Business Statistics

Dispersion measures and Some Basic

Probability Concepts

2003 Prentice-Hall, Inc.

Chap 3-1

Chapter Topics

Measure of Variation

Shape

Symmetric, Skewed

Basic Probability Concepts

Range, Variance and Standard Deviation, Coefficient of

Variation

Sample spaces and events, simple probability, joint

probability

Conditional Probability

Statistical independence, marginal probability

2003 Prentice-Hall, Inc.

Chap 3-2

Summary Measures
Summary Measures

Central Tendency
Mean

Quartile

Variation

Range

Coefficient of
Variation

Mode
Median

Variance
Standard Deviation
2003 Prentice-Hall, Inc.

Chap 3-3

Measures of Variation
Variation

Variance
Range

Population
Variance
Sample
Variance

Interquartile Range
2003 Prentice-Hall, Inc.

Standard Deviation

Coefficient
of Variation

Population
Standard
Deviation
Sample
Standard
Deviation
Chap 3-4

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

2003 Prentice-Hall, Inc.

10

11

12

10

11

12
Chap 3-5

Variance

Important Measure of Variation

Shows Variation About the Mean

Sample Variance:

S
2

X
i 1

n 1

Population Variance:
N

2003 Prentice-Hall, Inc.

X
i 1

Chap 3-6

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:

2003 Prentice-Hall, Inc.

X
i 1

n 1
N

X
i 1

N
Chap 3-7

Comparing Standard Deviations

Data A
11 12 13 14 15 16 17 18 19 20 21

Mean = 15.5
s = 3.338

Data B
11 12 13 14 15 16 17 18 19 20 21

Mean = 15.5
s = .9258

Data C
11 12 13 14 15 16 17 18 19 20 21
2003 Prentice-Hall, Inc.

Mean = 15.5
s = 4.57
Chap 3-8

Coefficient of Variation

Measure of Relative Variation

Always in Percentage (%)

Shows Variation Relative to Mean

Used to Compare Two or More Sets of Data

Measured in Different Units

S
CV
X

2003 Prentice-Hall, Inc.

100%

Chap 3-9

Shape of a Distribution

Describe How Data are Distributed

Measures of Shape

Symmetric or skewed

Left-Skewed
Mean < Median < Mode

2003 Prentice-Hall, Inc.

Symmetric
Mean = Median =Mode

Right-Skewed
Mode < Median < Mean

Chap 3-10

Some Basic Probability Concepts

2003 Prentice-Hall, Inc.

Chap 3-11

Sample Spaces

Collection of All Possible Outcomes

e.g. All 6 faces of a die:

e.g. All 52 cards of a bridge deck:

2003 Prentice-Hall, Inc.

Chap 3-12

Events

Simple Event

Outcome from a sample space with 1 characteristic

e.g. A Red Card from a deck of cards

Joint Event

Involves 2 outcomes simultaneously

e.g. An Ace which is also a Red Card from a deck
of cards

2003 Prentice-Hall, Inc.

Chap 3-13

Visualizing Events

Contingency Tables
Ace
Black
Red
Total

Tree Diagrams
Full
Deck
of Cards

2003 Prentice-Hall, Inc.

2
2
4

Not Ace
24
24
48

Total
26
26
52

Ace
Red
Cards

Black
Cards

Not an Ace
Ace
Not an Ace

Chap 3-14

Simple Events
The Event of a Happy Face

There are 5 happy faces in this collection of 18 objects

2003 Prentice-Hall, Inc.

Chap 3-15

Joint Events
The Event of a Happy Face AND Yellow

1 Happy Face which is Yellow

2003 Prentice-Hall, Inc.

Chap 3-16

Special Events

Impossible Event

Impossible event
e.g. Club & Diamond on 1 card
draw

Impossible Event

Complement of Event

2003 Prentice-Hall, Inc.

For event A, all events not in A

Denoted as A
e.g. A: Queen of Diamond
A: All cards in a deck that are not Queen of
Diamond
Chap 3-17

Special Events

Mutually Exclusive Events

Two events cannot occur together

e.g. A: Queen of Diamond; B: Queen of Club

(continued)

Events A and B are mutually exclusive

Collectively Exhaustive Events

One of the events must occur

The set of events covers the whole sample space
e.g. A: All the Aces; B: All the Black Cards; C: All the
Diamonds; D: All the Hearts

2003 Prentice-Hall, Inc.

Events A, B, C and D are collectively exhaustive

Events B, C and D are also collectively exhaustive
Chap 3-18

Contingency Table
A Deck of 52 Cards
Red Ace
Ace

Not an
Ace

Total

Red

24

26

Black

24

26

Total

48

52

Sample Space
2003 Prentice-Hall, Inc.

