Statistics for

Business and Economics

8th Edition

Chapter 2
Describing Data: Numerical
Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-1

Describing Data Numerically

Describing Data Numerically

Central Tendency

Variation

Arithmetic Mean

Range

Median

Interquartile Range

Mode

Variance
Standard Deviation
Coefficient of Variation

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-2

Measures of Central Tendency

2.1

Overview
Central Tendency

Mean

Median

Mode

Midpoint of
ranked values

Most frequently
observed value

x=

i=1

Arithmetic
average

(if one exists)

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Ch. 2-3

Arithmetic Mean
n

The arithmetic mean (mean) is the most

common measure of central tendency
n

For a population of N values:

N

x1 + x 2 + ! + x N
=
=
N
N
i=1

Population
values

Population size

For a sample of size n:

n

x=

x
i=1

x1 + x 2 + ! + x n
=
n

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Observed
values

Sample size

Ch. 2-4

Arithmetic Mean
(continued)
n
n
n

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

Mean = 3
1 + 2 + 3 + 4 + 5 15
=
=3
5
5
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0 1 2 3 4 5 6 7 8 9 10

Mean = 4
1 + 2 + 3 + 4 + 10 20
=
=4
5
5
Ch. 2-5

Median
n

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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Ch. 2-6

Finding the Median

n

The location of the median:

n + 1
Median position =

2
n
n

th

position in the ordered data

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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Ch. 2-7

Mode
n
n
n
n
n
n

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

Mode = 9
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0 1 2 3 4 5 6

No Mode
Ch. 2-8

Which measure of location

is the best?
n

Mean is generally used, unless extreme values

(outliers) exist . . .
Then median is often used, since the median
is not sensitive to extreme values.
n

Example: Median home prices may be reported for

a region less sensitive to outliers

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Ch. 2-9

Shape of a Distribution
n

Describes how data are distributed

Measures of shape
n

Symmetric or skewed

Left-Skewed

Symmetric

Right-Skewed

Mean < Median

Mean = Median

Median < Mean

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Ch. 2-10

Geometric Mean
n

Geometric mean
n

Used to measure the rate of change of a variable

over time
1/n

x g = (x1 x 2 ! x n ) = (x1 x 2 ! x n )
n

Geometric mean rate of return

n

Measures the status of an investment over time

1/n

rg = (x1 x 2 ... xn ) 1
n

Where xi is the rate of return in time period i

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Ch. 2-11

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:

X1 = $100,000 X2 = $150,000 X3 = $180,000

50% increase

20% increase

What is the mean percentage return over time?

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-12

Example
(continued)

Use the 1-year returns to compute the arithmetic

mean and the geometric mean:
Arithmetic
mean rate
of return:
Geometric
mean rate
of return:

(150%) + (120%)
X=
1 = 35%
2

Misleading result

rg = (x1 x 2 )1/n 1
= [(150%) (120%)]1/2 1
1/2

= (180%) 1 = 134.16% 1 = 34.16%

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Accurate
result
Ch. 2-13

Percentiles and Quartiles

n

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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Ch. 2-14

Quartiles
n

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%
Q1

25%

25%
Q2

25%
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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Ch. 2-15

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:

(the median position)

Q2 = 0.50(n+1)

Third quartile position:

Q3 = 0.75(n+1)

where n is the number of observed values

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Ch. 2-16

Quartiles
n

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

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Q1 = 12.5

Ch. 2-17

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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Ch. 2-18

2.2

Measures of Variability
Variation

Range

Interquartile
Range

Variance

Standard
Deviation

Coefficient of
Variation

Measures of variation give

information on the spread
or variability of the data
values.
Same center,
different variation

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Ch. 2-19

Range
n
n

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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Ch. 2-20

Disadvantages of the Range

n

Ignores the way in which data are distributed

7

10

11

12

Range = 12 - 7 = 5
n

10

11

12

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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Ch. 2-21

Interquartile Range
n

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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Ch. 2-22

Interquartile Range
n

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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Ch. 2-23

Population Variance
n

Average of squared deviations of values from

the mean
n

Population variance:
2

=
Where

(x )
i

i=1

= population mean
N = population size
xi = ith value of the variable x

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Ch. 2-24

Sample Variance
n

Average (approximately) of squared deviations

of values from the mean
n

Sample variance:
2

s =
Where

(x x)

i=1

n -1

X = arithmetic mean
n = sample size
Xi = ith value of the variable X

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Ch. 2-25

Population Standard Deviation

n
n
n

Most commonly used measure of variation

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

Population standard deviation:

N

(x )
i

i=1

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N
Ch. 2-26

Sample Standard Deviation

n
n
n

Most commonly used measure of variation

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

Sample standard deviation:

(x x)

S=

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i=1

n -1

Ch. 2-27

Calculation Example:
Sample Standard Deviation
Sample
Data (xi) :

