Quantitative Methods for

Decision Making
Lecture 1
Dr. Akhter

5th edi tion

Marking Scheme
Mid term
30%
Final Exam 40%
Quizzes 15% (mean of best five quizzes each of 15 points)
Assignments 15% (mean of best 7 assignments each of 15 points)

Book
Introductory STATISTICS
9TH EDITION
ISBN-13: 978-0-321-69122-4
ISBN-10: 0-321-69122-9
Neil A. Weiss
Addison-Wesley

Topics
Gathering information and its Presentation
Measures of central tendency
Measures of DispersionProbability Concepts
Random & Non Random Variables
Some Special Distributions
The Normal distribution
Fitting of a distribution
Sampling distributions

Topics
Estimation Theory
Mathematical Models
Regression & Correlation
Decision Theory (p-value approach)
Decision based on risk
Experimental Designs
Case studies related to the CRD and RBD using some
industrial and financial data sets
Setting up ANOVA tables and Decision Making
Computer Support producing group research

Statistics

Statistics (as subject)

Science of collecting and analyzing data for the purpose
of drawing conclusions and making decisions
Provides data collection methods to reduce biases, and
analysis methods to identify patterns and draw
inference from noisy data

Statistics (facts and figures)

Aggregate of numerical facts: Statistics of scores,
statistics of marks, statistics of wages etc.

Statistic

(constant)

A characteristics of sample

Important terms

Population: Homogeneous, Heterogeneous, finite, Infinite,

Hypothetical, Existent,

Census Complete enumeration

Sampling frame or frame A complete list of all elements in our
population

Sampling, Sample, Random Sample

Parameter Characteristic of population
Statistic Characteristic of sample

Statistical Methods

Statistical
Methods

Descriptive
Statistics

Inferential
Statistics

Descriptive statistics
Descriptive statistics consists of methods for organizing,
displaying, and describing data by using tables, graphs, and
summary measures.
Descriptive statistics is concerned with exploring, visualising, and
summarizing data but without fitting the data to any models.
This kind of analysis is used to explore the data in the initial stages
of data analysis.
Since no models are involved, it can not be used to test hypotheses
or to make testable predictions.
Nevertheless, it is a very important part of analysis that can reveal
many interesting features in the data.

Inferential statistics
Involves the identification of a suitable model. The data is then
fit to the model to obtain an optimal estimation of the model's
parameters.
The model then undergoes validation by testing either
predictions or hypotheses of the model.
Models based on a unique sample of data can be used to infer
generalities about features of the whole population.

Using Statistics (Two Categories)

Descriptive Statistics

Collect
Organize
Summarize
Display
Analyze

Inferential Statistics
Predict and forecast
values of population
parameters
Test hypotheses about
values of population
parameters
Make decisions

Types of Data - Two Types

Qualitative Categorical or
Nominal:
Color
Gender
Nationality

Quantitative Measurable or
Countable:
Temperatures
Salaries
Number of points scored
on a 100 point exam

Data
Collection of facts and figures
May be qualitative or quantitative
May be discrete or continuous
May be in un-group or group form

Data

Qualitative

Quantitative

Discrete

Continuous

Samples and Populations

A population consists of the set of all

measurements for which the investigator
is interested.
A sample is a subset of the measurements
selected from the population.
A census is a complete enumeration of
every item in a population.

Simple Random Sample

Sampling from the population is often

done randomly, such that every possible
sample of equal size (n) will have an
equal chance of being selected.
A sample selected in this way is called a
simple random sample or just a random
sample.
A random sample allows chance to
determine its elements.

Sampling Techniques

Random Sampling
Stratified Sampling
Cluster Sampling
Systematic Sampling
Judgment Sampling
Quota Sampling

Parameter and Statistic

Parameter A population constant

, , ,
2

Statistic A sample constant

2

x, s , r, p

Samples and Populations

Population (N)

Sample (n)

Why Sample?

