Chapter 1:Introduction

1.1 Introduction
Definition of statistics
 “Statistics may be regarded (i) as the study of populations, (ii) as the study of
variation, (iii) as the study of methods of the reduction of data.” Fisher [1950].

 “Statistics is the branch of the scientific method which deals with the data
obtained by counting or measuring the properties of populations of natural
phenomena.” Kendall and Stuart [1963].

 “Statistics is concerned with the inferential process, in particular with the

planning and analysis of experiments or surveys, and with the efficient
summarizing of sets of data.” Kruskal [1968].

 “Statistics may be defined as a science of collection, presentation, analysis and

interpretation of numerical data.” Croxton and Cowden.
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What is Statistics?
Statistics as Numerical Data (Plural Senses)
 in this sense statistics are defined as aggregates of numerically expressed facts
(figures) collected in a systematic manner for a pre-determined purpose.

For Example:
 The average starting salary of college graduates
 The mean time waiting for technical support is 17 minutes.
 The mean length of the business cycle since 1945 is' 61 months.
Statistics as a Subject (Singular Sense)
 in this sense statistics is defined as the science of collecting, organizing,
analyzing, Presenting and interpreting numerical data for understanding a
phenomenon or making wise decisions.

 Hence, statistics is a procedural process performing the five major activities on

numerical data. 2
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For Example:

 The marketing department at SHEMU Company., a manufacturer of soap

products, has the responsibility of making recommendations regarding the
potential profitability of a newly developed group of face soaps having fruit
smells, such as grape, orange, and pineapple. Before making a final decision, they
will test it in several markets. That is, they may advertise and sell it in Dire Dawa,
and Harar. On the basis of test marketing in these two regions, the SHEMU
Company will make a decision whether to market the soaps in the entire country.

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 Why Study Statistics?

1. Numerical information is everywhere.

2. Statistical techniques are used to make decisions that affect our daily
lives. That is, they affect our personal welfare.
 Insurance companies use statistical analysis to set rates for home, automobile,
life, and health insurance.

3. The knowledge of statistical methods will help you understand how

decisions are made and give you a better understanding of how they
affect you.
 no matter what your career, you will make professional decisions that
involve data. An understanding of statistical methods will help you
make these decisions more effectively.
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Cont…

In order to make an informed decision, you will need to be able to:

 Determine whether the existing information is adequate or additional

information is required.

 Gather additional information, if it is needed, in such a way that it does

not provide misleading results.

 Summarize the information in a useful and informative manner.

 Analyze the available information.

 Draw conclusions and make inferences while assessing the risk of an

incorrect conclusion.

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 Classification of Statistics

Descriptive Statistics
 Descriptive statistics deals with collection of data, its presentation in various forms,
such as tables, graphs and diagrams and findings averages and other measures which
would describe the data.
 Descriptive statistics refers only to the actual data. That is, the data at hand.
 Descriptive Statistics is basically a kind of Statistics which is used to describe the
features of the data that gathered by the researcher.
Examples
 According to EEA Ethiopian economy is based on subsistence agriculture that
accounts for more than eighty percent (80 %) of the population
 Average rainfall in Dire Dawa last year was 35ml.
 Percentage of males in your class is 70%
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 Cont…
Inferential Statistics
 Inferential statistics – The methods used to determine something about a
population on the basis of a sample.

 Generalising beyond actual observations or Generalise from a sample to a

population.

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Example

 From the Surveys of 100 civil service workers in Dire Dawa town, 45

are satisfied in their job. Depend on this the researcher found that from

all civil service workers in Dire Dawa town 45% are satisfied in their

job.

 A random sample of 260 Accounting and Finance graduates from 3rd -

year schools assigned for GA showed their mean starting salary was

$5,178. We therefore estimate the mean starting salary for all

Accounting and Finance graduates of 3rd -year institutions to be

$5,178.
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 Definitions of Important statistical terminologies:

 Population is The entire set of individuals or objects of interest possessing a

common characteristic that is being studied or the measurements obtained from
all individuals or objects of interest.

 Sample is A portion, or part, of the population of interest

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 Cont…

From the following Problems Discuss the Population and Sample

Example 1

 An insurance company has insured 30,000 cars over the last six years. The
company would like to know the number of cars involved in one or more
accidents over this period. The manager selected 500 cars from the files and
made a record of cars that were involved in one or more car accidents.

Example 2

 A given factory produce 200 light bulbs in one day. 50 light bulbs taken from
current production line can be used to make inference about qualities of light
bulbs produced in future.

