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Lecture 1a: Introduction to

Statistics

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Outline
• Define statistics
• Become aware of a wide range of applications of
statistics in business
• Differentiate between descriptive and inferential statistics
• Distinguish between a qualitative variable and a
quantitative variable
• Distinguish between a discrete variable and a continuous
variable
i bl
• Recognize the levels of measurement in data

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Why use statistics?

• Data are everywhere
• Statistics help you make
decisions
• Statistics give you a
better understanding of
the decision making
process

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How to make an Informed

decision?

1. Adequate
q information? Additional information?

2. No misleading information?

3. Summarize the information.

4. Analyze available information.

5. Conclusions!

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Examples of data in business

industries
• Manufacturing —number of rejects, amount of inventory,
amount of production, number of production workers,
etc.
t
• Insurance — number of claims per month, average
amount of life insurance per family head, life expectancy,
cost of repairs for major auto collision, average medical
costs incurred for a single female over 45 years of age,
etc.
• Banking — size of deposit, number of failed loans,
amount loaned to foreign banks, number of tellers,
average amount of withdrawal from automatic teller
machine, etc.
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Examples of data in business

industries (Cont’d)
• Communications — cost per minute, number of phones
per office,
office minutes per day of long distance usage,
usage
number of operators, time between calls, etc.
• Healthcare — number of patients per physician per day,
average cost of hospital stay, average daily census of
hospital, time spent waiting to see a physician, patient
satisfaction, number of blood tests done per week, etc.

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What is Statistics?
• The word “statistics” has two meanings.
• In the more common usage, statistics refers to numerical
information.

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What is Statistics?
• The subject of statistics has a much broader meaning
than just collecting and publishing numerical information.
• We define statistics as:
the science of collecting, organizing, presenting,
analyzing, and interpreting data to assist in making more
effective decisions.
• Branch of mathematics
• Facts and figures
• Measurement taken on a sample
• Type of distribution being used to analyze data

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Population Versus Sample

• Population — the whole

– a collection of persons,
persons objects,
objects or items under study

• Census — gathering data from the entire population

• Sample — a portion of the whole
– a subset of the population

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Population

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Population and Census Data

Identifier Color MPG

RD1 Red 12
RD2 Red 10
RD3 Red 13
RD4 Red 10
RD5 Red 13
BL1 Blue 27
BL2 Blue 24
GR1 Green 35
GR2 G
Green 35
GY1 Gray 15
GY2 Gray 18
GY3 Gray 17

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Sample and Sample Data

Identifier Color MPG

RD2 Red 10

RD5 Red 13

GR1 Green 35

GY2 Gray 18

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Types of Statistics
• Descriptive Statistics:
Methods of organizing, summarizing, and presenting
data in an informative way.
y
• Examples:
1. The United States government reports the population of
the United States was 179,323,000 in 1960; 203,302,000 in
1970; 226,542,000 in 1980; 248,709,000 in 1990;
265,000,000 in 2000; and 308,400,000 in 2010.

2. The average person spent $103.00 on traditional Valentine’s

Day merchandise in 2010. This is an increase of $0.50 from
2009.

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Types of Statistics
• The second type of statistics is inferential statistics—also
called statistical inference.
• We use sample data to reach conclusions about the
population
l ti from
f which
hi h the
th sample
l was taken.
t k
• Examples:
1. A random sample of 1,260 marketing graduates from four-
year schools showed their mean starting salary was
$42,694. We therefore estimate the mean starting salary
for all marketing graduates of four-year institutions to be
$42 694
$42,694.
2. An accounting firm selects a random sample of 100
invoices and checks each invoice for accuracy. There is at
least one error on five of the invoices; hence the accounting
firm estimates that 5 percent of the population of invoices
contain at least one error.
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Parameter vs. Statistic

• Parameter — descriptive measure of the population

– Usually represented by Greek letters

• Statistic — descriptive measure of a sample

– Usually represented by Roman letters

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Symbols for Population

Parameters

 denotes
d population
l i mean


2
denotes population variance

 denotes population standard deviation

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Symbols for Sample Statistics

x denotes
d t sample
l mean

2
S denotes sample variance

S denotes
d t sample
l standard
t d d deviation
d i ti

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Process of Inferential Statistics

Calculate x
to estimate
i 
Population Sample
 x
(parameter) (statistic)

Select
S l a
randomsample

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Types of Variables

For a Qualitative or Attribute Variable the

characteristic being studied is nonnumeric

Gender Eye
Color

Type of car

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Types of Variables

In a Quantitative Variable information is

reported numerically

Balance in your checking account

Minutes remaining in class

Number of children in a family

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Types of 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, or the number of hammers
sold at the local Home Depot
p ((1,, 2,,
3,…,etc).

Typically, discrete variables

result from counting

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Types of Variables
A Continuous Variable can assume
any value within a specified range

The pressure in a tire

The weight of a mutton chop

The height of students in a

class
Typically, continuous
variables result from measuring

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Types of Variables

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Levels of Data Measurement

There are six colors of candies
in a bag of M&M’s. Suppose we
assign brown a value of 11,
yellow 2, blue 3, orange 4,
green 5, and red 6.

