4 SENGAGE 1 amie BSFRSH GRAMM - SHRI oan (BEM wes | 3 Wi) WH R. RBR ( David R. Anderson ) == MBAS FALEM J. MBE ( Dennis J. Sweeney ) AAS [2] #€597 A. RRM ( Thomas A. Williams) PUMRBIAS HE D. RH ( Jeffrey D.Camm ) #5eRMAF ABM J. WHE ( James J. Cochran) WHE BAR KEE Ee SIF O BE -—- @@ Yo tT Me tH ha at hina Machine PressBSFRAT ARMM - BHR STATISTICS FOR BUSINESS & ECONOMICS 13th Edition Fs SST (BESCHK + HB] 3) RSE R. SAFE ( David A. Anderson } SPREE SHEM J. MiBLIE ( Dennis J. Sweeney } ao ke SEAM A. IRM ( Thomas A. Williams \ BOM BIAE *R9BEE D. +H ( Jeffrey D.Camm ) SRRRKE (5380 J. #4580 ( James J. Cochran ) HERRE IRE EM EGF O BE (#]BENG (CIP) se ES TBA (BESCIG - BRAS 13 We) / (SE) HE R. 224M (David R. Anderson) HH; aks SeSRE . Ate: HUTA ARE, 2017.7 EBERT EAE BET) MX: Statistics for Business & Economics ISBN 978-7-111-57327-2 TL. iT. Dies Qik. DiRT — REAR — Bb — SE OME — REE - a M-RX W.OF7123 QP222 "PEMRRASHE BH CIP BABE ( 2017) $8 141079 ABMS, BF. 01-2017-2421 David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D.Camm, James J. Cochran. Statistics for Business & Economies, 13th Edition, Copyright © 2017, 2015 Cengage Learning. CMP Press is authorized by Cengage Learning to publish and distribute exclusively this custom reprint edition. This edition is authorized for sale in the People’s Republic of China only (excluding Hong Kong, Macao SAR and Taiwan). Unauthorized export of this edition is a violation of the Copyright Act. No part of this publication may be reproduced or distributed by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. All Rights reserved, Hee Pe NC es ET PTAA RAL TNT. MILT, REE, eR UE EA RSRIBURN (RHEE BUSTER GIA) Ht, USL HHL ELIE AILERON IN. RATE AMET, REAR ABATED. ARTHEHEENWA Congage Learning HiOR%, JomIEe Cat. APRA DRAA RR MOAT OME LARA IRUMNT OIE A EMR, ANCE HR TULARE RTOTAERIRRH AIRS TRCN, AY TRUST IG NOE, FERRET ROOT. KBAR ERURAISES. 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WRC Be WROD ARMS SBMS ee xIX 755 756 757 760 762 HEE Microsoft Excel 2013 AIT SMAT Ae FAIR AIA Minitab #0 Excel it 5% p- f°contents Publisher's Note Introduction About the Authors Preface Chapter 1 Data and Statistics 1 Stati 1 12 13 14 15 16 7 18 19 ics in Practice: Bloomberg Businessweek 2 Applications in Business and Economics 3 Accounting 3 Finance 4 Marketing 4 Production 4 Economics 4 Information Systems 5 Data 5 Elements, Variables, and Observations 5 Scales of Measurement 7 Categorical and Quantitative Data 8 Cross-Sectional and Time Series Data 8 Data Sources 11 Existing Sources 11 Observational Study 12 Experiment 13 Time and Cost Issues 13 Data Acquisition Errors 13 Descriptive Statistics 14 Statistical Inference 16 Analytics 17 Big Data and Data Mining 18 Computers and Statistical Analysis 20 Ethical Guidelines for Statistical Practice 20 Summary 22 Glossary 23 Supplementary Exercises 24 Chapter 2 Descriptive Statistics: Tabular and Graphical Displays 32 Statistics in Practice: Colgate-Palmolive Company 33 21 Summarizing Data for a Categorical Variable 34 Frequency Distribution 34XXI Relative Frequency and Percent Frequency Distributions 35 Bar Charts and Pie Charts 35 2.2 Summarizing Data for a Quantitative Variable 41 Frequency Distribution 41 Relative Frequency and Percent Frequency Distributions 43 Dot Plot 43 Histogram 44 Cumulative Distributions 45 Stem-and-Leaf Display 46 2.3. Summarizing Data for Two Variables Using Tables 55 Crosstabulation 55 Simpson's Paradox 58 2.4 Summarizing Data for Two Variables Using Graphical Displays 64 Scatter Diagram and Trendline 64 Side-by-Side and Stacked Bar Charts 65 2.5 Data Visualization: Best Practices in Creating Effect Graphical Displays 71 Creating Effective Graphical Displays 71 Choosing the Type of Graphical Display 72 Data Dashboards 72 Data Visualization in Practice: Cincinnati Zoo and Botanical Garden 74 Summary 77 Glossary 78 Key Formulas 79 Supplementary Exercises 79 Case Problem 1 Pelican Stores 84 Case Problem 2 Motion Picture Industry 85 Case Problem 3 Queen City 86 Appendix 2.1 Using Minitab for Tabular and Graphical Presentations 87 Appendix 2.2 Using Excel for Tabular and Graphical Presentations 90 Chapter 3 Descriptive Statistics: Numerical Measures 102 Statistics in Practice: Small Fry Design 103 3.1 Measures of Location 104 Mean 104 Weighted Mean 106 Median 107 Geometric Mean 109 Mode 110 Percentiles 111 Quartiles 112XXII 3.2. Measures of Variability 118 Range 118 Interquartile Range 119 Variance 119 Standard Deviation 120 Coefficient of Variation 121 3.3. Measures of Distribution Shape, Relative Location, and Detecting Outliers 125 Distribution Shape 125 zScores 125 Chebyshev's Theorem 127 Empirical Rule 128 Detecting Outliers 130 3.4 Five-Number Summaries and Box Plots 133 Five-Number Summary 133 Box Plot 134 Comparative Analysis Using Box Plots 135 3.5 Measures of Association Between Two Variables 138 Covariance 138 Interpretation of the Cova Correlation Coefficient 141 Interpretation of the Correlation Coefficient 144 3.6 Data Dashboards: Adding Numerical Measures to Improve Effectiveness 148 Summary 151 Glossary 152 Key Formulas 153 Supplementary Exercises 155 Case Problem 1 Pelican Stores 160 Case Problem 2 Motion Picture Industry 161 Case Problem 3 Business Schools of Asia-Pacific 162 Case Problem 4 Heavenly Chocolates Website Transactions 164 Case Problem 5 African Elephant Populations 165 Appendix 3.1 Descriptive Statistics Using Minitab 166 Appendix 3.2 Descriptive Statistics Using Excel 168 ce 140 Chapter 7 Sampling and Sampling Dist Statistics in Practice: Meadwestvaco Corporation 173 7.1 The Electronies Associates Sampling Problem 174 7.2 Selecting a Sample 175 Sampling from a Finite Population 175 Sampling from an Infinite Population 177 7.3 Point Estimation 180 Practical Advice 1827.4. Introduction to Sampling Distributions 184 7.5 Sampling Distribution of ¥ 186 Expected Value of ¥ 187 Standard Deviation of ¥ 187 Form of the Sampling Distribution of ¥ 188 Sampling Distribution of x for the EAI Problem 189 Practical Value of the Sampling Distribution of ¥ 190 Relationship Between the Sample Size and the Sampling Distribution of x 192 7.6 Sampling Distribution of 7 196 Expected Value of p 197 Standard Deviation of p 197 Form of the Sampling Distribution of p 198 Practical Value of the Sampling Distribution of p 199 7.7, Properties of Point Estimators 202 Unbiased 202 Efficiency 203 Consistency 204 7.8 Other Sampling Methods 205 Stratified Random Sampling 205 Cluster Sampling 205 Systematic Sampling 206 Convenience Sampling 206 Judgment Sampling 207 Summary 207 Glossary 208 Key Formulas 209 Supplementary Exercises 209 Case Problem Marion Dairies 212 Appendix 7.1 The Expected Value and Standard Deviation of ¥ 212 Appendix 7.2 Random Sampling with Minitab 214 Appendix 7.3 Random Sampling with Excel 215 Chapter 8 Interval Estimation 216 Statistics in Practice: Food Lion 217 8.1. Population Mean: ¢ Known 218 Margin of Error and the Interval Estimate 218 Practical Advice 222 8.2 Population Mean: ¢ Unknown 224 Margin of Error and the Interval Estimate 225 Practical Advice 228 Using a Small Sample 228 Summary of Interval Estimation Procedures 230 XXIIXXIV 83 Determining the Sample Size 233 8.4 Population Proportion 236 Determining the Sample Size 238 Summary 242 Glossary 243 Key Formulas 243 Supplementary Exercises 244 Case Problem 1 Young Professional Magazine 247 Case Problem 2 Gulf Real Estate Properties 248 Case Problem 3 Metropolitan Research, Inc. 248 Appendix 8.1 Interval Estimation with Minitab 250 Appendix 8.2 Interval Estimation Using Excel 252 Chapter 9 Hypothesis Tests 255 Statistics in Practice: John Morrell & Company 256 9.1 Developing Null and Alternative Hypotheses 257 ‘The Alternative Hypothesis as a Research Hypothesis 257 The Null Hypothesis as an Assumption