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Cont…

Parameter versus statistic

 Parameter is numerical measurements obtained from a population
 denoted by Greek letters (μ, 𝛿)
 Statistic is numerical measures obtained from a sample
 Denoted by roman letters
Census and Sampling
 Census: Is a statistical investigation that covers each and every unit in
the population.
 Sampling: the method of selecting a sample form population or
sampling is a statistical procedure for studying units of the sample that
come from the population.
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 Cont…
Why Take a Sample Instead of Studying Every Member of the Population?
 Prohibitive cost of census.

 Destruction of item being studied may be required.

 Not possible to test or inspect all members of a population being studied.

 Variable is a characteristics that can assume different values.

 data are a real value of the variable.

Example:
Variable Data
Brand of PC TOSHIBA, hp, Dell
life of an automobile battery 42 months
NO. children in the family 3
Amount of income $20,145

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 Types of Data/Variable
Variables/Data based on Natures of the variable
 Qualitative Data: are data which are non-numeric in nature and can’t be
measured. A qualitative data is a data that cannot be described numerically.
Example
 gender, religious affiliation, type of automobile owned, state of birth, and eye
color
 Quantitative Data: are are data that can be expressed numerically or are data
that are numeric in nature.
Example

 The balance in your checking account, the ages of company CEOs, the
life of an automobile battery (such as 42 months), and the number of children
in a family.
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 Quantitative data can be further classified as Discrete or Continuous.
 Discrete Variable: can assume only certain values, and there are usually "gaps"
between the values. Typically, discrete variables result from counting.
Examples:
 The number of bedrooms in a house (1, 2, 3, 4, etc.)
 The number automobile sold per Month
 The number of students in each section of a statistics
 Continuous Variable: can assume any value within a specific range. Typically,
continuous variables result from measuring.
Examples:

 price of automobile
 air pressure in a tire
 the weight of a shipment of tomatoes
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Classifications of Data by Sources

 Primary Data:are collected specifically for the analysis desired for the first
time. These data first hand information.

 Secondary Data: have already been compiled and are available for statistical
analysis.

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Classification of Data by Scale of Measurement
 Nominal – consist of categories in each of which the number of respective
observations is recorded. The categories are in no logical order and have no
particular relationship. The categories are said to be mutually exclusive since an
individual, object, or measurement can be included in only one of them.

Example:

 six colors of milk chocolate candies

 Gender

 Ordinal – contain more information. Consists of distinct categories in

which order is implied. Values in one category are larger or smaller than
values in other categories (e.g. rating-excelent, good, fair, poor).
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 Interval – is a set of numerical measurements in which the distance between
numbers is of a known, constant size.
 In interval data there is no meaningful zero (i.e. zero does not indicate absence of
the characteristics).
Example: Temperature in Degree Celsius
 Ratio – consists of numerical measurements where the distance between numbers is
of a known, constant size, in addition, there is a nonarbitrary zero point.
 data that can be ranked, have a meaningful differences and as well as meaningful
quotients (ratios).
Examples:
 Income, consumption, wages, units of production, weight, changes in stock prices,
distance between branch offices, and height....

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Summary of the Characteristics for Levels of Measurement

Why Know the Level of Measurement of a Data?

 The level of measurement of the data dictates the calculations that can be done to
summarize and present the data.
 To determine the statistical tests that should be performed on the data.

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 Applications, Uses and Limitations of Statistics
Applications of Statistics

 Statistics is applied in almost all fields.

 It has become the scientific framework to analyze data for education, agriculture,
business and economics, industry and health.

Applications of statistical concepts in the business world

 Finance – correlation and regression, index numbers, time series analysis

 Marketing management – hypothesis testing, chi-square tests

 Personnel – hypothesis testing, chi-square tests, nonparametric tests

 Operating management – hypothesis testing, estimation, analysis of variance,

time series analysis

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Uses of Statistics
 Presents facts in a summarized and precise form
 Simplifies complex data (data reduction)
 Facilitates comparisons
 Helps in estimating unknown population characteristics
 Helps in studying the relationship between two or more variables
 Helps in prediction and forecasting future values and formulating policies
Generally statistics for Finance provides methods for
 Design: Planning and carrying out research studies.
 Description: Summarizing and exploring data.
 Inference: Making predictions and generalizing about certain phenomena

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Limitations of Statistics

 Statistics deals with only aggregate of facts and not with individual
data items

 Statistics deals with only with quantitative data (information)

 Statistical data are true only on average (approximately)

 Statistics can be easily misused and therefore should be used by

experts

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Time For Questions

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