Instructor: Nahid Farnaz (Nhn)

North South University

BUS173: Applied Statistics

Chapter 3
Describing Data: Numerical

Chap 3-1

Measures of Central Tendency

Overview
Central Tendency

Mean

Median

Mode

Midpoint of
ranked values

Most frequently
observed value

x
i1

Arithmetic
average

Chap 3-2

Arithmetic Mean

The arithmetic mean (mean) is the most

common measure of central tendency

For a population of N values:

N

x1 x 2 x N

N
N
i1

Population
values

Population size

For a samplen of size n:

x
i 1

x1 x 2 x n

Observed
values

Sample size

Chap 3-3

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

Mean = 3
1 2 3 4 5 15

3
5
5

0 1 2 3 4 5 6 7 8 9 10

Mean = 4
1 2 3 4 10 20

4
5
5
Chap 3-4

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

Chap 3-5

Finding the Median

The location of the median:

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
Chap 3-6

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

Mode = 9

0 1 2 3 4 5 6

No Mode
Chap 3-7

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

Chap 3-8

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

Chap 3-9

Exercise 3.2
A department store manager is interested in the number of
complaints received by the customer service dept. about
the quality of electrical products sold. Records over a 5
week period show the following number of complaints for
each week:
13, 15, 8, 16, 8
a.Compute the mean number of weekly complaints
b.Compute the median
c.Find the mode
Ans: a.12; b.13; c.8
Statistics for Business and Economics, 6e 2007 Pearson Education, Inc.

Chap 3-10

Ex. 3.6
The demand for bottled water increases during the
hurricane season in Florida. A random sample of 7 hours
showed that the following numbers of 1 gallon bottles were
sold in one store:
40, 55, 62, 43, 50, 60, 65.
a.
Describe the central tendency of the data
b.
Comment on symmetry or skewness

Ans: Mean=53.57; no unique mode; median=55; left skewed

Statistics for Business and Economics, 6e 2007 Pearson Education, Inc.

Chap 3-11

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
Chap 3-12

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
Chap 3-13

Disadvantages of the Range

Ignores the way in which data are distributed

7

10

11

12

Range = 12 - 7 = 5

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
Chap 3-14

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
Chap 3-15

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: Q2 = 0.50(n+1)

(the median position)
Third quartile position:

Q3 = 0.75(n+1)

where n is the number of observed values

Chap 3-16

Interquartile Range
Example:
X

minimum

Q1

25%

12

Median
(Q2)
25%

30

25%

45

Q3

maximum

25%

57

70

Interquartile range
= 57 30 = 27

Five number summary:

Minimum < Q1 < Median Q2 < Q3 < Maximum
Chap 3-17

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

Chap 3-18

Example 3.4: Waiting Times at Gilottis Grocery

(five number summary)
A stem and leaf display for a sample of 25 waiting times
(in seconds) is given below.
Compute the 5 number summary.
Calculate and interpret IQR
Minutes N = 25
Stem Unit =10.0; Leaf Unit = 1.0

Chap 3-19

Population Variance

Average of squared deviations of values from

the mean
N

Population variance:

Where

(x )

i1

= population mean
N = population size
xi = ith value of the variable x
Chap 3-20

Sample Variance

Average (approximately) of squared deviations

of values from the mean
n

Sample variance:

s
2

Where

(x x)
i1

n -1

X = sample mean
n = sample size
Xi = ith value of the variable X
Chap 3-21

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

2
(x

)
i
i1

N
Chap 3-22

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:

(x x)
i 1

n -1

Chap 3-23

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

126
7

4.2426

A measure of the average

scatter around the mean
Chap 3-24

Example 3.5

A professor teaches two large sections of

marketing and randomly selects a sample of
test scores from both sections. Find the range
and standard deviation from each sample:
Section 1

50

60

70

80

90

Section 2

72

68

70

74

66

Statistics for Business and Economics, 6e 2007 Pearson Education, Inc.

Chap 3-25

Chebyshevs Theorem
This theorem established data intervals for
any data set, regardless of the shape and
distribution
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 )]%

Chap 3-26

Chebyshevs 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 - 1/12) = 0% ..... k=1 ( 1)

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

Chap 3-27

The Empirical Rule

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
Chap 3-28

The Empirical Rule

2 contains about 95% of the values in

the population or the sample
3 contains about 99.7% of the values
in the population or the sample

95%

99.7%

3
Chap 3-29

Exercise 3.18
Use Chebychevs theorem to approximate each of
the following observations if the mean is 250 and
S.D. is 20. Approximately what proportion of the
observations is
a)Between 190 and 310?
b)Between 210 and 290?
c)Between 230 and 270?

Ans: a) 88.9% k=3; b) 75% k=2; c) 0% k=1

Chap 3-30

Coefficient of Variation

Measures relative variation

Always in percentage (%)

Shows standard deviation relative to mean

Can be used to compare two or more sets of

data measured in different units

s
CV
x

100%

Chap 3-31

Comparing Coefficient
of Variation

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

s
CVA
x

$5
100%
100% 10%
$50

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

s
CVB
x

$5
100%
100% 5%
$100

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

Chap 3-32

The Sample Covariance

The covariance measures the strength of the linear relationship

between two variables

The population covariance:

N

Cov (x , y) xy

(x
i

i1

)(y i y )

The sample covariance:

n

Cov (x , y) s xy

(x x)(y y)
i1

n 1

Only concerned with the strength of the relationship

No causal effect is implied
Chap 3-33

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

Chap 3-34

Correlation Coefficient

Measures the relative strength of the linear relationship

between two variables

Population correlation coefficient:

Cov (x , y)

XY

Sample correlation coefficient:

Cov (x , y)
r
sX sY
Chap 3-35

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

Chap 3-36

Scatter Plots of Data with Various

Correlation Coefficients
Y

r = -1

r = -.6

X
Y

r = +1

r=0

r = +.3

r=0

X
Chap 3-37

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
Chap 3-38

Example 3.13
(Covariance and Correlation Coefficient)
Rising Hills Manufacturing Inc. wishes to study the
relationship between the number of workers, X, and the
number of tables produced, Y. it has obtained a random
sample of 10 hours of production. The following (x,y)
combinations of points were obtained:
(12,20) (30,60) (15,27) (24,50) (14,21)
(18,30) (28,61) (26,54) (19,32) (27,57)
Compute the covariance and correlation coefficient. Briefly
discuss the relationship between X and Y.
Chap 3-39

Obtaining Linear Relationships

An equation can be fit to show the best linear

relationship between two variables:
Y = 0 + 1X

Where Y is the dependent variable and X is the

independent variable

Chap 3-40

Least Squares Regression

Estimates for coefficients 0 and 1 are found to

minimize the sum of the squared residuals

The least-squares regression line, based on sample

data, is

y b0 b1 x

Where b1 is the slope of the line and b0 is the yintercept:

sy
Cov(x, y)
b1
r
2
sx
sx

b 0 y b1x
Chap 3-41

Example 3.15

Using the answers from Example 3.13 (Rising

Hills Inc.), compute the sample regression
coefficients b1 and b0.

What is the sample regression line?

Statistics for Business and Economics, 6e 2007 Pearson Education, Inc.

Chap 3-42