to Be Challenged 258 Summary of Forms for Null and Alternative Hypotheses 259 9.2 Type Land Type II Errors 260 9.3, Population Mean: ¢ Known 263 One-Tailed Test 263 ‘Two-Tailed Test 269 Summary and Practical Advice 271 Relationship Between Interval Estimation and Hypothesis Testing 273 9.4 Population Mean: o Unknown 278 One-Tailed Test 278 Two-Tailed Test 279 Summary and Practical Advice 281 9.5. Population Proportion 284 Summary 286 9.6 Hypothesis Testing and Decision Making 289 9.7 Calculating the Probability of Type I Errors 290 9.8 Determining the Sample Size for a Hypothesis Test About a Population Mean 295 Summary 298 Glossary 299 Key Formulas 300 Supplementary Exercises 300 Case Problem 1 Quality Associates, Inc, 303 Case Problem 2 Ethical Behavior of Business Students at Bayview University 305 Appendix 9.1 Hypothesis Testing with Minitab 306 Appendix 9.2 Hypothesis Testing with Excel 308XXV Chapter 10 Inference About Means and Proportions ‘Two Populations 313 Statistics in Practice: U.S. Food and Drug Administration 314 10.1 Inferences About the Difference Between Two Population Means: o, and 7, Known 315 Interval Estimation of pz, — pr, 315 Hypothesis Tests About p., — Practical Advice 319 10.2 Inferences About the Difference Between Two Population Means: o, and @, Unknown 322 Interval Estimation of ju, — 1, 322 Hypothesis Tests About 1, — jt, 324 Practical Advice 326 10.3 Inferences About the Difference Between Two Population Means: Matched Samples 330 104 Inferences About the Difference Between Two Population Proportions 336 Interval Estimation of p, — p, 336 Hypothesis Tests About p, — p, 338 Summary 342 Glossary 342 Key Formulas 343 Supplementary Exercises 344 Case Problem Par, Inc. 347 Appendix 10.1 Inferences About Two Populations Using Minitab 348 Appendix 10.2 Inferences About Two Populations Using Excel 350 Chapter 11 Inferences About Population Variances 353 Statistics in Practice: U.S. Government Accountability Office 354 11.1 Inferences About a Population Variance 355 Interval Estimation 355 Hypothesis Testing 359 11.2 Inferences About ‘Two Population Variances 365 Summary 372 Key Formulas 372 Supplementary Exercises 372 Case Problem Air Force Training Program 374 Appendix 11.1 Population Variances with Minitab 375 Appendix 11.2 Population Variances with Excel 376 Chapter 12 Comparing Multiple Proportions, Test of Independence and Goodness of Fit 377 Statistics in Practice: United Way 378XXVI 12.1 Testing the Equality of Population Proportions for Three or More Populations 379 A Multiple Comparison Procedure 384 12.2 Test of Independence 389 12.3 Goodness of Fit Test 397 Multinomial Probability Distribution 397 Normal Probability Distribution 400 Summary 406 Glossary 406 Key Formulas 407 Supplementary Exercises 407 Case Problem A Bipartisan Agenda for Change 410 Appendix 12.1 Chi-Square Tests Using Minitab 411 Appendix 12.2 Chi-Square Tests Using Excel 412 Chapter 13 Experimental Design and Analysis of Variance 414 Statistics in Practice: Burke Marketing Services, Inc. 415 13.1 An Introduction to Experimental Design and Analysis of Variance 416 Data Collection 417 Assumptions for Analysis of Variance 418 Analysis of Variance: A Conceptual Overview 418 13.2 Analysis of Variance and the Completely Randomized Design 421 Between-Treatments Estimate of Population Variance 422 Within-Treatments Estimate of Population Variance 423 Comparing the Variance Estimates: The F Test 424 ANOVA Table 426 Computer Results for Anal is of Variance 427 Testing for the Equality of k Population Means: An Observational Study 428 13.3 Multiple Comparison Procedures 432 Fisher's LSD 432 ‘Type I Error Rates 435 13.4 Randomized Block Design 438 Air Traffic Controller Stress Test 439 ANOVA Procedure 440 Computations and Conclusions 441 13.5 Factorial Experiment 445 ANOVA Procedure 447 Computations and Conclusions 447 Summary 452 Glossary 453 Key Formulas 453 Supplementary Exercises 456XXVII Case Problem 1 Wentworth Medical Center 460 Case Problem 2 Compensation for Sales Professionals 461 Appendix 13.1 Analysis of Variance with Minitab 462 Appendix 13.2 Analysis of Variance with Excel 464 n 468, Chapter 14 Simple Linear Regres Statistics in Practice: Alliance Data Systems 469 14.1 Simple Linear Regression Model 470 Regression Model and Regression Equation 470 Estimated Regression Equation 471 14.2 Least Squares Method 473 14.3 Coefficient of Determination 484 Correlation Coefficient 487 14.4 Model Assumptions 491 14.5 Testing for Significance 492 Estimate of o? 493 1Test 493 Confidence Interval for 8, 495 F Test 496 Some Cautions About the Interpretation of Significance Tests 498 14.6 Using the Estimated Regression Equation for Estimation and Prediction 501 Interval Estimation 502 Confidence Interval for the Mean Value of y 503 Predi ual Value of y 504 ‘ion Interval for an Indi 14.7 Computer Solution 509 14.8 Residual Analysis lating Model Assumptions 513 Residual Plot Against x 514 Residual Plot Against 5 515 Standardized Residuals 517 Normal Probability Plot 519 jual Analysis: Outliers and Influential Observations 522 Detecting Outliers 522 Detecting Influential Observations 524 Summary 530 Glossary 531 Key Formulas 532 Supplementary Exercises 534 Case Problem 1 Measuring Stock Market Risk 540 Case Problem 2 U.S. Department of Transportation 541 Case Problem 3 Selecting a Point-and-Shoot Digital Camera 542 Case Problem 4 Finding the Best Car Value 543 Case Problem 5 Buckeye Creek Amusement Park 544 Appendix 14.1 Calculus-Based Derivation of Least Squares Formulas 545XXVIII Appendix 14.2 A Test for Significance Using Correlation 546 Appendix 14.3 Regression Analysis with Minitab 547 Appendix 14.4 Regression Analysis with Excel 548 Chapter 15 Multiple Regression 551 Statistics in Practice: dunnhumby 552 15.1 Multiple Regression Model 553 Regression Model and Regression Equation 553 Estimated Multiple Regression Equation 553 15.2 Least Squares Method 554 An Example: Butler Trucking Company 555 Note on Interpretation of Coefficients 558 15.3 Multiple Coefficient of Determination 564 15.4 Model Assumptions 567 15.5 Testing for Significance 569 F Test 569 1 Test 572 Multicollinearity 573 15.6 Using the Estimated Regression Equation for Estimation and Prediction 576 15.7 Categorical Independent Variables 579 ‘An Example: Johnson Filtration, Inc. 579 Interpreting the Parameters 581 More Complex Categorical Variables 583 15.8 Residual Analysis 588 Detecting Outliers 590 Studentized Deleted Residuals and Outliers 590 Influential Observations 591 Using Cook’s Distance Measure to Identify Influential Observations 591 15.9 Logistic Regression 595 Logistic Regression Equation 596 Estimating the Logistic Regression Equation 597 Testing for Significance 600 Managerial Use 600 Interpreting the Logistic Regression Equation 601 Logit Transformation 604 Summary 608 Glossary 608 Key Formulas 609 Supplementary Exercises 611 Case Problem 1 Consumer Research, Inc. 618 Case Problem 2 Predicting Winnings for NASCAR Drivers 619 Case Problem 3 Finding the Best Car Value 620 Appendix 15.1 Multiple Regression with Minitab 621XXIX Appendix 15.2 Multiple Regression with Excel 621 Appendix 15.3 Logistic Regression with Minitab 623 Chapter 16 Regression Analysi s: Model Building 624 Statistics in Practice: Monsanto Company 625 16.1 General Linear Model 626 Modeling Curvilinear Relationships 626 Interaction 629 ‘Transformations Involving the Dependent Variable 633 Nonlinear Models That Are Intrinsically Linear 637 16.2 Determining When to Add or Delete Variables 641 General Case 643 Use of p-Values 644 16.3 Analysis of a Larger Problem 648 16.4 Variable Selection Procedures 652 Stepwise Regression 652 Forward Selection 654 Backward Elimination 654 Best-Subsets Regression 655 Making the Final Choice 