Census of a population may be:

Impossible
Impractical
Too costly

Subscript Notation

List Name

Xi

Subscript

Subscript Notation
List Name

Xi
Subscript

Double Subscript

X ij

X 11
X 21
X 31

X 12
X 22
X 32

X 13
X 23
X 33

Summation Notations

X
i

stop value

i 1

start value

summation
index

Sigma Notation
Suppose our list has just 5 numbers, and
they are 1,3,2,5,6.
5

X
i 1

Xi
i 1
5

12 32 22 52 62 75

2
i

1 3 2 5 6

17 289
2

Properties of Sigma
N

a Na

aX
i 1

i 1
y

a ( y x 1)a
i x
N

X
i 1

X
i 1

i 1

i 1

i 1

i 1

Yi X i Yi
Yi X i Yi

a X i
i 1

Properties of Sigma
n

xi x

Show that

i 1

xi2 nx 2
i 1

where x is the arithmetic mean of data which is

n

x
i 1

or
n

x
i 1

nx

Sigma Notation
Commonly used Greek Letters
=

Expand

2 X
N

i 1

Exercise
In a survey it was found that 64 families bought milk in the
following quantities (liters) in a particular month:
19
7
28
13
21

22
17
24
36
31

09 22 12 39 19 14 23 06 24 16 18
20 25 28 18 10 24 20 21 10 07 18
20 14 24 25 34 22 05 33 23 26 29
11 26 11 37 30 13 08 15 22 21 32
17 16 23 12 09 15 27 17 21 16

(a)
(b)
(c)
(d)

Construct a frequency distribution using 5 intervals

Construct histogram, polygon, and frequency curve
Construct c.f. distributions and draw Ogives
Construct relative, cumulative relative, percentage relative distn.

Arithmetic Mean
The central value

Group data, ungroup data

Unweighted , weighted
Combined arithmetic mean
Assumed mean, trimmed mean

Median
The most middle observation in arranged data

Ungroup data (even, odd # of observations)

Group data
Graphical method of finding median

Mode
The most frequent observation

Ungroup data
Group data
Graphical method of finding mode
Relationship b/w mean, median, & moade

Quartiles

Quartiles are the percentage points that break down

the ordered data set into quarters.
The first quartile is the 25th percentile. It is the point
below which lie 1/4 of the data.
The second quartile is the 50th percentile. It is the
point below which lie 1/2 of the data. This is also
called the median.
The third quartile is the 75th percentile. It is the
point below which lie 3/4 of the data.

Quartiles and Interquartile Range

The first quartile, Q1, (25th percentile) is

often called the lower quartile.
The second quartile, Q2, (50th
percentile) is often called median or the
middle quartile.
The third quartile, Q3, (75th percentile)
is often called the upper quartile.
The interquartile range is the difference
between the first and the third quartiles.

Example : Finding Quartiles

(n+1)P/100
Sales
9
6
12
10
13
15
16
14
14
16
17
16
24
21
22
18
19
18
20
17

Sorted
Sales
6
9
10
12
13
14
14
15
16
16
16
17
17
18
18
19
20
21
22
24

First Quartile

Median

Third Quartile

Quartiles

Summary Measures: Population Parameters

Sample Statistics

Measures of Central
Tendency
Median
Mode
Mean

Measures of Variability
Range
Interquartile range
Variance
Standard Deviation

Other summary
measures:
Skewness
Kurtosis

Measures of Central Tendency

or Location
Median

Middle value when

sorted in order of
magnitude
50th percentile

Mode

Most frequentlyoccurring value

Mean

Average

Example Median (Data is used from previous example )

Sales
9
6
12
10
13
15
16
14
14
16
17
16
24
21
22
18
19
18
20
17

Sorted Sales
6
9
10
12
13
14
14
15
16
16
16
17
17
18
18
19
20
21
22
24

Median
50th Percentile
(20+1)50/100=10.5

16 + (.5)(0) = 16

Median

The median is the middle

value of data sorted in
order of magnitude. It is
the 50th percentile.

