Statistics For Business and Economics: Anderson Sweeney Williams

Statistics for Business
and Economics
Anderson Sweeney Williams
Slides by
John Loucks
St. Edwards University
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
Measures of Distribution Shape,
Relative Location, and Detecting Outliers
Distribution Shape
z-Scores
Chebyshevs Theorem
Empirical Rule
Slide 2
Distribution Shape: Skewness
An important measure of the shape of a distribution

is called skewness.
The formula for the skewness of sample data is
xi x
3
n
Skewness
(n 1)(n 2) s

Skewness can be easily computed using statistical

software.
Slide 3
Symmetric (not skewed)

Skewness is zero.
Mean and median are equal.
Skewness = 0
.35
.30
Relative Frequency
.25
.20
.15
.10
.05
0
Slide 4
Moderately Skewed Left

Skewness is negative.
Mean will usually be less than the median.
Skewness = .31
.35
.30
Relative Frequency
.25
.20
.15
.10
.05
0
Slide 5
Moderately Skewed Right

Skewness is positive.
Mean will usually be more than the median.
Skewness = .31
.35
.30
Relative Frequency
.25
.20
.15
.10
.05
0
Slide 6
Highly Skewed Right

Skewness is positive (often above 1.0).
Mean will usually be more than the median.
.35
Skewness = 1.25
.30
Relative Frequency
.25
.20
.15
.10
.05
0
Slide 7
Example: Apartment Rents

Seventy efficiency apartments were randomly
sampled in a college town. The monthly rent prices
for the apartments are listed below in ascending order.
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Slide 8
.35 Skewness = .92

.30
Relative Frequency
.25
.20
.15
.10
.05
0
Slide 9
z-Scores
The z-score is often called the standardized value.
It denotes the number of standard deviations a data

value xi is from the mean.
xi x
zi
s
Excels STANDARDIZE function can be used to

compute the z-score.
Slide 10
z-Scores
An observations z-score is a measure of the relative

location of the observation in a data set.
A data value less than the sample mean will have a
z-score less than zero.
A data value greater than the sample mean will have
a z-score greater than zero.
A data value equal to the sample mean will have a
z-score of zero.
Slide 11
z-Scores

z-Score of Smallest Value (425)
xi x 425 490.80
z 1.20
s 54.74
Standardized Values for Apartment Rents
-1.20 -1.11 -1.11 -1.02 -1.02 -1.02 -1.02 -1.02 -0.93 -0.93
-0.93 -0.93 -0.93 -0.84 -0.84 -0.84 -0.84 -0.84 -0.75 -0.75
-0.75 -0.75 -0.75 -0.75 -0.75 -0.56 -0.56 -0.56 -0.47 -0.47
-0.47 -0.38 -0.38 -0.34 -0.29 -0.29 -0.29 -0.20 -0.20 -0.20
-0.20 -0.11 -0.01 -0.01 -0.01 0.17 0.17 0.17 0.17 0.35
0.35 0.44 0.62 0.62 0.62 0.81 1.06 1.08 1.45 1.45
1.54 1.54 1.63 1.81 1.99 1.99 1.99 1.99 2.27 2.27
Slide 12
Chebyshevs Theorem
At least (1 - 1/z2) of the items in any data set will be

within z standard deviations of the mean, where z is
any value greater than 1.
Chebyshevs theorem requires z > 1, but z need not

be an integer.
Slide 13
Chebyshevs Theorem
At least 75% of the data values must be

within z = 2 standard deviations of the mean.


Slide 14
Chebyshevs Theorem

Let z = 1.5 with x = 490.80 and s = 54.74
At least (1 1/(1.5)2) = 1 0.44 = 0.56 or 56%

of the rent values must be between
x - z(s) = 490.80 1.5(54.74) = 409
and
x + z(s) = 490.80 + 1.5(54.74) = 573
(Actually, 86% of the rent values

are between 409 and 573.)
Slide 15
Empirical Rule
When the data are believed to approximate a

bell-shaped distribution
The empirical rule can be used to determine the

percentage of data values that must be within a
specified number of standard deviations of the
mean.
The empirical rule is based on the normal

distribution, which is covered in Chapter 6.
Slide 16
Empirical Rule
For data having a bell-shaped distribution:
68.26% of the values of a normal random variable

are within +/- 1 standard deviation of its mean.