656 16.5 Multiple Regression Approach to Experimental Design 658 16.6 Autocorrelation and the Durbin-Watson Test 663 Summary 667 Glossary 668 Key Formulas 668 Supplementary Exercises 668 Case Problem 1 Analysis of PGA Tour Statistics 671 Case Problem 2 Rating Wines from the Piedmont Region of Italy 672 Appendix 16.1 Variable Selection Procedures with Minitab 673 Chapter 17 Time Series Analy and Forecasting 675 Statistics in Practice: Nevada Occupational Health Clinic 676 17.1 Time Series Patterns 677 Horizontal Pattern 677 ‘Trend Pattern 679 Seasonal Pattern 679 Trend and Seasonal Pattern 680 Cyclical Pattern 680 Selecting a Forecasting Method 682 17.2 Forecast Accuracy 683 17.3 Moving Averages and Exponential Smoothing 688 Moving Averages 688 Weighted Moving Averages 691Exponential Smoothing 691 17.4 Trend Projection 698 Linear Trend Regression 698 Nonlinear Trend Regression 703 17.5 Seasonality and Trend 709 Seasonality Without Trend 709 Seasonality and Trend 711 Models Based on Monthly Data 714 17.6 Time Series Decomposition 718 Calculating the Seasonal Indexes 719 Deseasonalizing the Time Series 723 Using the Deseasonalized Time Series to Identify Trend 723 Seasonal Adjustments 725 Models Based on Monthly Data 725 Cyclical Component 725 Summary 728 Glossary 729 Key Formulas 730 Supplementary Exercises 730 Case Problem 1 Forecasting Food and Beverage Sales 734 Case Problem 2 Forecasting Lost Sales 735, Appendix 17.1 Forecasting with Minitab 736 Appendix 17.2 Forecasting with Excel 739 Chapter 18 Nonparametric Methods 741 Statisties in Practice: West Shell Realtors 742 18.1 Sign Test 743 Hypothesis Test About a Population Median 743 Hypothesis Test with Matched Samples 748 18.2 Wilcoxon Signed-Rank ‘Test 751 Glossary 755 Key Formulas 756 Supplementary Exercises 757 Appendix 18.1 Nonparametric Methods with Minitab 760 Appendix 18.2 Nonparametric Methods with Excel 762CHAPTER 13 DATA SOURCES mI PRAGHICN Existing Sources G BUSINESSWEEK Observational Study te Experiment LI APPLICATIONS IN BUSINESS "Tine oa Coat ssues AND ECONOMICS Data Acquisition Errors — 14 DESCRIPTIVE STATISTICS Marketing 15 STATISTICAL INFERENCE Production 1.6 ANALYTICS Economies : Information Systems 17 BIG DATA AND DATA MINING 12 DATA : Elements, Variables, 1.8 _ COMPUTERS AND ‘and Observations STATISTICAL ANALYSIS les of Measurement 1.9 ETHICAL GUIDELINES FOR Categorical and STATISTICAL PRACTICE Quantitative Data Cross-Sectional and Time Series DataChapter 1 Data and Statistics ra seen BLOOMBERG BUSINESSWEEK* ‘NEW YORK, NEW YORK With a global circulation of more than 1 million, Bloomberg Businessweek is one of the most widely read business magazines in the world, Bloomberg's 1700 reporters in 145 service bureaus around the world enable Bloomberg Businessweek to deliver a variety of articles of interest to the global business and economic commu- nity. Along with feature articles on current topics, the magazine contains articles on international business, economic analysis, information processing, and science and technology. Information in the feature articles, and the regular sections helps readers stay abreast of current developments and assess the impact of those develop- ‘ments on business and economic conditions. Most issues of Bloomberg Businessweek, formerly BusinessWeek, provide an in-depth report on a topic of current interest. Often, the in-depth reports contain statistical facts and summaries that help the reader understand the business and economic. information. Examples of articles and reports include the impact of businesses moving important work to cloud comput- ing, the crisis facing the U.S. Postal Service, and why the debt crisis is even worse than we think. In addition, Bloomberg Businessweek provides a variety of statistics about the state of the economy, including production indexes, stock prices, mutual funds, and interest rates. Bloomberg Businessweek also uses statistics and statistical information in managing its own business. For example, an annual survey of subscribers helps the ‘company lear about subscriber demographics, reading habits, likely purchases, lifestyles, and so on. Bloom- berg. Businessweek managers use statistical summaries from the survey to provide better services to subscribers and advertisers. One recent North American subscriber survey indicated that 90% of Bloomberg Businessweek “The authors ore indebied to Charlene Trentham, Research Manager, for providing this Statistics in Practice, Bloomberg Busi haa nana a Bloomberg Businessweek uses statistical facts ‘and summaries in many of its articles. subscribers use a personal computer at home and that 64% of Bloomberg Businessweek subscribers are involved with computer purchases at work. Such statistics alert Bloom- berg Businessweek mianagers to subscriber interest in arti- cles about new developments in computers. The results of the subscriber survey are also made available to potential advertisers. The high percentage of subscribers using per- ‘sonal computers at home and the high percentage of sub- seribers involved with computer purchases at work would be an incentive for a computer manufacturer to consider advertising in Bloomberg Businessweek. In this chapter, we discuss the types of data avail- able for statistical analysis and describe how the data are ‘obtained, We introduce descriptive statistics and statisti- cal inference as ways of converting data into meaningful and easily interpreted statistical information. Frequently, we see the following types of statements in newspapers and magazines * Against the U.S. dollar, the euro has lost nearly 30% of its value in the last year; the Australian dollar lost almost 20% (The Economist, April 25th-May 1st, 2015). + Asurvey conducted by the Pew Research Center reported that 68% of Internet users believe current laws are not good enough in protecting people’s privacy online (The Wall Street Journal, March 24, 2014).PLL, MR WK, OM, ROME RHORESER. Hal LEMS RB HEE, HR, OH, AGE RH OR RAGLAN REE FRR HR AC, 3 ak AE +. EAM 1.1. Applications in Business and Economics 3 + VW Group's U.S. sales continue to slide, with total sales off by 13% from last January, to 36,930 vehicles (Panorama, March 2014). + A poll of 1,320 corporate recruiters indicated that 68% of the recruiters ranked communication skills as one of the top five most important skills for new hires (Bloomberg Businessweek April 13-April 19, 2015). + The California State Teachers’ Retirement System has $154.3 billion under management (Bloomberg Businessweek, January 21—January 27, 2013). + Ata Sotheby's art auction held on February 5, 2013, Pablo Picasso's painting Woman Sitting Near a Window sold for $45 million (The Wall Street Journal, February 15, 2013). * Over the past three months, the industry average for sales incentives per vehicle by GM, Chrysler, Ford, Toyota, and Honda was $2336 (The Wall Street Journal, February 14, 2013). ‘The numerical facts in the preceding statements—30%, 20%, 68%, 13%, 36,930, 1320, 68%, $154.3 billion, $45 million, $2336—are called statistics. In this usage, the term statistics refers to numerical facts such as averages, medians, percentages, and maximums that help us understand a variety of business and economic situations. However, as you will see, the field, or subject, of statistics involves much more than numerical facts. In a broader sense, statistics is the art and science of collecting, analyzing, presenting, and interpret- ing data. Particularly in business and economics, the information provided by collecting, analyzing, presenting, and interpreting data gives managers and decision makers a better understanding of the business and economic environment and thus enables them to make ‘more informed and better decisions. In this text, we emphasize the use of