© 2002 prentice-hall, inc.chap 3-1 basic business statistics (8 th edition) chapter 3 numerical...
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© 2002 Prentice-Hall, Inc. Chap 3-1
Basic Business Statistics(8th Edition)
Chapter 3Numerical Descriptive
Measures
© 2002 Prentice-Hall, Inc. Chap 3-2
Chapter Topics
Measures of central tendency Mean, median, mode, geometric mean,
midrange
Quartile Measure of variation
Range, Interquartile range, variance and standard deviation, coefficient of variation
Shape Symmetric, skewed, using box-and-whisker plots
© 2002 Prentice-Hall, Inc. Chap 3-3
Chapter Topics
Coefficient of correlation Pitfalls in numerical descriptive
measures and ethical considerations
(continued)
© 2002 Prentice-Hall, Inc. Chap 3-4
Summary Measures
Central Tendency
MeanMedian
Mode
Quartile
Geometric Mean
Summary Measures
Variation
Variance
Standard Deviation
Coefficient of Variation
Range
© 2002 Prentice-Hall, Inc. Chap 3-5
Measures of Central Tendency
Central Tendency
Average Median Mode
Geometric Mean1
1
n
ii
N
ii
XX
n
X
N
1/
12
n
Gn XXXX
© 2002 Prentice-Hall, Inc. Chap 3-6
Mean (Arithmetic Mean)
Mean (arithmetic mean) of data values Sample mean
Population mean
1 1 2
n
ii n
XX X X
Xn n
1 1 2
N
ii N
XX X X
N N
Sample Size
Population Size
© 2002 Prentice-Hall, Inc. Chap 3-7
Mean (Arithmetic Mean)
The most common measure of central tendency
Affected by extreme values (outliers)
(continued)
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
© 2002 Prentice-Hall, Inc. Chap 3-8
Median Robust measure of central tendency Not affected by extreme values
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 two middle numbers
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
© 2002 Prentice-Hall, Inc. Chap 3-9
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
Mode = 9
0 1 2 3 4 5 6
No Mode
© 2002 Prentice-Hall, Inc. Chap 3-10
Geometric Mean
Useful in the measure of rate of change of a variable over time
Geometric mean rate of return Measures the status of an investment over
time
1/
1 2
n
G nX X X X
1/
1 21 1 1 1n
G nR R R R
© 2002 Prentice-Hall, Inc. Chap 3-11
ExampleAn investment of $100,000 declined to $50,000 at
the end of year one and rebounded to $100,000 at end of year two:
1 2 3$100,000 $50,000 $100,000X X X
1/ 2
1/ 2 1/ 2
Average rate of return:
( 50%) (100%)25%
2Geometric rate of return:
1 50% 1 100% 1
0.50 2 1 1 1 0%
G
X
R
© 2002 Prentice-Hall, Inc. Chap 3-12
Quartiles Split Ordered Data into 4 Quarters
Position of i-th Quartile
and Are Measures of Noncentral Location = Median, A Measure of Central Tendency
25% 25% 25% 25%
1Q 2Q 3Q
Data in Ordered Array: 11 12 13 16 16 17 18 21 22
1 1
1 9 1 12 13Position of 2.5 12.5
4 2Q Q
1Q 3Q
2Q
1
4i
i nQ
© 2002 Prentice-Hall, Inc. Chap 3-13
Measures of Variation
Variation
Variance Standard Deviation Coefficient of Variation
PopulationVariance
Sample
Variance
PopulationStandardDeviationSample
Standard
Deviation
Range
Interquartile Range
© 2002 Prentice-Hall, Inc. Chap 3-14
Range
Measure of variation Difference between the largest and the
smallest observations:
Ignores the way in which data are distributed
Largest SmallestRange X X
7 8 9 10 11 12
Range = 12 - 7 = 5
7 8 9 10 11 12
Range = 12 - 7 = 5
© 2002 Prentice-Hall, Inc. Chap 3-15
Measure of variation Also known as midspread
Spread in the middle 50% Difference between the first and third
