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Statistics for Business and Economics

Chapter 1 Statistics, Data, & Statistical Thinking

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Contents
1. The Science of Statistics 2. Types of Statistical Applications in Business 3. Fundamental Elements of Statistics 4. Processes

5. Types of Data
6. Collecting Data 7. The Role of Statistics in Managerial Decision Making
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Learning Objectives
1. Introduce the field of statistics 2. Demonstrate how statistics applies to business 3. Establish the link between statistics and data 4. Identify the different types of data and datacollection methods 5. Differentiate between population and sample data 6. Differentiate between descriptive and inferential statistics
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1.1

The Science of Statistics

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What Is Statistics?
1. Collecting Data
e.g., Survey

Data Analysis

Why?

2. Presenting Data
e.g., Charts & Tables
1984-1994 T/Maker Co.

3. Characterizing Data
e.g., Average

DecisionMaking

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1984-1994 T/Maker Co.

What Is Statistics?
Statistics is the science of data. It involves collecting, classifying, summarizing, organizing, analyzing, and interpreting numerical information.

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1.2

Types of Statistical Applications in Business

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Application Areas
Economics
Forecasting Demographics

Engineering
Construction Materials

Sports
Individual & Team Performance

Business
Consumer Preferences Financial Trends

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Statistics: Two Processes

Describing sets of data
and Drawing conclusions (making estimates, decisions, predictions, etc. about sets of data based on sampling)
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Statistical Methods
Statistical Methods

Descriptive Statistics

Inferential Statistics

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Descriptive Statistics
1. Involves
Collecting Data Presenting Data Characterizing Data
50

25
0 Q1 Q2 Q3 Q4

2. Purpose
Describe Data

X = 30.5 S2 = 113
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Inferential Statistics
1. Involves
Estimation Hypothesis Testing
Population?

2. Purpose
Make decisions about population characteristics

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1.3

Fundamental Elements of Statistics

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Fundamental Elements
1. Experimental unit
Object upon which we collect data All items of interest
P in Population & Parameter

2. Population
3. Variable

S in Sample & Statistic

Characteristic of an individual experimental unit

4. Sample
Subset of the units of a population
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Fundamental Elements
1. Statistical Inference
Estimate or prediction or generalization about a population based on information contained in a sample

2. Measure of Reliability
Statement (usually qualified) about the degree of uncertainty associated with a statistical inference

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Four Elements of Descriptive Statistical Problems

1. The population or sample of interest 2. One or more variables (characteristics of the population or sample units) that are to be investigated 3. Tables, graphs, or numerical summary tools 4. Identification of patterns in the data

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Five Elements of Inferential Statistical Problems

1. The population of interest 2. One or more variables (characteristics of the population units) that are to be investigated 3. The sample of population units 4. The inference about the population based on information contained in the sample 5. A measure of reliability for the inference

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1.4

Processes

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Process
A process is a series of actions or operations that transforms inputs to outputs. A process produces or generates output over time.

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Process
A process whose operations or actions are unknown or unspecified is called a black box.

Any set of output (object or numbers) produced by a process is called a sample.

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1.5

Types of Data

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Types of Data
Quantitative data are measurements that are recorded on a naturally occurring numerical scale.

Qualitative data are measurements that cannot be measured on a natural numerical scale; they can only be classified into one of a group of categories.

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Types of Data
Types of Data

Quantitative Data

Qualitative Data

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Quantitative Data
Measured on a numeric scale. Number of defective items in a lot. Salaries of CEOs of oil companies. Ages of employees at a company.

4 943 21 120 52

12
8

71

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Qualitative Data
Classified into categories. College major of each student in a class. Gender of each employee at a company. Method of payment (cash, check, credit card).
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Credit

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1.6

Collecting Data

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Obtaining Data
1. 2. 3. 4. Data from a published source Data from a designed experiment Data from a survey Data collected observationally

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Obtaining Data
Published source: book, journal, newspaper, Web site Designed experiment: researcher exerts strict control over units Survey: a group of people are surveyed and their responses are recorded Observation study: units are observed in natural setting and variables of interest are recorded
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Samples
A representative sample exhibits characteristics typical of those possessed by the population of interest.

A random sample of n experimental units is a sample selected from the population in such a way that every different sample of size n has an equal chance of selection.
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Random Sample
Every sample of size n has an equal chance of selection.

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1.7

The Role of Statistics in Managerial Decision Making

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Statistical Thinking
Statistical thinking involves applying rational thought and the science of statistics to critically assess data and inferences. Fundamental to the thought process is that variation exists in populations and process data. A random sample of n experimental units is a sample selected from the population in such a way that every different sample of size n has an equal chance of selection.
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Nonrandom Sample Errors

Selection bias results when a subset of the experimental units in the population is excluded so that these units have no chance of being selected for the sample. Nonresponse bias results when the researchers conducting a survey or study are unable to obtain data on all experimental units selected for the sample. Measurement error refers to inaccuracies in the values of the data recorded. In surveys, the error may be due to ambiguous or leading questions and the interviewers effect on the respondent.
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Real-World Problem

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Statistical Computer Packages

1. Typical Software
SPSS MINITAB Excel

2. Need Statistical Understanding

Assumptions Limitations

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Key Ideas
Types of Statistical Applications Descriptive 1. Identify population and sample (collection of experimental units) 2. Identify variable(s) 3. Collect data 4. Describe data
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Key Ideas
Types of Statistical Applications Inferential 1. Identify population (collection of all experimental units) 2. Identify variable(s) 3. Collect sample data (subset of population) 4. Inference about population based on sample 5. Measure of reliability for inference
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Key Ideas
Types of Data
1. Quantitative (numerical in nature) 2. Qualitative (categorical in nature)

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Key Ideas
Data-Collection Methods
1. Observational 2. Published source 3. Survey 4. Designed experiment

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Key Ideas
Problems with Nonrandom Samples 1. Selection bias 2. Nonresponse bias 3. Measurement error

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