Chapter One

What is Statistics?

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What is Statistics?
Statisticsisawaytogetinformationfromdata.

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What is Statistics?
Statisticsisawaytogetinformationfromdata
Statistics
Data

Information

Statisticsisatoolforcreatingnewunderstandingfromasetof
numbers.
Definitions:OxfordEnglishDictionary
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Example 2.6 Stats Anxiety

Astudentenrolledinabusinessprogramisattendingthefirst
classoftherequiredstatisticscourse.Thestudentissomewhat
apprehensivebecausehebelievesthemyththatthecourseis
difficult.
Toalleviatehisanxietythestudentaskstheprofessorabout
lastyearsmarks.
Theprofessorobligesandprovidesalistofthefinalmarks,
whichiscomposedoftermworkplusthefinalexam.What
informationcanthestudentobtainfromthelist?
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Example 2.6 Stats Anxiety

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Example 2.6 Stats Anxiety

Typical mark
Mean (average mark)
Median (mark such that 50% above and
50% below)
Mean = 72.67
Median = 72
Is this enough information?

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Example 2.6 Stats Anxiety

Are most of the marks clustered around the
mean or are they more spread out?
Range = Maximum minimum = 92-53 =
39
Variance
Standard deviation

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Example 2.6 Stats Anxiety

Are there many marks below 60 or above 80?
What proportion are A, B, C, D grades?
A graphical technique histogram can provide
us with this and other information

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Example 2.6 Stats Anxiety

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Descriptive Statistics
Descriptivestatisticsdealswithmethodsoforganizing,
summarizing,andpresentingdatainaconvenientand
informativeway.
Oneformofdescriptivestatisticsusesgraphicaltechniques,
whichallowstatisticspractitionerstopresentdatainwaysthat
makeiteasyforthereadertoextractusefulinformation.
Chapter2introducesseveralgraphicalmethods.

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Descriptive Statistics
Anotherformofdescriptivestatisticsusesnumerical
techniquestosummarizedata.
Themeanandmedianarepopularnumericaltechniquesto
describethelocationofthedata.
Therange,variance,andstandarddeviationmeasurethe
variabilityofthedata
Chapter4introducesseveralnumericalstatisticalmeasures
thatdescribedifferentfeaturesofthedata.
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Case 12.1 Pepsis Exclusivity

Agreement
Alargeuniversitywithatotalenrollmentofabout50,000

studentshasofferedPepsiColaanexclusivityagreementthat
wouldgivePepsiexclusiverightstosellitsproductsatall
universityfacilitiesforthenextyearwithanoptionforfuture
years.
Inreturn,theuniversitywouldreceive35%oftheoncampus
revenuesandanadditionallumpsumof$200,000peryear.
Pepsihasbeengiven2weekstorespond.

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Case 12.1 Pepsis Exclusivity

Agreement
Themarketforsoftdrinksismeasuredintermsof12ounce
cans.

Pepsicurrentlysellsanaverageof22,000cansperweek(over
the40weeksoftheyearthattheuniversityoperates).
Thecanssellforanaverageof75centseach.Thecosts
includinglaboramountto20centspercan.
Pepsiisunsureofitsmarketsharebutsuspectsitis
considerablylessthan50%.
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Case 12.1 Pepsis Exclusivity

Agreement
Aquickanalysisrevealsthatifitscurrentmarketsharewere
25%,then,withanexclusivityagreement,

Pepsiwouldsell88,000(22,000is25%of88,000)cansper
weekor3,520,000cansperyear.
Theprofitorlosscanbecalculated.
Theonlyproblemisthatwedonotknowhowmanysoft
drinksaresoldweeklyattheuniversity.
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Case 12.1 Pepsis Exclusivity

Agreement
Pepsiassignedarecentuniversitygraduatetosurveythe
university'sstudentstosupplythemissinginformation.

