Chapter One

What is Statistics?

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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In todays world
we are constantly being bombarded with statistics and statistical information. For example: Customer Surveys Medical News Political Polls Economic Predictions Marketing Information Scanner Data How can we make sense out of all this data? How do we differentiate valid from flawed claims? Three types of liars!
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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What is Statistics? Where does this Data come from?

Statistics is a way to get information from data

Statistics Data
Data: Facts, especially numerical facts, collected together for reference or information.

Information
Information: Knowledge communicated concerning some particular fact.

Statistics is a tool for creating new understanding from a set of numbers.

Definitions: Oxford English Dictionary
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Applications in Business and Economics

Accounting
Public accounting firms use statistical sampling procedures when conducting audits for their clients.

Finance
From Anderson, Sweeney and Williams

Financial analysts use a variety of statistical information, including price-earnings ratios and dividend yields, to guide their investment recommendations.

Marketing
Electronic point-of-sale scanners at retail checkout counters are being used to collect data for a variety of marketing research applications.

Dr. Constance Lightner- Fayetteville State University Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

Dr. Constance Lightner- Fayetteville State University Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

From Anderson, Sweeney and Williams

Production A variety of statistical quality control charts are used to monitor the output of a production process. Economics Economists use statistical information in making forecasts about the future of the economy or some aspect of it.

Key Statistical Concepts

Population a population is the group of all items of interest to a statistics practitioner. frequently very large; sometimes infinite.
E.g. All 5 million Florida voters who voted in todays election.

Sample A sample is a set of data drawn from the population. [Part of a population] Potentially very large, but less than the population.
E.g. a sample of 1000 voters exit polled on election day.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Key Statistical Concepts

Parameter A descriptive measure of a population. - the true percent of Florida Voters who will vote for Mary Poppins

Statistic A descriptive measure of a sample. - Of the 1000 exit voters polled, 550 indicated that they voted for Mary Poppins or 550/1000 = 0.55 or 55%
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Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

Key Statistical Concepts

Population Sample

Subset

Parameter

Statistic

Populations have Parameters, Samples have Statistics.

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Descriptive Statistics
are methods of organizing, summarizing, and presenting data in a convenient and informative way. These methods include: Graphical Techniques (Chapter 2), and Numerical Techniques (Chapter 4). The actual method used depends on what information we would like to extract. Are we interested in Your weight each Monday when you are on a 6 month diet. The amount of medication in blood pressure pills. The starting salaries for business students from TCU, SMU, and UTA. Others

Descriptive Statistics helps to answer these questions

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Inferential Statistics
Descriptive Statistics describe the data set thats being analyzed, but doesnt allow us to draw any conclusions or make any interferences about the data, other than visual It looks like .. type statements. Hence we need another branch of statistics: inferential statistics. Inferential statistics is also a set of methods, but it is used to draw conclusions or inferences about characteristics of populations based on data from a sample.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Statistical Inference
Statistical inference is the process of making an estimate, prediction, or decision about a population based on a sample.
Population Sample
Inference

Statistic

Parameter

What can we infer about a Populations Parameters based on a Samples Statistics?

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Example: Auto Define Ltd.

Process of Statistical Inference
1. Population consists of all tune-ups. Average cost of parts is unknown.
From Anderson, Sweeney and Williams

2. A sample of 50 engine tune-ups is examined.

4. The value of the sample average is used to make an estimate of the population average.

3. The sample data provide a sample average cost of $79 per tune-up.
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Dr. Constance Lightner- Fayetteville State University Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

Statistical Inference
Rationale:
Large populations make investigating each member impractical and expensive + its been shown that observing 100% of a population is not perfect. Easier and cheaper to take a sample and make inferences about the population from the sample.

However:
Such conclusions and estimates are not always going to be correct. For this reason, we build into the statistical inference measures of reliability, namely confidence level and significance level.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Confidence & Significance Levels

The confidence level is the proportion of times that an interval estimate for a population parameter will be correct.
E.g. a confidence level of 95% means that, interval estimates based on this form of statistical inference will be correct 95% of the time. I am 95% confident that the TRUE mean IQ of female business students at UTA is between 120 and 122.

When the purpose of the statistical inference is to test a claim about a population parameter, the significance level measures how frequently a true claim is accidently rejected.
E.g. a 5% significance level means that, in the long run, a true claim will be rejected 5% of the time. Coin flips should result in 50% heads, on average. A 5% significance level implies that we run a 5% risk of concluding that heads do not occur 50% of the time, on average [even though everyone in this room most likely believes that heads do occur 50% of the time].
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Confidence & Significance Levels

We use (Greek letter alpha) to represent the significance level when testing a claim about a population parameter , and 1 to represent the confidence level when we wish to estimate a population parameter.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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Statistical Applications in Business

Statistical analysis plays an important role in virtually all aspects of business and economics. Throughout this course, we will see applications of statistics in accounting, economics, finance, human resources management, marketing, operations management, and my favorite, Quality Issues,associated with manufacturing and service processes.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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