitfalls in Numerical Descriptive
Measures and Ethical Issues
 Data Analysis is Objective
 Should report the summary measures that best meet the
assumptions about the data set
 Data Interpretation is Subjective
 Should be done in a fair, neutral and clear manner
 Ethical Issues
 Should document both good and bad results
 Presentation should be fair, objective and neutral
 Should not use inappropriate summary measures to
distort the facts

Chap 3-31
© 2003 Prentice-Hall, Inc.
 Chapter Summary
 Described Measures of Central Tendency
 Mean, Median, Mode, Geometric Mean
 Discussed Quartiles
 Described Measures of Variation
 Range, Interquartile Range, Variance and Standard
Deviation, Coefficient of Variation
 Illustrated Shape of Distribution
 Symmetric, Skewed, Using Box-and-Whisker Plots

Chap 3-32
© 2003 Prentice-Hall, Inc.
 Chapter Summary
(continued)

 Described the Empirical Rule and the

Bienayme-Chebyshev Rule
 Discussed Correlation Coefficient
 Addressed Pitfalls in Numerical Descriptive
Measures and Ethical Issues

Chap 3-33
© 2003 Prentice-Hall, Inc.