statistics for busi- ness and economic decision making. Chapter 1 begins with some illustrations of the applications of statistics in business and economics. In Section 1.2 we define the term data and introduce the concept of a data set. This section also introduces key terms such as variables and observations, discusses the difference between quantitative and categorical data, and illustrates the uses of cross- sectional and time series data. Section 1.3 discusses how data can be obtained from e ing sources or through survey and experimental studies designed to obtain new data. The important role that the Internet now plays in obtaining data is also highlighted. The uses of data in developing descriptive statistics and in making statistical inferences are described in Sections 1.4 and 1.5. The last four sections of Chapter 1 provide an introduction to busi- ness analytics and the role statistics plays in it, an introduction to big data and data mining, the role of the computer in statistical analysis, and a discussion of ethical guidelines for statistical practice. Applications in Business and Economics In today’s global business and economic environment, anyone can access vast amounts of statistical information. The most successful managers and decision makers understand the information and know how to use it effectively. In this section, we provide examples that illustrate some of the uses of statistics in business and economics. Accounting Public accounting firms use statistical sampling procedures when conducting audits for their clients. For instance, suppose an accounting firm wants to determine whether the amount of accounts receivable shown on a client's balance sheet fairly represents the actual amount of accounts receivable. Usually the large number of individual accounts receivable makesChapter 1 Dota and Statistics reviewing and validating every account too time-consuming and expensive. As common practice in such situations, the audit staff selects a subset of the accounts called a sample. After reviewing the accuracy of the sampled accounts, the auditors draw a conclusion as to whether the accounts receivable amount shown on the client's balance sheet is acceptable. Finance Financial analysts use a variety of statistical information to guide their investment recom- mendations. In the case of stocks, analysts review financial data such as price/earnings ratios and dividend yields. By comparing the information for an individual stock with infor- ‘mation about the stock market averages, an analyst can begin to draw a conclusion as to whether the stock is a good investment. For example, The Wall Street Journal (June 6, 2015) reported that the average dividend yield for the S&P 500 companies was 2%. Microsoft showed a dividend yield of 1.95%. In this case, the statistical information on dividend yield indicates a lower dividend yield for Microsoft than the average dividend yield for the S&P 500 companies. This and other information about Microsoft would help the analyst make an informed buy, sell, or hold recommendation for Microsoft stock. Marketing Electronic scanners atretail checkout counters collect data fora variety of marketing research applications. For example, data suppliers such as ACNielsen and Information Resources, Inc., purchase point-of-sale scanner data from grocery stores, process the data, and then sell statistical summaries of the data to manufacturers. Manufacturers spend hundreds of thousands of dollars per product category to obtain this type of scanner data. Manufacturers also purchase data and statistical summaries on promotional activities such as special pric- ing and the use of in-store displays. Brand managers can review the scanner statistics and the promotional activity statistics to gain a better understanding of the relationship between promotional activities and sales. Such analyses often prove helpful in establishing future marketing strategies for the various products. Production Today's emphasis on quality makes quality control an important application of statistics in production. A variety of statistical quality control charts are used to monitor the output of a production process. In particular, an x-bar chart can be used to monitor the average output. Suppose, for example, that a machine fills containers with 12 ounces of a soft drink. Periodically, a production worker selects a sample of containers and computes the average number of ounces in the sample. This average, or x-bar value, is plotted on an x-bar chart. A plotted value above the chart’s upper control limit indicates overfilling, and a plotted value below the chart’s lower control limit indicates underfilling. The process is termed “in control” and allowed to continue as long as the plotted x-bar values fall between the chart’s upper and lower control limits. Properly interpreted, an x-bar chart can help determine when adjustments are necessary to correct a production process. Economics Economists frequently provide forecasts about the future of the economy or some aspect of it. They use a variety of statistical information in making such forecasts. For instance, in forecasting inflation rates, economists use statistical information on such indicators as the Producer Price Index, the unemployment rate, and manufacturing capacity utilization. Often these statistical indicators are entered into computerized forecasting models that, predict inflation rates.MEST RRR. OH, BRE. HAT FOAM A A A 1.2. Data 5 Information Systems Information systems administrators are responsible for the day-to-day operation of an organization’s computer networks. A variety of statistical information helps administra- tors assess the performance of computer networks, including local area networks (LANs), wide area networks (WANS), network segments, intranets, and other data communication systems. Statistics such as the mean number of users on the system, the proportion of time any component of the system is down, and the proportion of bandwidth utilized at various times of the day are examples of statistical information that help the system administrator better understand and manage the computer network. Applications of statistics such as those described in this section are an integral part of this text, Such examples provide an overview of the breadth of statistical applications. To supplement these examples, practitioners in the fields of business and economics provided chapter-opening Statistics in Practice articles that introduce the material covered in each chapter. The Statistics in Practice applications show the importance of statistics in a wide variety of business and economic situations. Data Data are the facts and figures collected, analyzed, and summarized for presentation and interpretation. All the data collected in a particular study are referred to as the data set for the study. Table 1.1 shows a data set containing information for 60 nations that participate in the World Trade Organization. The World Trade Organization encourages the free flow of international trade and provides a forum for resolving trade disputes. Elements, Variables, and Observations Elements are the entities on which data are collected. Each nation listed in Table 1.1 is an element with the nation or element name shown in the first column. With 60 nations, the data set contains 60 elements. A variable is a characteristic of interest for the elements. The data set in Table 1.1 includes the following five variable: + WTO Status: The membership status in the World Trade Organization; this can be either as a member or an observer. + Per Capita GDP ($): ‘The total market value ($) of all goods and services produced by the nation divided by the number of people in the nation; this is commonly used to