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Measures of Location
Mean
Median
Mode
Geometric Mean
Measures of Central Tendency:
Summary
Central Tendency
X i
XG ( X1 X2 Xn )1/ n
X i 1
n Middle value Most Rate of
in the ordered frequently change of
array observed a variable
value over time
Chap 3-2
Summary Definitions
Chap 3-3
Measures of Central Tendency:
The Mean
X i
X1 X2 Xn
X i1
n n
Sample size Observed values
Chap 3-4
Measures of Central Tendency:
The Mean
(continued)
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Mean = 3 Mean = 4
1 2 3 4 5 15 1 2 3 4 10 20
3 4
5 5 5 5
Chap 3-5
Numerical Descriptive Measures
for a Population: The mean
The population mean is the sum of the values in
the population divided by the population size, N
X i
X1 X2 XN
i1
N N
Where = population mean
N = population size
Xi = ith value of the variable X
Chap 3-6
Approximating the Mean from a
Frequency Distribution
Use the midpoint of a class interval to approximate the
values in that class
x f
j1
j j
X
n
Where n = number of values or sample size
c = number of classes in the frequency distribution
xj = midpoint of the jth class
fj = number of values in the jth class
Chap 3-7
Mean of Wealth
The Distribution of Marketable Wealth, UK, 2001
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
Measures of Central Tendency:
Locating the Median
The location of the median when the values are in numerical order
(smallest to largest):
n 1
Median position position in the ordered data
2
If the number of values is odd, the median is the middle number
Note that n 1 is not the value of the median, only the position of
2
the median in the ranked data
Chap 3-10
Median of Wealth
Median is 76 907
18000
16000
14000
12000
CF (000)
10000
8000
6000
4000
2000
0
0 50000 100000 150000 200000 250000 300000
Wealth
Measures of Central Tendency:
The Mode
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6
No Mode
Mode = 9
Chap 3-13
Measures of Central Tendency:
Review Example
Chap 3-14
Thinking Challenge
Mean
n
Xi X1 X 2 X 8
i 1
X
n 8
17 16 21 18 13 16 12 11
8
15 .5
Central Tendency Solution*
Median
Remember to order the data first
Ordered: 11 12 13 16 16 17 18 21
Position: 1 2 3 4 5 6 7 8
n 1 8 1
Positioning Point 4.5
2 2
16 16
Median 16
2
Central Tendency Solution*
Mode
Raw Data: 17 16 21 18 13 16 12 11
Mode = 16
Measures of Central Tendency:
Which Measure to Choose?
Chap 3-19
Measure of Central Tendency For The Rate Of Change
Of A Variable Over Time:
The Geometric Mean & The Geometric Rate of Return
Geometric mean
Used to measure the rate of change of a variable over
time
X G ( X1 X 2 X n ) 1/ n
RG [(1 R1 ) (1 R2 ) (1 Rn )]1/ n 1
Chap 3-20
The Geometric Mean Rate of
Return: Example
Chap 3-21
The Geometric Mean Rate of
Return: Example
(continued)
Arithmetic
(.5) (1) Misleading result
mean rate X .25 25%
2
of return:
Chap 3-22
Pitfalls in Numerical
Descriptive Measures
Chap 3-23
Ethical Considerations
Central Tendency
X i
XG ( X1 X2 Xn )1/ n
X i 1
n Middle value Most Rate of
in the ordered frequently change of
array observed a variable
value over time
Chap 3-25