MEDITERRANEAN SCHOOL OF

BUSINESS

PROGRAM: UPM
COURSE: Busines Statistics1
PROFESSOR: Hend Ghazzai
TERM Fall 2021
:
1
 Statistics for
Business and Economics
8th Edition

Chapter 3

Describing Data: Numerical Techniques

COPYRIGHT © 2013 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL Ch. 2-2
 Chapter Topics
Measures of central tendency, variation, and shape
◦ Mean, median, mode, geometric mean
◦ Quartiles
◦ Range, interquartile range, variance and standard deviation, coefficient of variation
◦ Symmetric and skewed distributions

Population summary measures

◦ Mean, variance, and standard deviation
◦ The empirical rule and Chebyshev’s Theorem

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 Chapter Topics
(continued)

Five number summary and box-and-whisker plots

Covariance and coefficient of correlation

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 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation

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 2.1
Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

Midpoint of Most frequently

ranked values observed value
Arithmetic
(if one exists)
average

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 Arithmetic Mean
 

Population
values

Population size

Observed
values
Sample size

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 Arithmetic Mean
(continued)

The most common measure of central tendency

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 0 1 2 3 4 5 6 7 8 9 10

Mean = 3 Mean = 4

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 Median
In an ordered list, the median is the “middle” 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

Not affected by extreme values

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 Finding the Median
The location of the median:

◦ If the number of values is odd, the median is the middle number

◦ If the number of values is even, the median is the average of the two
middle numbers

Note that is not the value of the median, only the position
of the median in the ranked data

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 Mode
A measure of central tendency
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 0 1 2 3 4 5 6

No Mode
Mode = 9
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 Review Example

Five houses on a hill by the beach

House Prices:

$2,000,000
500,000
300,000
100,000
100,000

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 Review Example:
Summary Statistics

House Prices:
Mean: ($3,000,000/5)
$2,000,000
500,000
= $600,000
300,000
100,000
100,000 Median: middle value of ranked data
Sum 3,000,000 = $300,000

Mode: most frequent value

= $100,000
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 Which measure of location
is the “best”?

Mean is generally used, unless extreme values (outliers) exist…

Then median is often used, since the median is not sensitive to extreme
values.

◦ Example: Median home prices may be reported for a region – less sensitive to
outliers

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 Shape of a Distribution

Describes how data are distributed

Measures of shape
◦ Symmetric or skewed

Negatively Skewed Symmetric Positive-Skewed

Mean < Median Mean ~ Median Median < Mean

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 Geometric Mean
 

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 Example
(continued)
Suppose you make a 2-year investment of $1000 and it grows by 100% to
$2000 during the first year. During the second year, however the investment
suffers a 50% loss, from $2000 back to $1000.

Misleading result
 
Does not represent the
variation of your money after
two years

 
Accurate result

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 Exercise
An investment of $1000 you made 4 years ago was worth $1200 after the first year, $1200 after
the second year, $1500 after the third year and $2000 today.
1. Compute the annual rates of return.
2. Compute the mean and median of the rates of return.
3. Compute the geometric mean.
4. Discuss whether the mean, median or geometric mean is the best measure of the performance
of the investment.

18
Exercises
To practice more solve
Exercises 2.6 and 2.7 on page 48.

19
Measures of Relative Standing
Percentiles
Quartiles

20
 Percentiles and Quartiles

Percentiles and Quartiles indicate the position of a value relative to the

entire set of data

Generally used to describe large data sets

Example: An IQ score at the 90th percentile means that 10% of the population has a
higher IQ score and 90% have a lower IQ score.

Pth percentile = value located in the (P/100)(n + 1)th

ordered position

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 Quartiles
Quartiles split the ranked data into 4 segments with an equal
number of values per segment (note that the widths of the
segments may be different)

25% 25% 25% 25%

Q1 Q2 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

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 Quartile Formulas
Find a quartile by determining the value in the
appropriate position in the ranked data, where
First quartile position: L1 = 0.25(n+1)

Second quartile position: L2 = 0.50(n+1)

(the median position)

Third quartile position: L3 = 0.75(n+1)

where n is the number of observed values

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 Quartiles

■ Example: Find the first quartile

Sample Ranked Data: 11 12 13 16 16 17 18 21 22

(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

Do not confuse the position and the value of the percentile!!!