compare economic productivity of the nations, + Trade Deficit ($1000s): The difference between the total dollar value of the nation’s imports and the total dollar value of the nation’s exports. + Fitch Rating: ‘The nation’s sovereign credit rating as appraised by the Fitch Group'; the credit ratings range from a high of AAA to a low of F and can be modified by +or— + Fitch Outlook: An indication of the direction the credit rating is likely to move ‘over the upcoming two years; the outlook can be negative, stable, or positive Measurements collected on each variable for every element in a study provide the data. The set of measurements obtained for a particular element is called an observation. Referring to Table 1.1, we see that the first observation (Armenia) contains the following measurements: "The Fitch Group is one of three nationally recognized saistica rating organizations designoted by the U.S. Securities and Exchange Commission. The other two ore Standord and Poor's end Moody's investor servic.6 Chopter 1 Dota and Statistics TABLE 1.1 DATA SET FOR 60 NATIONS IN THE WORLD TRADE ORGANIZATION WTO —-PerCapita ‘Trade Deficit__Fiteh Fitch Nation Status ‘GDP ($) ($1000s) Rating, Outlook Armenia Member 5.400 2,673,359 | BB Stable Australia Member 40,800 33,304,157 | AAA Stable Austria Member 41,700 12,796,558 | AAA Stable Azerbaijan Observer 5,400 16,747,320 | BBB- | Positive Bahrain Member 27,300 3,102,665 | BBB Stable DY file] Belgium Member 37,600 =14,930,833 | AA+ Negative Nana Brazil Member 11,600 =29,196,166 | BBB Stable Bulgaria Member 13,500 4.019237 | BBB- | Positive Canada Member 40,300 =1,611,380 | AAA Stable Cape Verde Member 4,000 974459 | B+ Stable Chile Member 16,100 =14,558,218 | At Stable China Member 8,400 156,705,311. | A+ Stable Data sets such as Nations. Colombia Member 10,100 =1,561,199 | BBB- | Stable ‘are available on the website Costa Rica Member 11,500 5,807,509 | BB+ Stable Sor this text Croatia Member 18,300 8,108,103 | BBB- | Negative Cyprus Member 29,100 6,623,337 | BBB Negative Czech Republic | Member 25,900 10,749,467 | A+ Positive Denmark Member 40,200 15,057,343 | AAA Stable Ecuador Member 8,300 1,993,819 | B- Stable Egypt Member 6,500 28,486,933 | BB Negative El Salvador Member 7,600 5.019363 | BB Stable Estonia Member 20,200 802,234 | A+ Stable France Member 35,000 118,841,542 | AAA Stable Georgia Member 5.400 4398153 | B+ Positive Germany Member 37,900 =213,367,685. | AAA Stable Hungary Member 19,600 =9,421,301 | BBB— | Negative Teeland Member 38,000 504,939 | BB+ Stable Ireland Member 39,500 =59,093,323 | BBB+ | Negative Israel Member 31,000 6,722,291 | A Stable Member 30,100 33,568,668 | A+ Negative Member 34,300 31,675,424. | AA Negative Observer 13,000 33,220,437 | BBB Positive Member 1,700 9,174,198 | B+ Stable Member 15,400 2,448,053 | BBB- | Positive Lebanon Observer 15,600 13,715,550 | B Stable Lithuania Member 18,700 3,359,641 | BBB Positive Malaysia Member 15,600 39,420,064 | A- Stable Mexico Member 15,100 1,288,112 | BBB Stable Peru Member 10,000 ~7,888,993 | BBB Stable Philippines Member 4,100 15,667,209 | BB+ Stable Poland Member 20,100 19,552,976 | A~ Stable Portugal ‘Member 23,200 21,060,508 | BBB~ | Negative South Korea Member 31,700 37,509,141 | A+ ‘Stable Romania Member 12,300 13,323,709 | BBB- | Stable Russia Observer 16,700 ~151,400,000 | BBB Positive Rwanda Member 1,300 939,222 | B Stable Serbia Observer 10,700 8,275,693 | BB- Stable Seychelles Observer 24,700 666,026 | B Stable Singapore Member 59,900 =27,110,421 | AAA Stable Slovakia Member 23,400 2,110,626 | A+ Stable Slovenia Member 29,100 2310617 | AA- NegativeRAKE ERAT AMBRE — RR SXRD MURR IS Bl RR MRR. WE RIT MR a HEH, FRARE OM HBC ROR BA 1.2 Data 7 South Africa 3,321,801 Stable Sweden 10,903,251 Stable Switzerland 27,197,873 Stable Thailand 2,049,669 Stable ‘Turkey 71,612,947 Positive UK 162,316,831 Negative Uruguay 2,662,628 Positive USA 784,438,559 Stable 1,805,198, Member, 5,400, 2,673,359, BB—, and Stable. The second observation (Australia) contains the following measurements: Member, 40,800, —33,304,157, AAA, Stable, and so on. A data set with 60 elements contains 60 observations. Scales of Measurement Data collection requires one of the following scales of measurement: nominal, ordinal, interval, or ratio. The scale of measurement determines the amount of information contained in the data and indicates the most appropriate data summarization and statistical analyses. When the data for a variable consist of labels or names used to identify an attribute of the element, the scale of measurement is considered a nominal scale. For example, referring to the data in Table 1.1, the scale of measurement for the WTO Status variable is, nominal because the data “member” and “observer” are labels used to identify the status category for the nation. In cases where the scale of measurement is nominal, a numerical code as well as a nonnumerical label may be used. For example, to facilitate data collec- tion and to prepare the data for entry into a computer database, we might use a numerical code for the WTO Status variable by letting 1 denote a member nation in the World Trade Organization and 2 denote an observer nation. The scale of measurement is nominal even though the data appear as numerical values. ‘The scale of measurement for a variable is considered an ordinal scale if the data exhibit the properties of nominal data and in addition, the order or rank of the data is mean- ingful. For example, referring to the data in Table 1.1, the scale of measurement for the Fitch Rating is ordinal because the rating labels which range from AAA to F can be rank ordered from best credit rating AAA to poorest credit rating F. The rating letters provide the labels similar to nominal data, but in addition, the data can also be ranked or ordered based on the credit rating, which makes the measurement scale ordinal. Ordinal data can also be recorded by a numerical code, for example, your class rank in school. ‘The scale of measurement for a variable is an interval scale if the data have all the properties of ordinal data and the interval between values is expressed in terms of a fixed unit of measure. Interval data are always numerical. College admission SAT scores are an example of interval-scaled data. For example, three students with SAT math scores of 620, 550, and 470 can be ranked or ordered in terms of best performance to poorest performance in math. In addition, the differences between the scores are meaningful. For instance, student 1 scored 620 ~ 550 = 70 points more than student 2, while student 2 scored 550 — 470 = 80 points more than student 3. The scale of measurement for a variable is a ratio seale if the data have all the prop- erties of interval data and the ratio of two values is meaningful. Variables such as dis- tance, height, weight, and time use the ratio scale of measurement. This scale requires that a zero value be included to indicate that nothing exists for the variable at the zero point,BMTR-Aa HH HR HTM. % ABMBRAUALLR ROE, OTA R RE. RTREADR 5 ts eM SM. HR OH ET OL AORRRH, OT Fi ROE ‘The statistical method appropriate for swnmarizing data depends ‘upon whether the data are categorical or quanttarive MEMES (LA — RHE. a a AU A AE A Re, Chapter 1 Data and 5 For example, consider the cost of an automobile, A zero value for the cost would indicate that the automobile has no cost and is free. In addition, if we compare the cost of $30,000 for one automobile to the cost of $15,000 for a second automobile, the ratio property shows that the first automobile is $30,000/S15,000 = 2 times, or twice, the cost of the second automobile. Categorical and Quantitative Data Data can be classified as either categorical or quantitative. Data that can be grouped by