MEDITERRANEAN SCHOOL OF BUSINESS

C O U R S E : P R I N C I P L E S O F S T A T I S TI C S (P R E - M B M )

PROFESSOR: Dr. Amor Messaoud

DATE: March 2020

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Chapter 1
WHAT IS STATISTICS?

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Learning objectives
 Understand why we study statistics.
 Explain what is meant by descriptive statistics and inferential statistics.
 Distinguish between a qualitative variable and a quantitative variable.
 Describe how a discrete variable is different from a continuous variable.
 Distinguish among the nominal, ordinal, interval, and ratio levels of
measurement.

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SECTION I
WHAT IS STATISTICS?

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What is statistics?
 Statistics is the science of collecting, organizing, presenting, analyzing, and
interpreting numerical data to assist in making more effective decisions
 Statistics is a way to get information from data
 In practice we are exposed to different kinds of information and data

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Why study statistics?
 “You are neither right nor wrong because the crowd disagrees with you. You
are right because your data and reasoning are right.” (Warren Buffet)
 “The goal is to turn data into information, and information into insight.” (Carly
Fiorina, Former HP CEO)
 “You can have data without information, but you cannot have information
without data.” (Daniel Keys Moran, computer programmer and science fiction
writer)
 “Data really powers everything that we do.” (Jeff Weiner, LinkedIn CEO)

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Why study statistics?
 “Big data is at the foundation of all of the megatrends that are happening
today, from social to mobile to the cloud to gaming.” (Chris Lynch, Former
Vertica CEO)
 “I keep saying that the sexy job in the next 10 years will be statisticians, and I’m
not kidding.” (Hal Varian, chief economist at Google)
 “If we have data, let’s look at data. If all we have are opinions, let’s go with
mine.” (Jim Barksdale, Former Netscape CEO)
 “Data is the new science. Big data holds the answers.” (Pat Gelsinger, EMC)

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Why study statistics?
1. Numerical information is everywhere
2. Statistical techniques are used to make decisions that affect our daily lives
3. The knowledge of statistical methods will help you understand how decisions
are made and give you a better understanding of how they affect you
4. No matter what line of work you select, you will find yourself faced with
decisions where an understanding of data analysis is helpful

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Some examples for the need of
data collection
1. Research analysts for Merrill Lynch evaluate many facets of a particular stock
before making a “buy” or “sell” recommendation
2. The marketing department at Colgate-Palmolive Co., a manufacturer of soap
products, has the responsibility of making recommendations regarding the
potential profitability of a newly developed group of face soaps having fruit
smells
3. The Tunisian government is concerned with the present condition of the
economy and with predicting future economic trends
4. Managers must make decisions about the quality of their product or service.

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Who uses statistics?
 Statistical techniques are  professional sports people,
used extensively by  hospital administrators,

 marketing,  educators,

 accounting,  politicians,

 quality control,  physicians, etc...

 consumers,

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SECTION 2
DEFINITIONS

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Population vs. sample
 A population is a collection of all possible individuals, objects, or
measurements of interest.
 A sample is a portion, or part, of the population of interest

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Population vs. sample – Example
 A population is a set of all items or individuals of interest
Examples: All likely voters in the next election
All parts produced today
All sales receipts for November

 A sample is a subset of the population

Examples: 1000 voters selected at random for interview

A few parts selected for destructive testing
Every 100th receipt selected for audit

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Why take a sample instead of
studying every member of the
population?
1. Prohibitive cost of census
2. Time
3. Destruction of item being studied may be required
4. Not possible to test or inspect all members of a population being studied

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Usefulness of a Sample in Learning
about a Population
Using a sample to learn something about a population is done extensively in
business, agriculture, politics, and government.

EXAMPLE: Television networks constantly monitor the popularity of their programs

by hiring Nielsen and other organizations to sample the preferences of TV
viewers.