10

12

14

n=8
s=

15

17

18

18

24

Mean = x = 16

(10 X)2 + (12 x)2 + (14 x)2 + ! + (24 x)2

n 1

(10 16)2 + (12 16)2 + (14 16)2 + ! + (24 16)2

8 1

130
7

4.3095

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A measure of the average

scatter around the mean
Ch. 2-28

Measuring variation

Small standard deviation

Large standard deviation

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Ch. 2-29

Comparing Standard Deviations

Mean = 15.5 for each data set
11

12

13

14

15

16

17

18

19

20 21

s = 3.338

13

14

15

16

17

18

19

20 21

s = 0.926

13

14

15

16

17

18

19

20 21 (values are dispersed far

Data A

11

12

Data B

11

12

Data C
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(compare to the two

cases below)

(values are concentrated

near the mean)

s = 4.570

from the mean)

Ch. 2-30

Advantages of Variance and

Standard Deviation
n

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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Ch. 2-31

Using Microsoft Excel

n

Descriptive Statistics can be obtained

from Microsoft Excel
n

Select:
data / data analysis / descriptive statistics

Enter details in dialog box

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Ch. 2-32

Using Excel
n

Select data / data analysis / descriptive statistics

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Ch. 2-33

Using Excel

Enter input
range details

Check box for

summary
statistics
Click OK

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Ch. 2-34

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 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-35

Coefficient of Variation
n

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:

CV = 100%

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Sample coefficient of
variation:

s
CV = 100%
x
Ch. 2-36

Comparing Coefficient
of Variation
n

Stock A:
n Average price last year = $50
n Standard deviation = $5

s
CVA =
x

Stock B:
n
n

$5
100% =
100% = 10%
$50

Average price last year = $100

Standard deviation = $5

s
CVB =
x

$5
100% =
100% = 5%
$100

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Both stocks
have the same
standard
deviation, but
stock B is less
variable relative
to its price

Ch. 2-37

Chebychevs Theorem
n

For any population with mean and

standard deviation , and k > 1 , the
percentage of observations that fall within
the interval

[ k]
Is at least
2

100[1 (1/k )]%

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Ch. 2-38

Chebychevs Theorem
(continued)
n

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)
n

Examples:
At least

within

(1 - 1/1.52) = 55.6% ... k = 1.5 ( 1.5)

(1 - 1/22) = 75% ........... k = 2 ( 2)
(1 - 1/32) = 89% .... k = 3 ( 3)
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Ch. 2-39

The Empirical Rule

n

If the data distribution is bell-shaped, then

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

68%

1
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Ch. 2-40

The Empirical Rule

(continued)
n

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

95%

99.7%

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Ch. 2-41

2.3

Weighted Mean
and Measures of Grouped Data
The weighted mean of a set of data is
n

w x
i

x=
n

w1x1 + w 2 x 2 + ! + w n x n
=
n

i=1

Where wi is the weight of the ith observation

and n =

Use when data is already grouped into n classes, with

wi values in the ith class

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Ch. 2-42

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

K

fm
i

x=

i=1

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

where n = fi
i=1

Ch. 2-43

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

K

s2 =

2
f
(m

x
)
i i
i=1

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n 1

Ch. 2-44

Measures of Relationships
Between Variables

2.4

Two measures of the relationship between

variable are
n

Covariance
n

a measure of the direction of a linear relationship

between two variables

Correlation Coefficient
n

a measure of both the direction and the strength of a

linear relationship between two variables

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Ch. 2-45

Covariance
n

The covariance measures the strength of the linear relationship

between two variables
The population covariance:
N

(x
i

Cov (x , y) = xy =
n

)(yi y )

i=1

The sample covariance:

n

(x x)(y y)
i

Cov (x , y) = s xy =
n
n

i=1

n 1

Only concerned with the strength of the relationship

No causal effect is implied

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Ch. 2-46

Interpreting Covariance
n

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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Ch. 2-47

Coefficient of Correlation
n

Measures the relative strength of the linear relationship

between two variables
Population correlation coefficient:

Cov (x , y)
=
XY
n

Sample correlation coefficient:

Cov (x , y)
r=
sX sY
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Ch. 2-48

Features of
Correlation Coefficient, r
n

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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Ch. 2-49

Scatter Plots of Data with Various

Correlation Coefficients
Y

r = -1

r = -.6

X
Y

r = +1

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r=0

r = +.3

r=0

X
Ch. 2-50

Using Excel to Find

the Correlation Coefficient
n

Select Data / Data Analysis

Choose Correlation from the selection menu

Click OK . . .

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-51

Using Excel to Find

the Correlation Coefficient
(continued)

Input data range and select

appropriate options
Click OK to get output

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Ch. 2-52

Interpreting the Result

n

Scatter Plot of Test Scores

r = .733

100

There is a relatively
strong positive linear
relationship between
test score #1
and test score #2

Test #2 Score

95
90
85
80
75
70
70

75

80

85

90

95

100

Test #1 Score

Students who scored high on the first test tended

to score high on second test

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-53

Chapter Summary
n

Described measures of central tendency

n

Illustrated the shape of the distribution

n

Symmetric, skewed

Described measures of variation

n

Mean, median, mode

Range, interquartile range, variance and standard deviation,

coefficient of variation

Discussed measures of grouped data

Calculated measures of relationships between
variables
n

covariance and correlation coefficient

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 2-54