are within +/- 2 standard deviations of its mean.

are within +/- 3 standard deviations of its mean.
Slide 17
Empirical Rule
99.72%
95.44%
68.26%
x
m m + 3s
m 3s m 1s m + 1s
m 2s m + 2s
Slide 18
Measures of Association
Between Two Variables
Thus far we have examined numerical methods used
to summarize the data for one variable at a time.
Often a manager or decision maker is interested in

the relationship between two variables.
Two descriptive measures of the relationship

between two variables are covariance and correlation
coefficient.
Slide 19
Covariance
The covariance is a measure of the linear association

between two variables.
Positive values indicate a positive relationship.
Negative values indicate a negative relationship.
Slide 20
Covariance
The covariance is computed as follows:
( xi x )( yi y ) for
sxy
n 1 samples
( xi m x )( yi m y ) for
s xy populations
N
Slide 21
Correlation Coefficient
Correlation is a measure of linear association and not

necessarily causation.
Just because two variables are highly correlated, it

does not mean that one variable is the cause of the
other.
Slide 22
The correlation coefficient is computed as follows:

sxy s xy
rxy xy
sx s y s xs y
for for
samples populations
Slide 23
The coefficient can take on values between -1 and +1.
Values near -1 indicate a strong negative linear

relationship.
Values near +1 indicate a strong positive linear

relationship.
The closer the correlation is to zero, the weaker the

relationship.
Slide 24
Covariance and Correlation Coefficient
Example: Golfing Study

A golfer is interested in investigating the
relationship, if any, between driving distance and
18-hole score.
Average Driving Average
Distance (yds.) 18-Hole Score
277.6 69
259.5 71
269.1 70
267.0 70
255.6 71
272.9 69
Slide 25
x y ( xi x ) ( yi y ) ( xi x )( yi y )
277.6 69 10.65 -1.0 -10.65
259.5 71 -7.45 1.0 -7.45
269.1 70 2.15 0 0
267.0 70 0.05 0 0
255.6 71 -11.35 1.0 -11.35
272.9 69 5.95 -1.0 -5.95
Average 267.0 70.0 Total -35.40
Std. Dev. 8.2192 .8944
Slide 26

Sample Covariance
sxy
( x x )( y y ) 35.40
i i
7.08
n1 61
Sample Correlation Coefficient
sxy 7.08
rxy -.9631
sx sy (8.2192)(.8944)
Slide 27
End of Chapter 3, Part B
Slide 28

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Statistics for Business

An important measure of the shape of a distribution

Skewness can be easily computed using statistical

Symmetric (not skewed)

Moderately Skewed Left

Moderately Skewed Right

Highly Skewed Right

Example: Apartment Rents

Example: Apartment Rents

.35 Skewness = .92

The z-score is often called the standardized value.

It denotes the number of standard deviations a data

Excels STANDARDIZE function can be used to

An observations z-score is a measure of the relative

Example: Apartment Rents

At least (1 - 1/z2) of the items in any data set will be

Chebyshevs theorem requires z > 1, but z need not

At least 75% of the data values must be

At least 89% of the data values must be

At least 94% of the data values must be

Example: Apartment Rents

At least (1 1/(1.5)2) = 1 0.44 = 0.56 or 56%

(Actually, 86% of the rent values

When the data are believed to approximate a

The empirical rule can be used to determine the

The empirical rule is based on the normal

For data having a bell-shaped distribution:

68.26% of the values of a normal random variable

95.44% of the values of a normal random variable

99.72% of the values of a normal random variable

Often a manager or decision maker is interested in

Two descriptive measures of the relationship

The covariance is a measure of the linear association

Positive values indicate a positive relationship.

Negative values indicate a negative relationship.

The covariance is computed as follows:

Correlation is a measure of linear association and not

Just because two variables are highly correlated, it

The correlation coefficient is computed as follows:

The coefficient can take on values between -1 and +1.

Values near -1 indicate a strong negative linear

Values near +1 indicate a strong positive linear

The closer the correlation is to zero, the weaker the

Example: Golfing Study

Example: Golfing Study

Example: Golfing Study

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