Statistics for

Business and Economics

6th Edition

Chapter 3

Describing Data: Numerical

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-1
Chapter Goals
After completing this chapter, you should be able to:
 Compute and interpret the mean, median, and mode for a
set of data
 Find the range, variance, standard deviation, and
coefficient of variation and know what these values mean
 Apply the empirical rule to describe the variation of
population values around the mean
 Explain the weighted mean and when to use it

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-2
Chapter Topics
 Measures of central tendency, variation, and
shape
 Mean, median, mode, geometric mean
 Quartiles
 Range, interquartile range, variance and standard
deviation, coefficient of variation
 Symmetric and skewed distributions
 Population summary measures
 Mean, variance, and standard deviation
 The empirical rule and Bienaymé-Chebyshev rule

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-3
Chapter Topics
(continued)

 Five number summary and box-and-whisker

plots
 Covariance and coefficient of correlation
 Pitfalls in numerical descriptive measures and
ethical considerations

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-4
Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-5
Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

x i
x i1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-6
Arithmetic Mean
 The arithmetic mean (mean) is the most
common measure of central tendency
 For a population of N values:
N

x i
x1  x 2    x N Population
μ  i1
values
N N
Population size
 For a sample of size n:
n

x i
x1  x 2    x n Observed
x i1
 values
n n
Sample size
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-7
Arithmetic Mean
(continued)

 The most common measure of central tendency

 Mean = sum of values divided by the number of values
 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

Mean = 3 Mean = 4
1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-8
Median
 In an ordered list, the median is the “middle”
number (50% above, 50% below)

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

Median = 3 Median = 3

 Not affected by extreme values

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-9
Finding the Median

 The location of the median:

n 1
Median position  position in the ordered data
2
 If the number of values is odd, the median is the middle number
 If the number of values is even, the median is the average of
the two middle numbers

n 1
 Note that is not the value of the median, only the
2
position of the median in the ranked data

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-10
Mode
 A measure of central tendency
 Value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may may be no mode
 There may be several modes

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

No Mode
Mode = 9
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-11
Review Example
 Five houses on a hill by the beach
$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-12
Review Example:
Summary Statistics

House Prices:
 Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
 Median: middle value of ranked data
Sum 3,000,000
= $300,000

 Mode: most frequent value

= $100,000

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-13
Which measure of location
is the “best”?
 Mean is generally used, unless
extreme values (outliers) exist
 Then median is often used, since
the median is not sensitive to
extreme values.
 Example: Median home prices may be
reported for a region – less sensitive to
outliers

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-14
Shape of a Distribution

 Describes how data are distributed

 Measures of shape
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-15
Measures of Variability
Variation

Range Interquartile Variance Standard Coefficient

Range Deviation of Variation

 Measures of variation give

information on the spread or
variability of the data
values.

Same center,
different variation
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-16
Range
 Simplest measure of variation
 Difference between the largest and the smallest
observations:

Range = Xlargest – Xsmallest

Example:

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

Range = 14 - 1 = 13

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-17
Disadvantages of the Range
 Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5

 Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-18
Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate high- and low-valued observations

and calculate the range of the middle 50% of
the data

 Interquartile range = 3rd quartile – 1st quartile

IQR = Q3 – Q1

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-19
Interquartile Range

Example:
X Median X
minimum Q1 (Q2) Q3 maximum

25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-20
Quartiles
 Quartiles split the ranked data into 4 segments with
an equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3
 The first quartile, Q1, is the value for which 25% of the
observations are smaller and 75% are larger
 Q2 is the same as the median (50% are smaller, 50% are
larger)
 Only 25% of the observations are greater than the third
quartile

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-21
Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = 0.25(n+1)

Second quartile position: Q2 = 0.50(n+1)

(the median position)

Third quartile position: Q3 = 0.75(n+1)

where n is the number of observed values

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-22
Quartiles

 Example: Find the first quartile

Sample Ranked Data: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 = is in the 0.25(9+1) = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-23
Population Variance

 Average of squared deviations of values from

the mean
N
 Population variance:
2
 (x  μ)
i
2

σ  i1
N -1
Where μ = population mean
N = population size
xi = ith value of the variable x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-24
Sample Variance

 Average (approximately) of squared deviations

of values from the mean
n
 Sample variance:
2
 (x  x)
i
2

s  i 1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-25
Population Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data

 Population standard deviation:

 i
(x  μ) 2

σ i1
N -1
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-26
Sample Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data

n
 Sample standard deviation:
 (x  x)
i
2

S i 1
n -1

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-27
Calculation Example:
Sample Standard Deviation
Sample
Data (xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16

(10  X)2  (12  x)2  (14  x)2    (24  x)2

s
n 1

(10  16) 2  (12  16) 2  (14  16) 2    (24  16) 2


8 1

126 A measure of the “average”

  4.2426 scatter around the mean
7
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-28
Measuring variation

Small standard deviation

Large standard deviation

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-29
Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 0.926

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.570

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-30
Advantages of Variance and
Standard Deviation

 Each value in the data set is used in the

calculation

 Values far from the mean are given extra

weight
(because deviations from the mean are squared)

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-31
The Empirical Rule
 If the data distribution is bell-shaped, then
the interval:
 μ  1σ contains about 68% of the values in
the population or the sample

68%

μ
μ  1σ
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-34
The Empirical Rule

μ  2σ contains about 95% of the values in
the population or the sample
 μ  3σ contains about 99.7% of the values
in the population or the sample

95% 99.7%

μ  2σ μ  3σ

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-35
Weighted Mean

 The weighted mean of a set of data is

w x i i
w 1x1  w 2 x 2    w n x n
x i1

w  wi

Where wi is the weight of the ith observation

 Use when data is already grouped into n classes, with

wi values in the ith class

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-42
The Sample Covariance
 The covariance measures the strength of the linear relationship
between two variables

 The population covariance:

N

 (x   i x )(yi   y )
Cov (x , y)   xy  i1
N
 The sample covariance:
n

 (x  x)(y  y)
i i
Cov (x , y)  s xy  i 1
n 1
 Only concerned with the strength of the relationship
 No causal effect is implied
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-45
Interpreting Covariance

 Covariance between two variables:

Cov(x,y) > 0 x and y tend to move in the same direction

Cov(x,y) < 0 x and y tend to move in opposite directions

Cov(x,y) = 0 x and y are independent

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-46
Coefficient of Correlation
 Measures the relative strength of the linear relationship
between two variables

 Population correlation coefficient:

Cov (x , y)
ρ
σXσY
 Sample correlation coefficient:
Cov (x , y)
r
sX sY

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-47
Features of
Correlation Coefficient, r
 Unit free
 Ranges between –1 and 1
 The closer to –1, the stronger the negative linear
relationship
 The closer to 1, the stronger the positive linear
relationship
 The closer to 0, the weaker any positive linear
relationship

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-48
Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

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

X X X
r = +1 r = +.3 r=0
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-49
Chapter Summary
 Described measures of central tendency
 Mean, median, mode
 Illustrated the shape of the distribution
 Symmetric, skewed
 Described measures of variation
 Range, interquartile range, variance and standard deviation,
coefficient of variation
 Discussed measures of grouped data

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 3-55