Statistics for Business and Economics

Ninth Edition, Global Edition

Chapter 2
Describing Data:
Numerical

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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

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Chapter Topics (1 of 2)
• 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

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Chapter Topics (2 of 2)
• Five number summary

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Describing Data Numerically

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Section 2.1 Measures of Central
Tendency

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Arithmetic Mean (1 of 2)
• The arithmetic mean (mean) is the most common
measure of central tendency
– For a population of N values:

– For a sample of size n:

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Arithmetic Mean (2 of 2)
• The most common measure of central tendency
• Mean = sum of values divided by the number of values
• Affected by extreme values (outliers)

1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5
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Median
• In an ordered list, the median is the “middle”
number (50% above, 50% below)

• Not affected by extreme values

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Finding the Median
• The location of the median:
th
 n 1
Median position    position in the ordered data
 2 
– 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

n 1
• Note that is not the value of the median, only the
2
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 be no mode
• There may be several modes

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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 
$2,000,000 
 5 
500,000 = $600,000
300,000
• Median: middle value of ranked
100,000
data = $300,000
100,000
Sum 3,000,000 • 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

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Geometric Mean
• Geometric mean
– Used to measure the rate of change of a variable over
time
1
xg  n (x1  x2    xn )  (x1  x2    xn ) n

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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.
 P 
 
th
P percentile = value located in the 
th
 n  1
 100 
ordered position

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Quartiles (1 of 2)
• 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)

• 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 (2 of 2)
• 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

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Five-Number Summary
The five-number summary refers to five descriptive
measures:
minimum
first quartile
Median=Q2=50th percentile
third quartile
maximum
minimum  Q1  median  Q3  maximum

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Section 2.2 Measures of Variability

• Measures of variation give

information on the spread
or variability of the data
values.

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Range
• Simplest measure of variation
• Difference between the largest and the smallest
observations:
Range  X largest  X smallest
Example:

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

• Sensitive to outliers

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Interquartile Range (1 of 2)
• 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 (2 of 2)
• The interquartile range (I QR) 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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Population Variance
• Average of squared deviations of values from the
mean
N

x  
2
– Population variance: i
2  i 1

Where  = population mean

N = population size

xi  i th value of the variable x

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Sample Variance
• Average (approximately) of squared deviations of
values from the mean
n

– Sample variance:  (xi  x ) 2

s 
2 i 1
n 1
Where x = arithmetic mean
n = sample size

xi  i th 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:
N

x  
2
i
 i 1

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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: n

 i
(x  x ) 2

S i 1
n 1

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Calculation Example: Sample
Standard Deviation
Sample Data  xi  :

(10  x ) 2  (12  x ) 2  (14  x ) 2    (24  x ) 2

s
n 1

10  16   12  16   14  16      24  16 

2 2 2 2


8 1

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Measuring Variation

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Comparing Standard Deviations
Mean = 15.5 for each data set

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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 (1 of 2)
• Select data data analysis descriptive statistics

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Using Excel (2 of 2)

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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 Sample coefficient of
variation: variation:
   s 
CV    100% CV    100%
 x 
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Comparing Coefficient of Variation
• Stock A:
– Average price last year = $50
– Standard deviation = $5

• Stock B:
– Average price last year = $100
– Standard deviation = $5

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The Empirical Rule (1 of 2)
• If the data distribution is bell-shaped, then
the interval:
•   1 contains about 68% of the values in
the population or the sample

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The Empirical Rule (2 of 2)
•   2 contains about 95% of the values in
the population or the sample
•   3 contains almost all (about 99.7%) of
the values in the population or the sample

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z-Score (1 of 3)
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 (2 of 3)
• If the data set is the entire population of data
and the population mean,  , and the population
standard deviation,  , are known, then for each
value, xi , the z-score associated with xi is

xi  
z


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z-Score (3 of 3)
• 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?
xi   121  100
z   1.4
 15
A score of 121 is 1.4 standard
deviations above the mean.

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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
– covariance and correlation coefficient

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