specific categories are referred to as categorical data. Categorical data use either the nomi- nal or ordinal scale of measurement. Data that use numeric values to indicate how much or how many are referred to as quantitative data. Quantitative data are obtained using either the interval or ratio scale of measurement. A categorical variable is a variable with categorical data, and a quantitative variable is a variable with quantitative data, The statistical analysis appropriate for a particular variable depends upon whether the variable is categorical or quantitative. If the variable is categorical, the statistical analysis is limited. We can summarize categorical data by counting the number of observations in each category or by computing the proportion of the observations in each category. However, even when the categorical data are identified by a numerical code, arithmetic operations such as addition, subtraction, multiplication, and division do not provide meaningful results. Section 2.1 discusses ways of summarizing categorical data. Arithmetic operations provide meaningful results for quantitative variables. For exam- ple, quantitative data may be added and then divided by the number of observations to ‘compute the average value. This average is usually meaningful and easily interpreted. In ‘general, more alternatives for statistical analysis are possible when data are quantitative. Section 2.2 and Chapter 3 provide ways of summarizing quantitative data. Cross-Sectional and Time Ser s Data For purposes of statistical analysis, distinguishing between cross-sectional data and time series data is important. Cross-sectional data are data collected at the same or approx- imately the same point in time. The data in Table 1.1 are cross-sectional because they describe the five variables for the 60 World Trade Organization nations at the same point in time, Time series data are data collected over several time periods. For example, the time series in Figure 1.1 shows the U.S. average price per gallon of conventional regular gasoline between 2009 and 2014. Between January 2009 and May 2011, the average price per gallon continued to climb steadily. Since then prices have shown more fluctuation, reaching an average price per gallon of $3.12 in October 2014. Graphs of time series data are frequently found in business and economic publica- tions. Such graphs help analysts understand what happened in the past, identify any trends over time, and project future values for the time series. The graphs of time series data can take on a variety of forms, as shown in Figure 1.2. With a little study, these graphs are usually easy to understand and interpret. For example, Panel (A) in Figure 1.2 is a graph that shows the Dow Jones Industrial Average Index from 2004 to 2014. In November 2004, the popular stock market index was near 10,000. The index rose to slightly over 14,000 in October 2007. However, notice the sharp decline in the time series after the high in 2007. By February 2009, poor economic conditions had caused the Dow Jones Industrial Average Index to return to the 7000 level. This was a scary and discouraging period for investors. However, by late 2009, the index was showing a recovery by reaching 10,000. The index has climbed steadily since then and was above 17,500 in November 2014.1.2. Dota 9 FIGURE 1.1 U.S. AVERAGE PRICE PER GALLON FOR CONVENTIONAL REGULAR GASOLINE $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 Average Price per Gallon Fan09Aug-09 Mar-lO OctlQ May-11 Dec-I] Jukl2Feb-13Sep-13. Apr Date Source: Energy Information Administration, U.S. Department of Energy, March 2014. ‘The graph in Panel (B) shows the net income of McDonald's Inc. from 2005 to 2013. ‘The declining economic conditions in 2008 and 2009 were actually beneficial to McDon- ald’s as the company's net income rose to all-time highs. The growth in McDonald's net income showed that the company was thriving during the economic downturn as people ‘were cutting back on the more expensive sit-down restaurants and seeking less-expensive alternatives offered by McDonald's. McDonald's net income continued to new all-time highs in 2010 and 2011, decreased slightly in 2012, and increased in 2013. Panel (C) shows the time series for the occupancy rate of hotels in South Florida over a one-year period. The highest occupancy rates, 95% and 98%, occur during the months of February and March when the climate of South Florida is attractive to tourists. In fact, January to April of each year is typically the high-occupancy season for South Florida hotels. On the other hand, note the low occupancy rates during the months of August to October, with the lowest occupancy rate of 50% occurring in September. High tempera- tures and the hurricane season are the primary reasons for the drop in hotel occupancy during this period. eek ceaaua Ley 1. An observation is the set of measurements ob- 2, Quantitative data may be diserete or continuous. tained for each element in a data set. Hence, the Quantitative data that measure how many (c.8.. ‘number of observations is always the same as the number of calls received in 5 minutes) are dis- number of elements. The number of measure- crete. Quantitative data that measure how much ‘ments obtained for each element equals the num- _(e.g., weight or time) are continuous because ber of variables. Hence, the total number of data _no separation occurs between the po: items can be determined by multiplying the num- _values. ber of observations by the number of variables.10 Chapter 1 Data and Statistics FIGURE 1.2 A VARIETY OF GRAPHS OF TIME SERIES DATA 20,000 ? 18,000 16,000 3 14,000 # PP PPPOE oe ee dydwpaa isa Nees al 2005-2006 2007-2008 ae 2010 2011 2012-2013, pe ee aa ig (B) Net Income on McDonald's Inc. Jy ae SESE SOPs ees Month (© occupancy Rate of South Frida Hotels1.3. Dota Sources u Data Sources Data can be obtained from existing sources, by conducting an observational study, or by conducting an experiment. Existing Sources In some cases, data needed for a particular application already exist. Companies maintain a variety of databases about their employees, customers, and business operations. Data on employee salaries, ages, and years of experience can usually be obtained from internal per- sonnel records. Other internal records contain data on sales, advertising expenditures, distri- bution costs, inventory levels, and production quantities. Most companies also maintain detailed data about their customers. Table 1.2 shows some of the data commonly available from internal company records. Organizations that specialize in collecting and maintaining data make available substantial amounts of business and economic data. Companies access these exter- nal data sources through leasing arrangements or by purchase. Dun & Bradstreet, Bloomberg, and Dow Jones & Company are three firms that provide extensive business database services to clients. ACNielsen and Information Resources, Inc., built success- ful businesses collecting and processing data that they sell to advertisers and product manufacturers. Data are also available from a variety of industry associations and special interest orga- nizations, The Travel Industry Association of America maintains travel-related informa- mn such as the number of tourists and travel expenditures by states. Such data would be of interest to firms and individuals in the travel industry. The Graduate Management Admission Council maintains data on test scores, student characteristics, and graduate man- agement education programs. Most of the data from these types of sources are available to qualified users at a modest cost. ‘The Internet is an important source of data and statistical information. Almost all companies maintain websites that