Example - Mode (Data is used from

Example 1-2)

.
. . . . : . : : : . . . .

--------------------------------------------------------------6
9 10 12 13 14 15 16 17 18 19 20 21 22 24

Mode = 16

The mode is the most frequently occurring value. It

is the value with the highest frequency.

Arithmetic Mean or Average

The mean of a set of observations is their average the sum of the observed values divided by the
number of observations.

Population Mean

Sample Mean

x
i 1

x
i 1

Example Mean
Sales
9
6
12
10
13
15
16
14
14
16
17
16
24
21
22
18
19
18
20
17

317

x
i 1

317
15.85
20

Example - Mode

.
. . . . : . : : : . . . .

--------------------------------------------------------------6
9 10 12 13 14 15 16 17 18 19 20 21 22 24

Mean = 15.85
Median and Mode = 16

Group Data and the Histogram

Dividing data into groups or classes or

intervals
Groups should be:
Mutually exclusive
Not overlapping - every observation is assigned to
only one group

Exhaustive
Every observation is assigned to a group

Equal-width (if possible)

First or last group may be open-ended

Frequency Distribution

Table with two columns listing:

Each and every group or class or interval of values
Associated frequency of each group
Number of observations assigned to each group
Sum of frequencies is number of observations
N for population
n for sample

Class midpoint is the middle value of a group or

class or interval
Relative frequency is the percentage of total
observations in each class
Sum of relative frequencies = 1

Example : Frequency Distribution

x
Spending Class ($)
0 to less than 100
100 to less than 200
200 to less than 300
300 to less than 400
400 to less than 500
500 to less than 600

f(x)
Frequency (number of customers)

f(x)/n
Relative Frequency

30
38
50
31
22
13

0.163
0.207
0.272
0.168
0.120
0.070

184

1.000

Example of relative frequency: 30/184 = 0.163

Sum of relative frequencies = 1

Cumulative Frequency Distribution

x
Spending Class ($)
0 to less than 100
100 to less than 200
200 to less than 300
300 to less than 400
400 to less than 500
500 to less than 600

F(x)
Cumulative Frequency
30
68
118
149
171
184

F(x)/n
Cumulative Relative Frequency
0.163
0.370
0.641
0.810
0.929
1.000

The cumulative frequency of each group is the sum of the

frequencies of that and all preceding groups.

Histogram

A histogram is a chart made of bars of

different heights.
Widths and locations of bars correspond to
widths and locations of data groupings
Heights of bars correspond to frequencies or
relative frequencies of data groupings

Histogram Example
Frequency Histogram

Histogram Example
Relative Frequency Histogram

Skewness and Kurtosis

Skewness
Measure of asymmetry of a frequency distribution
Skewed to left
Symmetric or unskewed
Skewed to right

Kurtosis
Measure of flatness or peakedness of a frequency
distribution
Platykurtic (relatively flat)
Mesokurtic (normal)
Leptokurtic (relatively peaked)

Skewness
Skewed to left

Skewness
Symmetric

Skewness
Skewed to right

Kurtosis
Platykurtic - flat distribution

Kurtosis
Mesokurtic - not too flat and not too peaked

Kurtosis
Leptokurtic - peaked distribution

Methods of Displaying Data

Pie Charts
Categories represented as percentages of total

Bar Graphs
Heights of rectangles represent group frequencies

Frequency Polygons
Height of line represents frequency

Ogives
Height of line represents cumulative frequency

Time Plots
Represents values over time

Pie Chart

Bar Chart
Fig. 1-11 Airline Operating Expenses and Revenues
12

Average Revenues
Average Expenses

10

American Continental Delta

Northwest Southwest United

A i r li n e

USAir

Frequency Polygon and Ogive

Relative Frequency Polygon
0 .3

Ogive
1. 0

0 .2
0. 5
0 .1

0 .0

0. 0
0

10

20

Sales

30

40

50

10

20

Sales

30

40

50

Time Plot
M o n th l y S t e e l P r o d u c t io n
( P r o b le m 1 - 4 6 )

Millions of Tons

8 .5

7 .5

6 .5

5 .5
Mo n th

J F M A M J J A S ON D J F M A M J J A S ON D J F M A M J J A S O

1-9 Exploratory Data Analysis - EDA

Techniques to determine relationships and trends,
identify outliers and influential observations, and
quickly describe or summarize data sets.