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 Five-Number Summary

The five-number summary refers to five descriptive measures:

minimum
first quartile
median
third quartile
maximum

minimum < Q1 < median < Q3 < maximum

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Exercises
To practice more solve
Examples 2.6 and 2.7 on pages 46 and 47.
Exercises 2.9 on page 48.

26
 2.2
Measures of Variability
Variation

Range Interquartile Variance Standard Coefficient of

Range Deviation Variation

■ Measures of variation give information

on the spread or variability of the data
values.

Same center,
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 Range

Simplest measure of variation

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 13 14

Range = 14 - 1 = 13

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 Disadvantages of the Range
Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 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

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 Interquartile Range

Can eliminate some outlier problems by using the interquartile range

Eliminate high- and low-valued observations and calculate the range of the
middle 50% of the data

Interquartile range = 3rd quartile – 1st quartile

IQR = Q3 – Q1

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 Interquartile Range
The interquartile range (IQR) measures the spread in the middle 50% of
the data

Defined as the difference between the observation at the third quartile

and the observation at the first quartile

IQR = Q3 - Q1

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 Box-and-Whisker Plot

A box-and-whisker plot is a graph that describes the shape

of a distribution
Created from the five-number summary: the minimum
value, Q1, the median, Q3, and the maximum
The inner box shows the range from Q1 to Q3, with a line
drawn at the median
Two “whiskers” extend from the box. One whisker is the
line from Q1 to the minimum, the other is the line from Q3 to
the maximum value

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 Box-and-Whisker Plot
The plot can be oriented horizontally or vertically

Example:
Median X
X Q1 Q3
(Q2) maximum
minimum

25% 25% 25% 25%

12 30 45 57 70

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Exercises
To practice more solve Example 2.8 on page 50.

34
 Population Variance

Average of squared deviations of values from the mean

◦ Population variance:

Where = population mean

N = population size
xi = ith value of the variable x
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 Sample Variance

Average (approximately) of squared deviations of values from the mean

◦ Sample variance:

Where = arithmetic mean

n = sample size
Xi = ith value of the variable X
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 Population Standard Deviation

Most commonly used measure of variation

Shows variation about the mean
Has the same units as the original data

◦ Population standard deviation:

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 Sample Standard Deviation
Most commonly used measure of variation
Shows variation about the mean
Has the same units as the original data

◦ Sample standard deviation:

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 Calculation Example:
Sample Standard Deviation
Sample
Data (xi) : 10 12 14 15 17 18 18 24

n=8 Mean = x = 16

A measure of the “average” scatter

around the mean
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 Measuring variation

Small standard deviation

Large standard deviation

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 Comparing Standard Deviations
Mean = 15.5 for each data set

11 12 13 14 15 16 17 18 19 20 21
s = 3.338
(compare to the two cases
Data A below)

11 12 13 14 15 16 17 18 19 20 21
s = 0.926
(values are concentrated
Data B near the mean)

11 12 13 14 15 16 17 18 19 20 21
s = 4.570
(values are dispersed far
Data C from the mean)
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 Advantages of Variance and
Standard Deviation

Each value in the data set is used in the calculation

Values far from the mean are given extra weight

(because deviations from the mean are squared)

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 Using Microsoft Excel

Descriptive Statistics can be obtained from

Microsoft® Excel

◦ Select:
data / data analysis / descriptive statistics
◦ Enter details in dialog box

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 Using Excel

■ Select data / data analysis / descriptive statistics

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 Using Excel

Enter input range

details

Check box for

summary statistics

Click OK

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 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

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 Coefficient of Variation
Measures relative variation

Always in percentage (%)

Shows variation relative to mean

Can be used to compare two or more sets of data measured in different units

Population coefficient of variation: Sample coefficient of variation:

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 Comparing Coefficient
of Variation
Stock A:
◦ Average price last year = $50
◦ Standard deviation = $5

Both stocks have

the same standard
Stock B: deviation, but
◦ Average price last year = $100 stock B is less
variable relative
◦ Standard deviation = $5 to its price

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Exercises
Solve 2.20 on page 59
2.49 on page 70

49
 Chebychev’s Theorem

For any population with mean μ and standard deviation σ , and k > 1 ,
the percentage of observations that fall within the interval