provide general information about the company as well as data on sales, number of employees, number of products, product prices, and product specifications. In addition, a number of companies now specialize in making information. available over the Internet. As a result, one can obtain access to stock quotes, meal prices at restaurants, salary data, and an almost infinite variety of information. TABLE 1.2 EXAMPLES OF DATA AVAILABLE FROM INTERNAL COMPANY RECORDS Source Some of the Data Typically Available Employee records | Name, address, social security number, salary, number of vacation days, number of sick days, and bonus Production records | Part or product number, quantity produced, direct labor cost, and materials cost Inventory records Part or product number, number of units on hand, reorder level, economic order quantity, and discount schedule Sales records Product number, sales volume, sales volume by region, and sales volume by ‘customer type (Credit records Customer name, address, phone number, ered limit, and accounts receivable balance Customer profile ‘Age, gender, income level, household size, address, and preferences12 Chapter 1 Data and Statistics TABLE 1.3 EXAMPLES OF DATA AVAILABLE FROM SELECTED GOVERNMENT AGENCIES. Government Agency ‘Some of the Data Available Census Bureau Population data, number of households, and household income Federal Reserve Board Data on the money supply, installment credit, exchange rates, and discount rates Office of Management and Budget | Data on revenue, expenditures, and debt ofthe federal government Department of Commerce Data on business activity, value of shipments by industry, level of profits by industry, and growing and declining industries, Bureau of Labor Statistics ‘Consumer spending, hourly earnings, unemployment rate, safety records, and international statistics Government agencies are another important source of existing data. For instance, the U.S. Department of Labor maintains considerable data on employment rates, wage rates, size of the labor force, and union membership. Table 1.3 lists selected governmental agencies and some of the data they provide. Most government agencies that collect and process data also make the results available through a website. Figure 1.3 shows the home- page for the U.S. Bureau of Labor Statistics website. In an observational study we simply observe what is happening in a particular situation, record data on one or more variables of interest, and conduct a statistical analysis of the FIGURE 1.3 U.S. BUREAU OF LABOR STATISTICS HOMEPAGE . agaStudies of smokers ‘and nonsmokers are ‘observational studies because researchers do not determine or control who will smoke and who will nor smoke, The largest experimen: tal statistical study ever conducted is believed to be the 1954 Public Health Service experiment for the Salk polio vaccine. Nearly 2 million children in grades 1,2, and 3 were selected from throughout the United States. 1.3. Dato Sources 13 resulting data. For example, researchers might observe a randomly selected group of cus- tomers that enter a Walmart supercenter to collect data on variables such as the length of time the customer spends shopping, the gender of the customer, the amount spent, and so on, Statistical analysis of the data may help management determine how factors such as the length of time shopping and the gender of the customer affect the amount spent. ‘As another example of an observational study, suppose that researchers were interested in investigating the relationship between the gender of the CEO for a Fortune 500 company and the performance of the company as measured by the return on equity (ROE). To obtain data, the researchers selected a sample of companies and recorded the gender of the CEO and the ROE for each company. Statistical analysis of the data can help determine the rela- tionship between performance of the company and the gender of the CEO. This example is an observational study because the researchers had no control over the gender of the CEO or the ROE at each of the companies that were sampled. Surveys and public opinion polls are two other examples of commonly used obser- vational studies. The data provided by these types of studies simply enable us to observe opinions of the respondents. For example, the New York State legislature commissioned a telephone survey in which residents were asked if they would support or oppose an increase in the state gasoline tax in order to provide funding for bridge and highway repairs. Statisti- cal analysis of the survey results will assist the state legislature in determining if it should introduce a bill to increase gasoline taxes. Experiment ‘The key difference between an observational study and an experiment is that an experiment is conducted under controlled conditions. As a result, the data obtained from a well-designed ‘experiment can often provide more information as compared to the data obtained from exist- ing sources or by conducting an observational study. For example, suppose a pharmaceutical company would like to learn about how a new drug it has developed affects blood pressure. To obtain data about how the new drug affects blood pressure, researchers selected a sample of individuals. Different groups of individuals are given different dosage levels of the new drug, and before and after data on blood pressure are collected for each group. Statistical analysis of the data can help determine how the new drug affects blood pressure. The types of experiments we deal with in statistics often begin with the identification of a particular variable of interest. Then one or more other variables are identified and controlled so that data can be obtained about how the other variables influence the primary variable of interest. In Chapter 13 we discuss statistical methods appropriate for analyzing the data from an experiment. Time and Cost Issues Anyone wanting to use data and statistical analysis as aids to decision making must be aware of the time and cost required to obtain the data. The use of existing data sources is desirable when data must be obtained in a relatively short period of time. If important data are not readily available from an existing source, the additional time and cost involved in obtaining the data must be taken into account. In all cases, the decision maker should consider the contribution of the statistical analysis to the decision-making process. The cost of data acquisition and the subsequent statistical analysis should not exceed the savings generated by using the information to make a better decision. Data Acquisition Errors Managers should always be aware of the possibility of data errors in statistical studies. Using erroneous data can be worse than not using any data at all. An error in data acquisi- yn occurs whenever the data value obtained is not equal to the true or actual value that4 @ HARE. BD RA HBR Bit Se aR, Chapter | Data and Statistics would be obtained with a correct procedure. Such errors can occur in a number of ways. For example, an interviewer might make a recording error, such as a transposition in writing the age of a 24-year-old person as 42, or the person answering an interview question might misinterpret the question and provide an incorrect response. Experienced data analysts take great care in collecting and recording data to ensure that errors are not made. Special procedures can be used to check for internal consistency of the data. For instance, such procedures would indicate that the analyst should review the accuracy of data for a respondent shown to be 22 years of age but reporting 20 years of work experience. Data analysts also review data with unusually large and small values, called outliers, which are candidates for possible