Accordingly,sheorganizesasurveythatasks500studentsto
keeptrackofthenumberofsoftdrinkstheypurchaseinthe
next7days.
Theresponsesarestoredinafileonthediskthataccompanies
thisbook.Case12.1

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Inferential statistics
TheinformationwewouldliketoacquireinCase12.1isan
estimateofannualprofitsfromtheexclusivityagreement.The
dataarethenumbersofcansofsoftdrinksconsumedin7days
bythe500studentsinthesample.
Wewanttoknowthemeannumberofsoftdrinksconsumed
byall50,000studentsoncampus.
Toaccomplishthisgoalweneedanotherbranchofstatistics
inferentialstatistics.

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Inferential statistics
Inferentialstatisticsisabodyofmethodsusedtodraw
conclusionsorinferencesaboutcharacteristicsofpopulations
basedonsampledata.Thepopulationinquestioninthiscase
isthesoftdrinkconsumptionoftheuniversity's50,000
students.Thecostofinterviewingeachstudentwouldbe
prohibitiveandextremelytimeconsuming.Statistical
techniquesmakesuchendeavorsunnecessary.Instead,wecan
sampleamuchsmallernumberofstudents(thesamplesizeis
500)andinferfromthedatathenumberofsoftdrinks
consumedbyall50,000students.Wecanthenestimateannual
profitsforPepsi.

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Example 12.5
Whenanelectionforpoliticalofficetakesplace,thetelevision
networkscancelregularprogrammingandinsteadprovide
electioncoverage.
Whentheballotsarecountedtheresultsarereported.
However,forimportantofficessuchaspresidentorsenatorin
largestates,thenetworksactivelycompetetoseewhichwill
bethefirsttopredictawinner.

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Example 12.5
Thisisdonethroughexitpolls,whereinarandomsampleof
voterswhoexitthepollingboothisaskedforwhomthey
voted.
Fromthedatathesampleproportionofvoterssupportingthe
candidatesiscomputed.
Astatisticaltechniqueisappliedtodeterminewhetherthereis
enoughevidencetoinferthattheleadingcandidatewillgarner
enoughvotestowin.

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Example 12.5
TheexitpollresultsfromthestateofFloridaduringthe2000
yearelectionswererecorded(onlythevotesoftheRepublican
candidateGeorgeW.BushandtheDemocratAlbertGore).
Supposethattheresults(765peoplewhovotedforeitherBush
orGore)werestoredonafileonthedisk.(1=Goreand2=
Bush)

Xm1205
Thenetworkanalystswouldliketoknowwhethertheycan
concludethatGeorgeW.BushwillwinthestateofFlorida.

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Example 12.5
Example12.5describesaverycommonapplicationof
statisticalinference.
Thepopulationthetelevisionnetworkswantedtomake
inferencesaboutistheapproximately5millionFloridianswho
votedforBushorGoreforpresident.
Thesampleconsistedofthe765peoplerandomlyselectedby
thepollingcompanywhovotedforeitherofthetwomain
candidates.

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Example 12.5
Thecharacteristicofthepopulationthatwewouldliketo
knowistheproportionofthetotalelectoratethatvotedfor
Bush.
Specifically,wewouldliketoknowwhethermorethan50%
oftheelectoratevotedforBush(countingonlythosewho
votedforeithertheRepublicanorDemocraticcandidate).

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Example 12.5
Becausewewillnotaskeveryoneofthe5millionactual
votersforwhomtheyvoted,wecannotpredicttheoutcome
with100%certainty.
Asamplethatisonlyasmallfractionofthesizeofthe
populationcanleadtocorrectinferencesonlyacertain
percentageofthetime.
Youwillfindthatstatisticspractitionerscancontrolthat
fractionandusuallysetitbetween90%and99%.