quartiles
Not affected by extreme values
3 1Interquartile Range 17.5 12.5 5Q Q
Interquartile Range
Data in Ordered Array: 11 12 13 16 16 17 17 18 21
© 2002 Prentice-Hall, Inc. Chap 3-16
2
2 1
N
ii
X
N
Important measure of variation Shows variation about the mean
Sample variance:
Population variance:
2
2 1
1
n
ii
X XS
n
Variance
© 2002 Prentice-Hall, Inc. Chap 3-17
Standard Deviation Most important measure of variation Shows variation about the mean Has the same units as the original data
Sample standard deviation:
Population standard deviation:
2
1
1
n
ii
X XS
n
2
1
N
ii
X
N
© 2002 Prentice-Hall, Inc. Chap 3-18
Comparing Standard Deviations
Mean = 15.5 s = 3.338 11 12 13 14 15 16 17 18 19 20 21
11 12 13 14 15 16 17 18 19 20 21
Data B
Data A
Mean = 15.5 s = .9258
11 12 13 14 15 16 17 18 19 20 21
Mean = 15.5 s = 4.57
Data C
© 2002 Prentice-Hall, Inc. Chap 3-19
Coefficient of Variation
Measures relative variation Always in percentage (%) Shows variation relative to mean Is used to compare two or more sets of
data measured in different units 100%
SCV
X
© 2002 Prentice-Hall, Inc. Chap 3-20
Comparing Coefficient of Variation
Stock A: Average price last year = $50 Standard deviation = $5
Stock B: Average price last year = $100 Standard deviation = $5
Coefficient of variation: Stock A:
Stock B:
$5100% 100% 10%
$50
SCV
X
$5100% 100% 5%
$100
SCV
X
© 2002 Prentice-Hall, Inc. Chap 3-21
Shape of a Distribution
Describes how data is distributed Measures of shape
Symmetric or skewed
Mean = Median =Mode Mean < Median < Mode Mode < Median < Mean
Right-SkewedLeft-Skewed Symmetric
© 2002 Prentice-Hall, Inc. Chap 3-22
Exploratory Data Analysis
Box-and-whisker plot Graphical display of data using 5-number
summary
Median( )
4 6 8 10 12
XlargestXsmallest1Q 3Q
2Q
© 2002 Prentice-Hall, Inc. Chap 3-23
Distribution Shape and Box-and-Whisker Plot
Right-SkewedLeft-Skewed Symmetric
1Q 1Q 1Q2Q 2Q 2Q3Q 3Q3Q
© 2002 Prentice-Hall, Inc. Chap 3-24
Coefficient of Correlation
Measures the strength of the linear relationship between two quantitative variables
1
2 2
1 1
n
i ii
n n
i ii i
X X Y Yr
X X Y Y
© 2002 Prentice-Hall, Inc. Chap 3-25
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 positive linear
relationship
© 2002 Prentice-Hall, Inc. Chap 3-26
Scatter Plots of Data with Various Correlation
CoefficientsY
X
Y
X
Y
X
Y
X
Y
X
r = -1 r = -.6 r = 0
r = .6 r = 1
© 2002 Prentice-Hall, Inc. Chap 3-27
Pitfalls in Numerical Descriptive
Measures 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 fair, neutral and clear
manner
© 2002 Prentice-Hall, Inc. Chap 3-28
Ethical Considerations
Numerical descriptive measures:
Should document both good and bad results
Should be presented in a fair, objective and neutral manner
Should not use inappropriate summary measures to distort facts
© 2002 Prentice-Hall, Inc. Chap 3-29
Chapter Summary
Described measures of central tendency Mean, median, mode, geometric mean,
midrange
Discussed quartile Described measure of variation
Range, interquartile range, variance and standard deviation, coefficient of variation
Illustrated shape of distribution Symmetric, skewed, box-and-whisker plots
© 2002 Prentice-Hall, Inc. Chap 3-30
Chapter Summary
Discussed correlation coefficient Addressed pitfalls in numerical
descriptive measures and ethical considerations
(continued)