Uses of:

•Arithmetic Mean
•Geometric Mean
•Harmonic Mean
 Arithmetic Mean
In mathematics and statistics, the arithmetic mean (or simply the mean) of
a list of numbers is the sum of all the members of the list divided by the
number of items in the list. The arithmetic mean is what students are taught
very early to call the "average". If the list is a statistical population, then the
mean of that population is called a population mean. If the list is a
statistical sample, we call the resulting statistic a sample mean.

The arithmetic mean is the value with minimal quadratical distance from the
given values:

Equivalently, the mean is the best least squares fit of a constant function to
the given data.

Uses:
A classic example is average income. The arithmetic mean may be
misinterpreted to imply that most people's incomes are higher than is in fact
the case. When presented with an "average" one may be led to believe that
most people's incomes are near this number. This "average" (arithmetic
mean) income is higher than most people's incomes, because high income
outliers skew the result higher (in contrast, the median income "resists" such
skew). However, this "average" says nothing about the number of people
near the median income (nor does it say anything about the modal income
that most people are near). Nevertheless, because one might carelessly relate
"average" and "most people" one might incorrectly assume that most
people's incomes would be higher (nearer this inflated "average") than they
are. For instance, reporting the "average" net worth in Medina, Washington
as the arithmetic mean of all annual net worths would yield a surprisingly
high number because of Bill Gates. Consider the scores (1, 2, 2, 2, 3, 9). The
arithmetic mean is 3.17, but five out of six scores are below this!
 Geometric Mean
Uses of Geometric Mean
The Environmental Health Bureau uses the geometric mean to estimate the
30-day average from all individual samples taken during five or more
sampling events. The geometric mean is another way to average a set of
values and is commonly used with bacterial water assessment, which often
show a great deal of variability. One benefit the geometric mean has over the
arithmetic mean is that it (geometric mean) reduces the effect of an
occasional high or low value on the average.

Uses:
The harmonic mean is a better "average" when the numbers are defined in
relation to some unit. The common example is averaging speed.

For example, suppose that you have four 10 km segments to your

automobile trip. You drive your car:

• 100 km/hr for the first 10 km

• 110 km/hr for the second 10 km
• 90 km/hr for the third 10 km
• 120 km/hr for the fourth 10 km.

What is your average speed? Here is a spreadsheet solution:

Distance Velocity Time

km km/hr hr
10 100 0.100
10 110 0.091
10 90 0.111
10 120 0.083

40 0.385
103.80 Avg V
The harmonic mean formula is:

Excel calculates this with the formula =HARMEAN(100,110,90,120).

Unfortunately, the formula is not generalized to average velocities if across
different distances.

In petroleum engineering, the harmonic mean is sometimes the better

"average" for vertical permeability with horizontally-layered bedding.
 Harmonic Mean
In mathematics, the harmonic mean (formerly sometimes called the
subcontrary mean) is one of several kinds of average. Typically, it is
appropriate for situations when the average of rates is desired. The harmonic
mean is the number of variables divided by the sum of the reciprocals of the
variables.

The harmonic mean H of the positive real numbers a1, ..., an is defined to be

Uses:
In economic evaluation work, the geometric mean is often useful.

The large  represents multiplication, analogous to the  representing

summation.

The GM is for situations we want the average used in a multiplicative

situation, such as the "average" dimension of a box that would have the
same volume as length x width x height. For example, suppose a box has
dimensions 50 x 80 x 100 cm.

A cubic box with sides of the GM=73.7 cm would enclose the same 400,000
cm3 or 0.4 m3 volume.
The customary economic evaluation application is in determining "average"
inflation or rate of return across several time periods. In calculating the
GM, the numbers must all be positive. So, add 1 to each value before
calculating the GM and subtract 1 from the answer.

Suppose that your portfolio has these five annual returns: .10, .20, 0, .10, .
20. The order does not matter if the portfolio has no contributions or
withdrawals during the five years. The return arithmetic average is 0.
However, a portfolio across five years with these annual returns would lose
about 5% of value. The geometric mean:

In checking: (1.1)(0.8)(1.0)(0.9)(1.2) = 0.95 = (1.010)5. That is, a portfolio

with this a GM =.01 would lose .05 in five years.

In Excel the answer is calculated with the formula

=GEOMEAN(1.1,.8,1,.9,1.2)-1

Beware when someone says he used an "average" value in a calculation.

Any of the central measures means "average" in some context. In economic
evaluation, the appropriate single-point forecast is almost always the mean.
(which is a sample mean or expected value, depending upon whether the
distribution represents data or judgment). For inflation, price escalations,
and rates of return, the geometric mean is the appropriate single-point
representing an average across time periods.