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Key Statistical Concepts

Population
apopulationisthegroupofallitemsofinterestto
astatisticspractitioner.
frequentlyverylarge;sometimesinfinite.
E.g.All5millionFloridavoters,perExample12.5

Sample
Asampleisasetofdatadrawnfromthe
population.
Potentiallyverylarge,butlessthanthepopulation.
E.g.asampleof765votersexitpolledonelectionday.
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Key Statistical Concepts

Parameter
Adescriptivemeasureofapopulation.
Statistic
Adescriptivemeasureofasample.

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Key Statistical Concepts

Population

Sample

Subset

Parameter

Statistic

PopulationshaveParameters,
SampleshaveStatistics.
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Descriptive Statistics
aremethodsoforganizing,summarizing,andpresenting
datainaconvenientandinformativeway.Thesemethods
include:
GraphicalTechniques(Chapter2),and
NumericalTechniques(Chapter4).

Theactualmethoduseddependsonwhatinformationwe
wouldliketoextract.Areweinterestedin
measure(s)ofcentrallocation?and/or
measure(s)ofvariability(dispersion)?

DescriptiveStatisticshelpstoanswerthesequestions
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Inferential Statistics
DescriptiveStatisticsdescribethedatasetthatsbeing
analyzed,butdoesntallowustodrawanyconclusionsor
makeanyinterferencesaboutthedata.Henceweneed
anotherbranchofstatistics:inferentialstatistics.
Inferentialstatisticsisalsoasetofmethods,butitisusedto
drawconclusionsorinferencesaboutcharacteristicsof
populationsbasedondatafromasample.

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Statistical Inference
Statisticalinferenceistheprocessofmakinganestimate,
prediction,ordecisionaboutapopulationbasedonasample.
Population
Sample
Inference

Statistic
Parameter

WhatcanweinferaboutaPopulationsParameters
basedonaSamplesStatistics?
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Statistical Inference
Weusestatisticstomakeinferencesaboutparameters.
Therefore,wecanmakeanestimate,prediction,ordecision
aboutapopulationbasedonsampledata.
Thus,wecanapplywhatweknowaboutasampletothe
largerpopulationfromwhichitwasdrawn!

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Statistical Inference
Rationale:
Largepopulationsmakeinvestigatingeachmemberimpractical
andexpensive.
Easierandcheapertotakeasampleandmakeestimatesaboutthe
populationfromthesample.

However:
Suchconclusionsandestimatesarenotalwaysgoingtobecorrect.
Forthisreason,webuildintothestatisticalinferencemeasuresof
reliability,namelyconfidencelevelandsignificancelevel.

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Confidence & Significance Levels

Theconfidencelevelistheproportionoftimesthatan
estimatingprocedurewillbecorrect.
E.g.aconfidencelevelof95%meansthat,estimatesbasedonthis
formofstatisticalinferencewillbecorrect95%ofthetime.

Whenthepurposeofthestatisticalinferenceistodrawa
conclusionaboutapopulation,thesignificancelevel
measureshowfrequentlytheconclusionwillbewronginthe
longrun.
E.g.a5%significancelevelmeansthat,inthelongrun,thistype
ofconclusionwillbewrong5%ofthetime.

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Confidence & Significance Levels

Ifweuse(Greekletteralpha)torepresentsignificance,
thenourconfidencelevelis1.
Thisrelationshipcanalsobestatedas:
ConfidenceLevel
+SignificanceLevel
=1

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Confidence & Significance Levels

Considerastatementfrompollingdatayoumayhearabout
inthenews:
This poll is considered accurate within 3.4
percentage points, 19 times out of 20.

Inthiscase,ourconfidencelevelis95%(19/20=0.95),
whileoursignificancelevelis5%.

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Statistical Applications in Business

Statisticalanalysisplaysanimportantroleinvirtuallyall
aspectsofbusinessandeconomics.
Throughoutthiscourse,wewillseeapplicationsofstatistics
inaccounting,economics,finance,humanresources
management,marketing,andoperationsmanagement.

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