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Chap 3-1
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
Chap 3-2
Chapter Topics
Mean, median, mode, geometric mean Quartiles Range, interquartile range, variance and standard deviation, coefficient of variation Symmetric and skewed distributions Mean, variance, and standard deviation The empirical rule and Bienaym-Chebyshev rule
Chap 3-3
Chapter Topics
(continued)
Five number summary and box-and-whisker plots Covariance and coefficient of correlation Pitfalls in numerical descriptive measures and ethical considerations
Chap 3-4
Chap 3-5
Mean
n
Median
Mode
!
i!
n
Midpoint of ranked values Most frequently observed value
Arithmetic average
Chap 3-6
Arithmetic Mean
The arithmetic mean (mean) is the most common measure of central tendency
x1 x 2 . x N ! ! N N
i !1
Population values
Population size
!
i!
. n
Observed values
Chap 3-7
Sample size
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
1 2 3 4 5 15 ! !3 5 5
Mean = 4
1 2 3 4 10 20 ! !4 5 5
Chap 3-8
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
Chap 3-9
n
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 is not the value of the median, only the 2 position of the median in the ranked data
Note that
Chap 3-10
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
Mode = 9
No Mode
Chap 3-11
Review Example
$1
K $1 K
Chap 3-12
Mean:
( 3,000,000/5) = $600,000
Median: middle value of ranked data = $300,000 Mode: most frequent value = $100,000
Chap 3-13
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 3-14
15
Shape of a Distribution
Symmetric or skewed
Left-Skewed
Mean < Median
Symmetric
Mean = Median
Right-Skewed
Median < Mean
Chap 3-16
Dispersion
Why Study Dispersion?
A measure of location, such as the mean or the median, only describes the center of the data. It is valuable from that standpoint, but it does not tell us anything about the spread of the data. For example, if your nature guide told you that the river ahead averaged 3 feet in depth, would you want to wade across on foot without additional information? Probably not. You would want to know something about the variation in the depth. A second reason for studying the dispersion in a set of data is to compare the spread in two or more distributions.
17
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 3-18
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 3-19
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
Chap 3-20
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 3-21
Interquartile Range
Example: X
minimum
25%
Q1
25%
Median (Q2)
25%
Q3
25%
maximum
12
30
45
57
70
Interquartile range = 57 30 = 27
Chap 3-22
Quartiles
Quartiles split the ranked data into 4 segments with an equal number of values per segment 25%
Q1
25%
Q2
25%
Q3
25%
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
Chap 3-23
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)
Quartiles
(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 3-25
26
27
28
Most commonly used measure of variation Shows variation about the mean Has the same units as the original data
(x
!
i !1
)
N
Chap 3-29
Most commonly used measure of variation Shows variation about the mean Has the same units as the original data
S!
(
i!
)
n-
Chap 3-30
14
15
17
18
18
24
Mean = x = 16
1 x n 1 1 1 6 8 1 . x
1 6
1 6
1 6
1 6
Measuring variation
Chap 3-32
Data B
11 12 13 14 15 16 17 18 19 20 21
Data C
11 12 13 14 15 16 17 18 19 20 21
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)
Chap 3-34
Chebyshevs Theorem
For any population with mean and standard deviation , and k > 1 , the percentage of observations that fall within the interval
[ +k ]
Is at least
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 ) 2 ) 3 ) (1 - 1/12) = 0% ..... k=1 ( (1 - 1/22) = 75% ........ k=2 ( (1 - 1/32) = 89% . k=3 (
Chap 3-36
68%
s1
Chap 3-37
s2 s
contains about 95% of the values in the population or the sample contains about 99.7% of the values in the population or the sample
95%
99.7%
s2
s
Chap 3-38
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
s C V !
%
Chap 3-39
Stock B:
s CVB ! x
Both stocks have the same standard deviation, but stock B is less variable relative to its price
Chap 3-40
z Scores
The z score is the number of standard deviations that x is from the mean
A positive z score is for x above (greater than) the mean A negative z score is for x below (less than) the mean
The smallest measurement The first quartile, Q1 The median, Md The third quartile, Q3 The largest measurement Displayed visually using a box-and-whiskers plot
Box-and-Whiskers Plots
Box-and-Whiskers Plots
Continued
Inner fences
Outer fences
Q1 (3 v IQR) Q3 + (3 v IQR)
Box-and-Whiskers Plots
Continued
The whiskers are dashed lines that plot the range of the data
A dashed line drawn from the box below Q1 down to the smallest measurement Another dashed line drawn from the box above Q3 up to the largest measurement
Box-and-Whiskers Plots
Continued
Outliers
Outliers are measurements that are very different from other measurements
They are either much larger or much smaller than most of the other measurements
Measurements between the inner and outer fences are mild outliers Measurements beyond the outer fences are severe outliers
Chap 3-48
Using Excel
Chap 3-49
Using Excel
(continued)
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
Chap 3-51
Weighted Mean
w ! w
i i!
w2
. wn wi
2
Use when data is already grouped into n classes, with wi values in the ith class
Chap 3-52
fm
i
!
i!1
! fi
i !1
N
K
fm
i
x!
i !1
n ! fi
i!1
Chap 3-53
i !1
N
K
n 1
Chap 3-54
The covariance measures the strength of the linear relationship between two variables The population covariance:
N
(
ov ( , y) ! W
Q )(y i Q y ) N
i!
(
( , )!s !
)( i ) n 1
i !1
Only concerned with the strength of the relationship No causal effect is implied
Chap 3-55
Interpreting Covariance
Chap 3-56
Coefficient of Correlation
Measures the relative strength of the linear relationship between two variables Population correlation coefficient:
!
Cov (x , y)
X Y
Cov (x , y) r! sX sY
Chap 3-57
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 3-58
r = -1 Y
X Y
r = -.6
X Y
r=0
r = +1
r = +.3
r=0
X
Chap 3-59
Select Tools/Data Analysis Choose Correlation from the selection menu Click OK . . .
Chap 3-60
(continued)
Input data range and select appropriate options Click OK to get output
Chap 3-61
r = .733 There is a relatively strong positive linear relationship between test score #1 and test score #2
Test #2 Score
100 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
Chap 3-62
An equation can be fit to show the best linear relationship between two variables: Y=
0
1X
Chap 3-63
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
sy Cov(x, y) b1 ! !r 2 sx sx
b 0 ! y b1x
Chap 3-64
Chapter Summary
Mean, median, mode Symmetric, skewed Range, interquartile range, variance and standard deviation, coefficient of variation