data errors. In Chapter 3 we present some of the methods statisticians use to identify outliers. Errors ofien occur during data acquisition. Blindly using any data that happen to be available or using data that were acquired with little care can result in misleading informa- tion and bad decisions. Thus, taking steps to acquire accurate data can help ensure reliable and valuable decision-making information. Descriptive Statistics Most of the statistical information in newspapers, magazines, company reports, and other publications consists of data that are summarized and presented in a form that is easy for the reader to understand. Such summaries of data, which may be tabular, graphical, or numerical, are referred to as descriptive statistics. Refer to the data set in Table 1.1 showing data for 60 nations that participate in the World Trade Organization. Methods of descriptive statistics can be used to sum- marize these data. For example, consider the variable Fitch Outlook, which indicates the direction the nation’s credit rating is likely to move over the next two years. The Fitch Outlook is recorded as being negative, stable, or positive. A tabular summary of the data showing the number of nations with each of the Fitch Outlook ratings is shown in Table 1.4. A graphical summary of the same data, called a bar chart, is shown in Figure 1.4. These types of summaries make the data easier to interpret. Referring to Table 1.4 and Figure 1.4, we can see that the majority of Fitch Outlook credit ratings are stable, with 65% of the nations having this rating. Negative and positive outlook credit ratings are similar, with slightly more nations having a negative outlook (18.3%) than a positive outlook (16.7%). A graphical summary of the data for the quantitative variable Per Capita GDP in Table 1.1, called a histogram, is provided in Figure 1.5. Using the histogram, it is easy to see that Per Capita GDP for the 60 nations ranges from $0 to $60,000, with the high- ‘est concentration between $10,000 and $20,000. Only one nation had a Per Capita GDP exceeding $50,000. TABLE 1.4 FREQUENCIES AND PERCENT FREQUENCIES FOR THE FITCH CREDIT RATING OUTLOOK OF 60 NATIONS Fitch Outlook Frequency Percent Frequency (%) Positive 10 167 Stable 9 650 ‘Negative i 1831.4. Descriptive Statistics 15 FIGURE 1.4 BAR CHART FOR THE FITCH CREDIT RATING OUTLOOK FOR 60 NATIONS Percent Frequency $8 8 8 8 10 Negative ‘Stable Positive Fitch Outlook eT RiRY*F In addition to tabular and graphical displays, numerical descriptive statistics are used HR, StL H to summarize data. The most common numerical measure is the average, or mean. Using, i}G MFC 8A. AM the data on Per Capita GDP for the 60 nations in Table 1.1, we can compute the average by Af (LAB MHL adding Per Capita GDP for all 60 nations and dividing the total by 60. Doing so provides eile an average Per Capita GDP of $21,387. This average provides a measure of the central tendency, or central location of the data. FIGURE 1.5 HISTOGRAM OF PER CAPITA GDP FOR 60 NATIONS °0-9,999 10,000 20,000- 30,000- 40,000- $0,000- 19,999 29,999. 39,999 49,999. 59,999 Per Capita GDP16 @) ERERED. RA Ati aA HR, INE MMA The US. government conducts a census every 10 years. Market research {firms conduct sample surveys every day. BREESE EH ReLAMH AEE. SH i th ae ARE. Hh -FERTRBAA AM RCE AERTS SP AOIBR Hea, kab Sait, Chapter 1 Data and Statistics There is a great deal of interest in effective methods for developing and presenting descriptive statistics. Chapters 2 and 3 devote attention to the tabular, graphical, and numerical methods of descriptive statistics. Statistical Inference Many situations require information about a large group of elements (individuals, compa- nies, voters, households, products, customers, and so on). But, because of time, cost, and other considerations, data can be collected from only a small portion of the group. The larger group of elements in a particular study is called the population, and the smaller group is called the sample, Formally, we use the following definitions. POPULATION A population is the set of all elements of interest in a particular study. ‘SAMPLE A sample is a subset of the population. The process of conducting a survey to collect data for the entire population is called a census. The process of conducting a survey to collect data for a sample is called a sample survey. As one of its major contributions, statistics uses data from a sample to make estimates and test hypotheses about the characteristics of a population through a process referred to as statistical inference. . As an example of statistical inference, let us consider the study conducted by Norris Electronics. Norris manufactures a high-intensity lightbulb used in a variety of electri- cal products. In an attempt to increase the useful life of the lightbulb, the product design group developed a new lightbulb filament. In this case, the population is defined as all lightbulbs that could be produced with the new filament. To evaluate the advantages of the new filament, a sample of 200 bulbs manufactured with the new filament were tested. Data collected from this sample showed the number of hours each lightbulb operated before filament burnout. See Table 1.5. Suppose Norris wants to use the sample data to make an inference about the average hours of useful life for the population of all lightbulbs that could be produced with the new filament. Adding the 200 values in Table 1.5 and dividing the total by 200 provides the sample average lifetime for the lightbulbs: 76 hours. We can use this sample result to esti- mate that the average lifetime for the lightbulbs in the population is 76 hours. Figure 1.6 provides a graphical summary of the statistical inference process for Norris Electronics ‘Whenever statisticians use a sample to estimate a population characteristic of interest, they usually provide a statement of the quality, or precision, associated with the estimate. For the Norris example, the statistician might state that the point estimate of the average lifetime for the population of new lightbulbs is 76 hours with a margin of error of 4 hours, ‘Thus, an interval estimate of the average lifetime for all lightbulbs produced with the new filament is 72 hours to 80 hours. The statistician can also state how confident he or she is that the interval from 72 hours to 80 hours contains the population average.1.6 Analytics 7 TABLE 1.5 HOURS UNTIL BURNOUT FOR A SAMPLE OF 200 LIGHTBULBS FOR THE NORRIS ELECTRONICS EXAMPLE 107 BRB 8 7 16 19 (9H 59 BST 4 6 71 70 Bg Sg ea 9B 66 a 79 86 igh tiga aT gy $2 iis nig PR en iananren wires 88 “4 79 TRADADAD HOR. FF 86 14 esomI gy 80 Gur ioe 78 9 2 38 8 Norris 92 78 88 nm 103,88 68 6 8 81 15 9 62 89 n n Then AO doe all cathy. 65 Shiny ey Z5. 62 4 1 85 4 8B 6 81 a2 79 83 3 61 65 2 2 65 83 7 70 81 Ti tries Trou lem beer t 59 SB B 66 (66 94. 7” 63 6, 3. 8, ee 90 Toa] 101 B43 St Gf aR n 96 15 64 76 eet 4 65 82 86 66 86 (96 89 a1 n 85 9959 2 68 apart) 60 PR abl gary AMS Fe: cr aay 45 85 6787 80 48 9B) erp THE gg valine: 83 8 72 67 92 (89 2 96772 Thabo gH Bein I6 83 6 68 61 Wier TA: Lewlbi B nn 9 8 CAabaiNVor' oG2i9, 7 81 65 B 8 6 89) Bdrcrei.AiasireBS yy. 9- Se 64 chon TB FIGURE 1.6 THE PROCESS OF STATISTICAL INFERENCE FOR THE NORRIS. ELECTRONICS EXAMPLE. 2, A sample of 200 bulbs is ‘manufactured with the new filament. 8 3. The sample data provide is used to estimate the |«——} “a sample average lifetime population average. ‘of 76 hours per bulb. (<@) Analyti 16) Analytics Nae Because of the dramatic increase in available data, more cost-effective data storage, faster computer processing, and recognition by managers that data can be extremely valuable for understanding customers and business operations, there has been a dramatic increase in