Stem-and-Leaf Displays
Quick-and-dirty listing of all observations
Conveys some of the same information as a histogram

Box Plots
Median
Lower and upper quartiles
Maximum and minimum

Example: Stem-and-Leaf Display

Construct a stem & leaf graph of the following data
11,12, 12, 13, 15, 15, 15,16,17,20,21,21,
21,22,22,22,23,24,26,27,27,27,28,29,29, 56
30,31,32,34,35,37,41,41,42,45,47,50,52,53,62

1
2
3
4
5
6

122355567
0111222346777899
012457
11257
0236
02

Box Plot
Elements of a Box Plot
Outlier

Smallest data
point not below
inner fence

Largest data point

Suspected
not exceeding
outlier
inner fence

Outer
Fence

Inner
Fence

Q1-1.5(IQR)
Q1-3(IQR)

Q1

Median

Interquartile Range

Q3

Inner
Fence
Q3+1.5(IQR)

Outer
Fence

Q3+3(IQR)

Example: Box and Whisker Plots

Order numbers
3, 5, 4, 2, 1, 6, 8, 11, 14, 13, 6, 9, 10, 7
First, order your numbers from least to
greatest:
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14

Median
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Then find the median (from the ordered list):
Cross off one number from each side until you reach
the middle number (or numbers).

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

Median (continued):
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
If there are two numbers in the middle,
Add those 2 middle numbers together:
6 + 7 = 13
Then divide by 2:
13 2 = 6.5
The median is 6.5.

Quartiles (page 1)
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Then split the numbers on left and right sides
of the median:
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14

Quartiles (page 2)
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Find the median for each half:
1, 2, 3, 4, 5, 6, 6 7, 8, 9, 10, 11, 13, 14
1, 2, 3, 4, 5, 6, 6 7, 8, 9, 10, 11, 13, 14
Left
Median = 4

Right
Median = 10

Quartiles (page 3)
1, 2, 3, 4, 5, 6, 6 7, 8, 9, 10, 11, 13, 14
Left
Median = 4

Right
Median = 10

The left median is called the LOWER

QUARTILE.
The right median is called the UPPER
QUARTILE.

Number line
1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Draw a number line from the smallest to the
largest number without skipping any numbers.

10

11

12

13 14

Quartiles on number line

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Put circles at the LOWER and UPPER
Quartiles.

10

11

12

13

14

Box on Quartiles on number line

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Draw a box connecting the circles at the
LOWER and UPPER Quartiles.

10

11

12

13 14

Median on number line

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Put a circle at the median (6.5).

10

11

12

13 14

Median on number line

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Draw a line connecting the median to the box.

10

11

12

13

14

Low and high numbers

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Put circles at the high and low points.

10

11

12

13

14

Low and high numbers

1, 2, 3, 4, 5, 6, 6, 7, 8, 9, 10, 11, 13, 14
Draw lines that connect the high and low
points to the box.

10

11

12

13

14

Box and Whisker Plot

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

10

11

12

13

14

Here is the completed Box and Whisker Plot!

Example: Box Plot

Histogram

Histograms

Frequency Polygons & the Ogive

Two Frequency Polygons

Pie Chart

Bar Chart

Box Plot

Box Plot Compare Two Data Sets

Time Plot

Time Plot

Testing Normality
Check the normality of the following data
3, 5, 4, 2, 1, 6, 8, 11, 14, 13, 6, 9, 10, 7

Table of normal scores

Questions?