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Variable, values and data
 A variable is some characteristic of a population or sample
 The values of a variable are the possible observations of the variables
 Data are the observed values of a variable
 Experiment: A planned activity whose results yield a set of data.

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Parameter vs. statistic
 Parameter
 A value, usually a numerical value, summarizing all the data of an entire
population (describes the population)
 Derived from measurements of the individuals of the population
 Statistic
 A value, usually a numerical value, summarizing the sample data (describes
the sample
 Derived from measurements of the individuals of the sample

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Example
 A college dean is interested in  Experiment?
learning about the average age of
faculty. Identify the basic terms in this
situation  Parameter?

 Population?  Statistic?

 Sample?
 Variable?
 Data?

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Example –Solution
The population is the age of all faculty members at the college.
A sample is any subset of that population. For example, we might select 10 faculty
members and determine their age.
The variable is the “age” of each faculty member.
One data would be the age of a specific faculty member.
The data would be the set of values in the sample.
The experiment would be the method used to select the ages forming the sample
and determining the actual age of each faculty member in the sample.
The parameter of interest is the “average” age of all faculty at the college.
The statistic is the “average” age for all faculty in the sample.

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SECTION 3
DESCRIPTIVE STATISTICS VS. INFERENTIAL STATISTICS

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Descriptive statistics and
inferential statistics
 Descriptive and inferential statistics are the two main branches of the science
of statistics:
 Descriptive Statistics - methods of organizing, summarizing, and presenting
data in an informative way
 Inferential Statistics: A decision, estimate, prediction, or generalization
about a population, based on a sample

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Descriptive statistics –Example

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Inferential statistics –Example

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Example of statistical study

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SECTION 4
TY PES OF VARIABLES – MEASUREMENT SCALES

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Types of Variables
A. Qualitative or Attribute variable - the characteristic
being studied is nonnumeric.
EXAMPLES: Gender, religious affiliation, type of automobile owned, state of birth, eye
color…

B. Quantitative variable - information is reported

numerically.
EXAMPLES: balance in your checking account, the live of an automobile battery (such a 42
months), or number of children in a family.

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Discrete vs. Continuous Variables
Quantitative variables can be classified as either discrete or continuous.

Discrete variables: can only assume certain values and there are
usually “gaps” between values.

EXAMPLE: the number of bedrooms in a house (1,2,3,…,etc)., the number of students in each section of statistics course.

Continuous variables can assume any value within a specified range.

EXAMPLE: The pressure in a tire, the weight of a shipment of tomatoes, or the height of students in a class.

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 LO4

Summary of Types of Variables

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 Four Levels of Measurement
Nominal level - data that is classified into
categories and cannot be arranged in any
particular order.
EXAMPLES: eye color, gender, religious
affiliation.
Ordinal level – data arranged in some order,
but the differences between data values
cannot be determined or are meaningless.
EXAMPLE: During a taste test of 4 soft drinks, Mellow
Yellow was ranked number 1, Sprite number 2, Seven-up
number 3, and Orange Crush number 4.
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Interval level - similar to the ordinal level, with
the additional property that meaningful amounts
of differences between data values can be
determined. There is no natural zero point.
EXAMPLE: Temperature on the Fahrenheit
scale.
Ratio level - the interval level with an inherent
zero starting point. Differences and ratios are
meaningful for this level of measurement.
EXAMPLES: Monthly income of surgeons, or distance
traveled by manufacturer’s representatives per month.
29 1-29
Why Know the Level of
Measurement of a Data?
The level of measurement of the data dictates the calculations that can be
done to summarize and present the data.
To determine the statistical tests that should be performed on the data

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 LO5

Nominal-Level Data
Properties:
1. Observations of a qualitative variable can only be classified and counted.
2. There is no particular order to the labels.

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 LO5

Ordinal-Level Data
Properties:
1. Data classifications are represented by
sets of labels or names (high, medium,
low) that have relative values.
2. Because of the relative values, the data
classified can be ranked or ordered.

