Statistics for Business and Economics 6ed - Newbold

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Statistics for Business and Economics 6ed - Newbold

© All Rights Reserved

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6th Edition

Chapter 3

Describing Data: Numerical

Chap 3-1

Chapter Goals

After completing this chapter, you should be able to:

set of data

coefficient of variation and know what these values mean

population values around the mean

linear relationship between two variables

Chapter Topics

shape

Quartiles

Range, interquartile range, variance and standard

deviation, coefficient of variation

Symmetric and skewed distributions

The empirical rule and Bienaym-Chebyshev rule

Chapter Topics

(continued)

plots

ethical considerations

Describing Data Numerically

Central Tendency

Variation

Arithmetic Mean

Range

Median

Interquartile Range

Mode

Variance

Standard Deviation

Coefficient of Variation

Overview

Central Tendency

Mean

Median

Mode

Midpoint of

ranked values

Most frequently

observed value

x

i1

Arithmetic

average

Arithmetic Mean

common measure of central tendency

N

x1 x 2 x N

N

N

i1

Population

values

Population size

x

i 1

x1 x 2 x n

Observed

values

Sample size

Arithmetic Mean

(continued)

Mean = sum of values divided by the number of values

Affected by extreme values (outliers)

0 1 2 3 4 5 6 7 8 9 10

Mean = 3

1 2 3 4 5 15

3

5

5

0 1 2 3 4 5 6 7 8 9 10

Mean = 4

1 2 3 4 10 20

4

5

5

Median

number (50% above, 50% below)

0 1 2 3 4 5 6 7 8 9 10

0 1 2 3 4 5 6 7 8 9 10

Median = 3

Median = 3

n 1

Median position

position in the ordered data

2

If the number of values is even, the median is the average of

the two middle numbers

n 1

Note that

is not the value of the median, only the

2

position of the median in the ranked data

Mode

Value that occurs most often

Not affected by extreme values

Used for either numerical or categorical data

There may may be no mode

There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Mode = 9

0 1 2 3 4 5 6

No Mode

Review Example

$2,000 K

House Prices:

$2,000,000

500,000

300,000

100,000

100,000

$500 K

$300 K

$100 K

$100 K

Review Example:

Summary Statistics

House Prices:

$2,000,000

500,000

300,000

100,000

100,000

Mean:

= $300,000

= $100,000

Sum 3,000,000

($3,000,000/5)

= $600,000

is the best?

extreme values (outliers) exist

the median is not sensitive to

extreme values.

reported for a region less sensitive to

outliers

Shape of a Distribution

Measures of shape

Symmetric or skewed

Left-Skewed

Symmetric

Right-Skewed

Mean = Median

Measures of Variability

Variation

Range

Interquartile

Range

Variance

Standard

Deviation

Coefficient

of Variation

information on the spread or

variability of the data values.

Same center,

different variation

Range

Difference between the largest and the smallest

observations:

Range = Xlargest Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12

Range = 14 - 1 = 13

13 14

7

10

11

12

Range = 12 - 7 = 5

10

11

12

Range = 12 - 7 = 5

Sensitive to outliers

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5

Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120

Range = 120 - 1 = 119

Interquartile Range

the interquartile range

and calculate the range of the middle 50% of

the data

IQR = Q3 Q1

Interquartile Range

Example:

X

minimum

Q1

25%

12

Median

(Q2)

25%

30

25%

45

Q3

maximum

25%

57

Interquartile range

= 57 30 = 27

70

Quartiles

an equal number of values per segment

25%

Q1

25%

25%

Q2

25%

Q3

The first quartile, Q1, is the value for which 25% of the

observations are smaller and 75% are larger

Q2 is the same as the median (50% are smaller, 50% are

larger)

Only 25% of the observations are greater than the third

quartile

Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position:

Q1 = 0.25(n+1)

(the median position)

Third quartile position:

Q3 = 0.75(n+1)

Quartiles

(n = 9)

Q1 = is in the 0.25(9+1) = 2.5 position of the ranked data

so use the value half way between the 2nd and 3rd values,

so

Q1 = 12.5

Population Variance

the mean

N

Population variance:

Where

(x )

i1

= population mean

N = population size

xi = ith value of the variable x

N -1

Sample Variance

of values from the mean

n

Sample variance:

s

2

Where

(x x)

i1

X = arithmetic mean

n = sample size

Xi = ith value of the variable X

n -1

Shows variation about the mean

Has the same units as the original data

N

2

(x

)

i

i1

N -1

Shows variation about the mean

Has the same units as the original data

(x x)

i 1

n -1

Calculation Example:

Sample Standard Deviation

Sample

Data (xi) :

10

12

14

n=8

s

15

17

18

18

24

Mean = x = 16

n 1

8 1

126

7

4.2426

scatter around the mean

Measuring variation

Small standard deviation

Data A

11

12

13

14

15

16

17

18

19

20 21

Mean = 15.5

s = 3.338

20 21

Mean = 15.5

s = 0.926

20 21

Mean = 15.5

s = 4.570

Data B

11

12

13

14

15

16

17

18

19

Data C

11

12

13

14

15

16

17

18

19

Standard Deviation

calculation

weight

(because deviations from the mean are squared)

Chebyshevs Theorem

standard deviation , and k > 1 , the

percentage of observations that fall within

the interval

[ + k]

Is at least

2

Chebyshevs Theorem

(continued)

at least (1 - 1/k2) of the values will fall

within k standard deviations of the mean

(for k > 1)

Examples:

At least

within

(1 - 1/22) = 75% ........ k=2 ( 2)

(1 - 1/32) = 89% . k=3 ( 3)

the interval:

1 contains about 68% of the values in

the population or the sample

68%

the population or the sample

3 contains about 99.7% of the values

in the population or the sample

95%

99.7%

Coefficient of Variation

data measured in different units

s

CV

x

100%

Comparing Coefficient

of Variation

Stock A:

Average price last year = $50

Standard deviation = $5

s

CVA

x

$5

100%

100% 10%

$50

Stock B:

Average price last year = $100

Standard deviation = $5

s

CVB

x

$5

100%

100% 5%

$100

Both stocks

have the same

standard

deviation, but

stock B is less

variable relative

to its price

from Microsoft Excel

tools / data analysis / descriptive statistics

Using Excel

descriptive statistics

Using Excel

(continued)

details

summary statistics

Click OK

Excel output

Microsoft Excel

descriptive statistics output,

using the house price data:

House Prices:

$2,000,000

500,000

300,000

100,000

100,000

Weighted Mean

n

w x

x

w

i1

w 1x1 w 2 x 2 w n x n

wi

wi values in the ith class

Suppose a data set contains values m 1, m2, . . ., mk,

occurring with frequencies f1, f2, . . . fK

K

fimi

where N fi

i1

i 1

K

fm

i1

where n fi

i 1

Suppose a data set contains values m 1, m2, . . ., mk,

occurring with frequencies f1, f2, . . . fK

K

2

f

(m

)

i i

i1

K

s2

2

f

(m

x

)

i i

i1

n 1

between two variables

N

Cov (x , y) xy

(x

i

i1

)(y i y )

n

Cov (x , y) s xy

(x x)(y y)

i1

n 1

No causal effect is implied

Interpreting Covariance

Cov(x,y) > 0

Cov(x,y) < 0

Cov(x,y) = 0

Coefficient of Correlation

between two variables

Cov (x , y)

XY

Cov (x , y)

r

sX sY

Features of

Correlation Coefficient, r

Unit free

relationship

relationship

relationship

Correlation Coefficients

Y

r = -1

r = -.6

X

Y

r = +1

r=0

r = +.3

r=0

the Correlation Coefficient

Select

Tools/Data Analysis

the selection menu

Click OK . . .

the Correlation Coefficient

(continued)

appropriate options

Click OK to get output

r = .733

There is a relatively

strong positive linear

relationship between

test score #1

and test score #2

to score high on second test

relationship between two variables:

Y = 0 + 1X

independent variable

minimize the sum of the squared residuals

data, is

y b0 b1 x

sy

Cov(x, y)

b1

r

2

sx

sx

b 0 y b1x

Chapter Summary

Symmetric, skewed

coefficient of variation

Calculated measures of relationships between

variables

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