Statistics for

Business and Economics

7th Edition

Chapter 2

Describing Data: Numerical

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-1
 Chapter Goals
After completing this chapter, you should be able to:
■ Compute and interpret the mean, median, and mode for a
set of data
■ Find the range, variance, standard deviation, and
coefficient of variation and know what these values mean
■ Apply the empirical rule to describe the variation of
population values around the mean
■ Explain the weighted mean and when to use it
■ Explain how a least squares regression line estimates a
linear relationship between two variables

Copyright © 2010 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 Bienaymé-Chebyshev rule

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-3
 Chapter Topics
(continued)

■ Five number summary and box-and-whisker

plots
■ Covariance and coefficient of correlation
■ Pitfalls in numerical descriptive measures and
ethical considerations

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-4
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-5
 2.1
Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

Arithmetic Midpoint of Most frequently

average ranked values observed value

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 Arithmetic Mean
■ The arithmetic mean (mean) is the most
common measure of central tendency
■ For a population of N values:

Population
values
Population size
■ For a sample of size n:

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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-8
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-9
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-10
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-12
 Review Example:
Summary Statistics

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

■ Mode: most frequent value

= $100,000

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-13
 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

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

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 Geometric Mean
■ Geometric mean
■ Used to measure the rate of change of a variable
over time

■ Geometric mean rate of return

■ Measures the status of an investment over time

■ Where xi is the rate of return in time period i

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-16
 Example

An investment of $100,000 rose to $150,000 at the

end of year one and increased to $180,000 at end
of year two:

50% increase 20% increase

What is the mean percentage return over time?

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-17
 Example
(continued)

Use the 1-year returns to compute the arithmetic

mean and the geometric mean:

Arithmetic
mean rate Misleading result
of return:

Geometric
mean rate
of return: More
accurate
result
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 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,
different variation
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-19
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-21
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-22
 Interquartile Range

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

25% 25% 25% 25%

12 30 45 57
70

Interquartile range
= 57 – 30 = 27

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-23
 Quartiles
■ Quartiles split the ranked data into 4 segments with
an equal number of values per segment

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: Q1 = 0.25(n+1)

Second quartile position: Q2 = 0.50(n+1)

(the median position)

Third quartile position: Q3 = 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-26
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-28
 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:

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-29
 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

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 0.926

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.570

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-33
 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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 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-35
 Comparing Coefficient
of Variation
■ Stock A:
■Average price last year = $50

■Standard deviation = $5

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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-36
 Using Microsoft Excel

■ Descriptive Statistics can be obtained

from Microsoft® Excel
■ Select:
data / data analysis / descriptive statistics

■ Enter details in dialog box

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-37
 Using Excel
■ Select data / data analysis / descriptive statistics

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-38
 Using Excel

■ Enter input
range details

■ Check box for

summary
statistics

■ Click OK
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-39
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-40
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-41
 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)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-42
 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
■ 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%

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-44
 2.3
Weighted Mean

■ 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-45
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-46
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-47
 2.4
The Sample 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-48
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-49
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-51
 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
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-52
 Using Excel to Find
the Correlation Coefficient
■ Select Data / Data Analysis

■ Choose Correlation from the selection menu

■ Click OK . . .

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-53
 Using Excel to Find
the Correlation Coefficient(continued)

■ Input data range and select

appropriate options
■ Click OK to get output

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-54
 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-55
 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
■ Discussed measures of grouped data
■ Calculated measures of relationships between
variables
■ covariance and correlation coefficient

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-56
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
 Online topic: Outliers

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

 Locating Extreme Outliers:Z-Score

■ To compute the Z-score of a data value,

subtract the mean and divide by the standard
deviation.
■  The Z-score is the number of standard
deviations a data value is from the mean.
■  A data value is considered an extreme outlier
if its Zscore is less than -3.0 or greater than
+3.0.
■  The larger the absolute value of the Z-score,
the farther the data value is from the mean.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
 Locating Extreme Outliers:Z-Score

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 Locating Extreme Outliers:Z-Score

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 The Five-Number Summary

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 Relationships among the five-number
summary and distribution shape

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 Distribution Shape and The Boxplot

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 Boxplot Example

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 Outliers

■ An outlier is an unusual score, relative to the

dataset. It is inconsistent with the rest of the
data. It willinfluence the mean and the standard
deviation.
■ A data set might have no outliers, one outlier, or
Several outliers.
■ Two types: Mild and Extreme

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 Outliers

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 Outliers

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