• From a bag of candies,

candies we add the assigned color
values and divide by the number of candies and report
that the mean color is 3.56. Does this mean that the
average color is blue or orange?

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Levels of Data Measurement

• Nominal — Lowest level of measurement

• Ordinal
• Interval
• Ratio — Highest level of measurement

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Nominal Level Data

• For the nominal level of measurement, observations of a
qualitative variable can only be classified and counted.
• Cannot be arranged in any particular order
Example: Employment Classification
– 1 for Educator
– 2 for Construction Worker
– 3 for Manufacturing Worker
Example: Ethnicity
– 1 for African-American
– 2 for Anglo-American
– 3 for Hispanic-American
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Nominal Level Data

Nominal level variables must be:

Mutually exclusive
An individual, object, or measurement
is included in only one category

Exhaustive
Each individual, object, or
measurement must appear in one of
the categories

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Ordinal Level Data

• Data classifications are represented by sets of labels
or names (high, medium, low) that have relative
values.
• Because of the relative values,
values the data classified
can be ranked or ordered.
• Differences between numbers are not comparable
Example: Ranking productivity of employees
Example: Taste test ranking of three brands of soft drink
Example:
E l Position
P iti withinithi an organization
i ti
– 1 for President
– 2 for Vice President
– 3 for Plant Manager
– 4 for Department Supervisor
– 5 for Employee
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Interval Level Data

• Distances between consecutive integers are
equal
– Relative magnitude of numbers is meaningful
– Differences between numbers are comparable
– Location of origin, zero, is arbitrary
– Zero does not mean absence of phenomenon
Example: Fahrenheit Temperature
p
Example: Calendar Time

Example: Monetary Utility

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Ratio Level Data

• Highest level of measurement
– Relative magnitude of numbers is meaningful
– Diff
Differences b t
between numbers
b are comparable
bl
– Location of origin, zero, is absolute (natural)
– Zero means absence of phenomenon
– Ratios are meaningful

Examples: Height, Weight, and Volume

Examples: Monetary Variables,

Variables such as Profit and Loss,
Loss
Revenues, and Expenses

Examples: Financial ratios, such as P/E Ratio, Inventory Turnover,

and Quick Ratio.

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Levels of Data Measurement

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Usage Potential of Various

Levels of Data

R ti
Ratio
Interval
Ordinal

Nominal

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Data Levels, Operations,

and Statistical Methods
Data Statistical
Meaningful
g Operations
p
Level Methods

Nominal Classifying and Counting Nonparametric

Ordinal All of the above plus Nonparametric

Ranking

Interval All of the above plus

Addition, and Subtraction Parametric

All of the above plus Parametric

Ratio Multiplication, and Division

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Practice Problem 1

For each of the following, determine whether the group is a sample or

a population.

•The participants in a study of a new cholesterol drug. Sample

•The drivers who received a speeding ticket Kansas City last month. Population

•Those on welfare in Cook County (Chicago), Illinois. Population

Th 30 stocks
•The t k reported
t d as a partt off the
th Dow
D J
Jones I d t i l Average.
Industrial A Sample

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Practice Problem 2

• Chicago-based Market Facts asked a sample of 1,960

consumers to try a newly developed chicken dinner by
Boston Market. Of the 1,960 sampled, 1,176 said they
would purchase the dinner if it is marketed.
(a) What could Market Facts report to Boston Market
regarding acceptance of the chicken dinner in the
population?
(b) Is this an example of descriptive statistics or
inferential statistics? Explain.

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Practice Problem 3

Real Estate data, which report information on homes sold in

the Denver, Colorado, area last year. Consider the following
g price,
variables: selling p , number of bedrooms,, township, p,
and distance from the center of the city.

•Which of the variables are qualitative and which are

quantitative?

Township all the rest…

D i the
•Determine h llevell off measurement ffor each
h off the
h
variables.

Township = nominal level All the rest…= ratio

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Practice Problem 4

• What is the level of measurement reflected by the

following data?
(a) The age of each person in a sample of 10 adults who
listen to one of the 1,230 talk radio station in the United
States is :
35, 29, 41, 34, 44, 46, 42, 42, 37, 47
(b) In a survey of 200 luxury-car owners, 100 were from
California, 50 from New York, 30 from Illinois, and 20
from Ohio.

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Practice Problem 5
• What is the level of measurement for each of the
following variables?
– Student IQ ratings.
– Distance students travel to class.
class
– Student scores on the first statistics test.
– A classification of students by state of birth.
– A ranking of students by freshman, sophomore, junior, and
senior.
– Number of hours students study per week.

• What is the level of measurement for these items related

to the newspaper business?
– The number of papers sold each Sunday during 2013.
– The departments, such as editorial, advertising, sports, etc.
– A summary of the number of papers sold by county.
– The number of years with the paper for each employee.
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