Chap 3-19

Tree Diagram
Event Possibilities

Full
Deck
of Cards

Red
Cards

Ace
Not an Ace

Ace
Black
Cards

Not an Ace
2003 Prentice-Hall, Inc.

Chap 3-20

Probability

Probability is the Numerical

Measure of the Likelihood
that an Event Will Occur

Certain

Value is Between 0 and 1

Sum of the Probabilities of
all Mutually Exclusive and
Collective Exhaustive Events
is 1

.5

0
2003 Prentice-Hall, Inc.

Impossible
Chap 3-21

Computing Probabilities

The Probability of an Event E:

number of event outcomes

P( E )
total number of possible outcomes in the sample space
X

T
e.g. P(
) = 2/36
(There are 2 ways to get one 6 and the other 4)

Each of the Outcomes in the Sample Space is

Equally Likely to Occur

2003 Prentice-Hall, Inc.

Chap 3-22

Computing Joint Probability

The Probability of a Joint Event, A and B:

P(A and B )
number of outcomes from both A and B

total number of possible outcomes in sample space

E.g. P(Red Card and Ace)

2 Red Aces
1

52 Total Number of Cards 26

2003 Prentice-Hall, Inc.

Chap 3-23

Joint Probability Using

Contingency Table
Event
B1

Event

Total

A1

P(A1 and B1) P(A1 and B2) P(A1)

A2

P(A2 and B1) P(A2 and B2) P(A2)

Total
Joint Probability
2003 Prentice-Hall, Inc.

B2

P(B1)

P(B2)

Marginal (Simple) Probability

Chap 3-24

Computing Compound
Probability

Probability of a Compound Event, A or B:

P( A or B )

number of outcomes from either A or B or both

total number of outcomes in sample space

E.g.

P(Red Card or Ace)

4 Aces + 26 Red Cards - 2 Red Aces

52 total number of cards

28 7

52 13

2003 Prentice-Hall, Inc.

Chap 3-25

Compound Probability
(Addition Rule)
P(A1 or B1 ) = P(A1) + P(B1) - P(A1 and B1)
Event
Event

B1

B2

Total

A1

P(A1 and B1) P(A1 and B2) P(A1)

A2

P(A2 and B1) P(A2 and B2) P(A2)

Total

P(B1)

P(B2)

For Mutually Exclusive Events: P(A or B) = P(A) + P(B)

2003 Prentice-Hall, Inc.

Chap 3-26

Computing Conditional
Probability

The Probability of Event A given that Event B

Has Occurred:

P ( A and B )
P( A | B)
P( B)
E.g.
P(Red Card given that it is an Ace)
2 Red Aces 1

4 Aces
2
2003 Prentice-Hall, Inc.

Chap 3-27

Conditional Probability Using

Contingency Table
Color
Type

Red

Black

Total

Ace

Non-Ace

24

24

48

Total

26

26

52

Revised Sample Space

P(Ace and Red) 2 / 52

2
P(Ace | Red)

P(Red)
26 / 52 26
2003 Prentice-Hall, Inc.

Chap 3-28

Conditional Probability and

Statistical Independence

Conditional Probability:

P( A and B)
P( A | B)
P( B)

Multiplication Rule:

P( A and B ) P( A | B ) P ( B )
P ( B | A) P ( A )
2003 Prentice-Hall, Inc.

Chap 3-29

Conditional Probability and

Statistical Independence

(continued)

Events A and B are Independent if

P( A | B) P( A)
or P( B | A) P( B)
or P( A and B) P( A) P( B)

Events A and B are Independent when the

Probability of One Event, A, is Not Affected by
Another Event, B

2003 Prentice-Hall, Inc.

Chap 3-30

Chapter Summary

Described Measures of Variation

Range, Variance and Standard Deviation,

Coefficient of variation

Illustrated Shape of Distribution

Symmetric, Skewed

2003 Prentice-Hall, Inc.

Chap 3-31

Chapter Summary

Discussed Basic Probability Concepts

Sample spaces and events, simple probability, and

joint probability

Defined Conditional Probability

Statistical independence, marginal probability

2003 Prentice-Hall, Inc.

Chap 3-32