[μ + kσ]
Is at least

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 Chebychev’s Theorem
(continued)
Regardless of how the data are distributed, 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 - 1/1.52) = 55.6% ……... k = 1.5 (μ ± 1.5σ)

(1 - 1/22) = 75% …........... k = 2 (μ ± 2σ)
(1 - 1/32) = 89% …….…... k = 3 (μ ± 3σ)

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 The Empirical Rule

If the data distribution is bell-shaped, then the

interval:
contains about 68% of the values in the population or the sample

68%

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 The Empirical Rule
(continued)
contains about 95% of the values in
the population or the sample
contains almost all (about 99.7%) of the values in the
population or the sample

95% 99.7%

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Exercises
Solve 2.17, 2.18 and 2,19 on page 59

54
 z-Score

A z-score shows the position of a value relative

to the mean of the distribution.

indicates the number of standard deviations a value is from the mean.

◦ A z-score greater than zero indicates that the value is greater than the mean
◦ a z-score less than zero indicates that the value is less than the mean
◦ a z-score of zero indicates that the value is equal to the mean.

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 z-Score
(continued)
If the data set is the entire population of data and the population mean, µ, and
the population standard deviation, σ, are known, then for each value, x i, the z-
score associated with xi is

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 z-Score
(continued)
If intelligence is measured for a population using an IQ score, where the
mean IQ score is 100 and the standard deviation is 15, what is the z-score
for an IQ of 121?

A score of 121 is 1.4 standard deviations above the

mean.

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 2.3
Weighted Mean
and Measures of Grouped Data

The weighted mean of a set of data is

◦ Where wi is the weight of the ith observation

and

Use when data is already grouped into n classes, with wi values

in the ith class

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 Approximations for Grouped Data
Suppose data are grouped into K classes, with frequencies f1,
f2, . . ., fK, and the midpoints of the classes are m1, m2, . . ., mK

For a sample of n observations, the mean is

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 Approximations for Grouped Data
Suppose data are grouped into K classes, with frequencies f1,
f2, . . ., fK, and the midpoints of the classes are m1, m2, . . ., mK

For a sample of n observations, the variance is

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Exercises
Sove 2.30 and 2.31 page 63.

61
2.4 Measures of Relationships Between Variables

Two measures of the relationship between variable are

Covariance
◦ a measure of the direction of a linear relationship between two variables

Correlation Coefficient
◦ a measure of both the direction and the strength of a linear relationship between
two variables

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 Covariance
The covariance measures the strength of the linear relationship between two
variables
The population covariance:

The sample covariance:

◦ Only concerned with the strength of the relationship

◦ No causal effect is implied

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 Interpreting Covariance

Covariance between two variables:

Cov(x,y) > 0 x and y tend to move in the same direction

Cov(x,y) < 0 x and y tend to move in opposite directions

Cov(x,y) = 0 x and y are independent

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 Coefficient of Correlation
Measures the relative strength of the linear relationship between two
variables

Population correlation coefficient:

Sample correlation coefficient:

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 Features of
Correlation Coefficient, r

Unit free

Ranges between –1 and 1

The closer to –1, the stronger the negative linear relationship

The closer to 1, the stronger the positive linear relationship

The closer to 0, the weaker any positive linear relationship

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 Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0

Y
Y Y

X X X
r = +1 r = +.3 r=0
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 Using Excel to Find
the Correlation Coefficient
Select Data / Data Analysis

■ Choose Correlation from the selection menu

■ Click OK . . .

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 Using Excel to Find
the Correlation Coefficient
(continued)

Input data range and select

appropriate options
Click OK to get output

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 Interpreting the Result

r = .733
There is a relatively
strong positive linear
relationship between
test score #1
and test score #2
Students who scored high on the first test tended to score
high on second test

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Exercises
Solve 2.35 on page 68.
2.56 on page 71.

71
 Chapter Summary
Described measures of central tendency
◦ Mean, median, mode

Illustrated the shape of the distribution

◦ Symmetric, skewed

Described measures of variation

◦ Range, interquartile range, variance and standard deviation, coefficient of
variation

Described measures of relative standing

◦ Quartile, percentiles, Z-score

Discussed measures of grouped data

Calculated measures of relationships between variables
◦ covariance and correlation coefficient

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