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 LO5

Interval-Level Data
Properties:
1. Data classifications are ordered according to the amount of the characteristic
they possess.
2. Equal differences in the characteristic are represented by equal differences in
the measurements.

Example: Women’s dress sizes listed on the

table.

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 LO5

Ratio-Level Data
Practically all quantitative data is recorded on the ratio level of
measurement.
Ratio level is the “highest” level of measurement.

Properties:
1. Data classifications are ordered according to the amount of the characteristics
they possess.
2. Equal differences in the characteristic are represented by equal differences in the
numbers assigned to the classifications.
3. The zero point is the absence of the characteristic and the ratio between two
numbers is meaningful.

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 LO5

Summary of the Characteristics for Levels of Measurement

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SECTION 5
TY PES AND SOURCES OF DATA

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Types of data
 There are three types of data: time series, cross-section, and pooled (i.e.,
combination of time series and cross-section) data:
 A time series is a set of observations on the values that a variable takes at
different times. It is collected at regular time intervals, such as daily, weekly,
monthly quarterly, annually, quinquennially, that is, every 5 years (e.g., the
census of manufactures), or decennially (e.g., the census of population)
 Cross-Section Data: Cross-section data are data on one or more variables
collected at the same point in time, such as the census of population
conducted by the Census Bureau every 10 years

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Types of data
 Pooled Data : In pooled, or combined, data are elements of both time
series and cross-section data.
 For example, each year we have 50 cross-sectional observations and for
each state we have two time series observations on prices and output of
eggs, a total of 100 pooled (or combined) observations.
 Panel, Longitudinal, or Micropanel Data: This is a special type of pooled
data in which the same cross-sectional unit (say, a family or a firm) is
surveyed over time.

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Sources of data
 Data sources are broadly classified into primary and secondary data
 Primary data collection uses surveys, experiments or direct observations
 Secondary data is the the data that has been already collected by and
readily available from other sources

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SECTION 6
BIG DATA

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How much data?
Google processes 20 PB a day (2008)
Wayback Machine has 3 PB + 100 TB/month (3/2009)
Facebook has 2.5 PB of user data + 15 TB/day (4/2009)
eBay has 6.5 PB of user data + 50 TB/day (5/2009)
CERN’s Large Hydron Collider (LHC) generates 15 PB a year

640K ought to be enough

for anybody.

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 Opportunity: “Big Data”
generation
‘Big Data’ is the hot term referring to the
increasingly large datasets of information being
amassed as a result of our social, mobile, and
digital world. In the past 12-months, the use of
the term in the U.S. has increased 1211% on the
internet.

IBM estimates that 90% of the data in the world

today has been created in the last two years.

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 Opportunities: Big Data
generation

The irony is we have more information available, but we feel less

informed… Forbes.com
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 Opportunities: Big Data
generation
63% of firms indicated that data analytics could create a competitive advantage for
their organization
◦ “Analytics: Real-Word Use of Big Data”, recent report made by IBM and The Said Business School in October 2012

Ex: Retailers analyzing large data sets to their fullest could increase operating margins by
60 percent.
McKinsey Global Institute, May 2011

Firms that base their decisions making largely on data and analytics increase their
output and productivity by 5% to 6%, compared to those that don’t.
◦ “Strength in Numbers: How Does Data-Driven Decision Making Affect Firms Performance?”, 2011 study, MIT, University of
Pennsylvania

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 Data analytics: New jobs for the
future
Data analytics is expected to create 4,4 million jobs
worldwide by 2015, but the skilled workers available
will fill only one-third of those projected opening.
Gartner Research
Auparavant, les statisticiens récupéraient les données et les traitaient. Aujourd'hui, en plus
d'analyser ces informations chiffrées, ils doivent savoir les commenter et les communiquer »
Serge Boulet, Dir Marketing de SAS, Janvier 2013

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