Statistics for

Business and Economics

8th Edition

Chapter 2

Describing Data: Numerical

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-1
 Chapter Goals
After completing this chapter, you should be able to:
n Compute and interpret the mean, median, and mode for a
set of data
n Find the range, variance, standard deviation, and
coefficient of variation and know what these values mean
n Apply the empirical rule to describe the variation of
population values around the mean
n Explain the weighted mean and when to use it
n Explain how a least squares regression line estimates a
linear relationship between two variables

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-2
 Chapter Topics

n Measures of central tendency, variation, and

shape
n Mean, median, mode, geometric mean
n Quartiles
n Range, interquartile range, variance and standard
deviation
n Symmetric and skewed distributions
n Population summary measures
n Mean, variance, and standard deviation
n The empirical rule

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-3
 Chapter Topics
(continued)

n Five number summary and box-and-whisker

plots
n Covariance and coefficient of correlation
n Pitfalls in numerical descriptive measures and
ethical considerations
n Below topics are not included in Econ 5:
n Coefficient of variation
n Chebyshev’s Theorem

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-4
 Statistics for
Business and Economics
8th Edition

Today: Section 2.1

2_01_A
Mean; median; mode;
shape of a distribution

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 1-5
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation
(Not covered in Econ 5)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-6
 2.1
Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

åx i
x= i=1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value
(if one exists)
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-7
 Arithmetic Mean
n The arithmetic mean (mean) is the most
common measure of central tendency
n For a population of N values:
N

åx
x1 + x 2 + ! + x N
i Population
μ= = i=1
values
N N
Population size

n For a sample of size n:

n

åx i
x1 + x 2 + ! + x n Observed
x= i=1
= values
n n
Sample size
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-8
 Arithmetic Mean
(continued)

n The most common measure of central tendency

n Mean = sum of values divided by the number of values
n Affected by extreme values (outliers)

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

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-9
 Median
n In an ordered list, the median is the “middle”
number (50% above, 50% below)

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

n Not affected by extreme values

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-10
 Finding the Median

n The location of the median:

th
æ n + 1ö
Median position = ç ÷ position in the ordered data
è 2 ø
n If the number of values is odd, the median is the middle number
n If the number of values is even, the median is the average of
the two middle numbers

n +1
n Note that is not the value of the median, only the
2
position of the median in the ranked data

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-11
 Mode
n A measure of central tendency
n Value that occurs most often
n Not affected by extreme values
n Used for either numerical or categorical data
n There may may be no mode
n There may be several modes

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
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-12
 Review Example

n Five houses on a hill by the beach

$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-13
 Review Example:
Summary Statistics

House Prices:
n Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000 n Median: middle value of ranked data
Sum 3,000,000
= $300,000

n Mode: most frequent value

= $100,000

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-14
 Which measure of location
is the “best”?

n Mean is generally used, unless extreme

values (outliers) exist . . .
n Then median is often used, since the median
is not sensitive to extreme values.
n Example: Median home prices may be reported for
a region – less sensitive to outliers

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-15
 Shape of a Distribution

n Describes how data are distributed

n Measures of shape
n Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-16
 Example: Mean and Median
Wages

n Chart on the side shows mean

and median wages in the US
from 1991 to 2019
n Note that the mean wage
consistently exceeds the
median wage
n What is the reason for the gap
between the mean and the
median wage?
n Distribution of workers by wage
level is skewed

Source: [Link] accessed September 2, 2021

Copyright © 2021 UCSB Department of Economics Ch. 2-17
 Key points
n Central tendency
n Arithmetic mean, median, and mode
n Next time
n Geometric mean; percentiles and quartiles

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-18
 Statistics for
Business and Economics
8th Edition

Today: Section 2.1 (Continued)

2_01_B
Geometric mean;
percentiles and quartiles

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 1-19
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation
(Not covered in Econ 5)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-20
 Geometric Mean

n Geometric mean
n Used to measure the rate of change of a variable
over time

x g = (x1 ´ x 2 ´ ! ´ x n ) = (x1 ´ x 2 ´ ! ´ x n )
n 1/n

n Geometric mean rate of return

n Measures the status of an investment over time

rg = (x1 ´ x 2 ´ ... ´ x n )1/n - 1

n Where xi is the rate of return in time period i
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-21
 Example

An investment of $100,000 rose to $150,000 at the

end of year one and increased to $180,000 at end
of year two:

X1 = $100,000 X 2 = $150,000 X3 = $180,000

50% increase 20% increase

What is the mean percentage return over time?

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-22
 Example
(continued)

Use the 1-year returns to compute the arithmetic

mean and the geometric mean:

Arithmetic (50%) + (20%)

mean rate X= = 35% Misleading result
2
of return:

Geometric
𝑟!! = (1.5×1.2)"/$−1 = 1.3416 − 1
mean rate Accurate
of return: = 0.3416 = 34.16% result

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-23
 Percentiles and Quartiles

n Percentiles and Quartiles indicate the position of a

value relative to the entire set of data

n Generally used to describe large data sets

n Example: An IQ score at the 90th percentile means that 10%

of the population has a higher IQ score and 90% have a lower
IQ score.

Pth percentile = value located in the (P/100)(n + 1)th

ordered position

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-24
 Quartiles
n Quartiles split the ranked data into 4 segments with
an equal number of values per segment (note that
the widths of the segments may be different)

25% 25% 25% 25%

Q1 Q2 Q3
n The first quartile, Q1, is the value for which 25% of the
observations are smaller and 75% are larger
n Q2 is the same as the median (50% are smaller, 50% are
larger)
n Only 25% of the observations are greater than the third
quartile

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-25
 Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = 0.25(n+1)

Second quartile position: Q2 = 0.50(n+1)

(the median position)

Third quartile position: Q3 = 0.75(n+1)

where n is the number of observed values

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-26
 Quartiles

n Example: Find the first quartile

Sample Ranked Data: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 = is in the 0.25(9+1) = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-27
 Five-Number Summary

The five-number summary refers to five descriptive

measures:
minimum
first quartile
median
third quartile
maximum

minimum < Q1 < median < Q3 < maximum

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-28
 Example: Income Inequality
n Line chart on the side uses
percentiles to show that
income evolves differently for
different types of US
households
n Incomes increase the most for
households at the highest
percentile
n Incomes remain stagnant for
households at the lowest
percentile

Source: [Link] accessed

September 2, 2021
Copyright © 2021 UCSB Department of Economics Ch. 2-29
 Key points
n Geometric means useful when analyzing long-
term returns on an investment
n Variation
n Range, percentile, quartiles

n Next time
n Describing a data set’s variation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-30
 Statistics for
Business and Economics
8th Edition

Today: Section 2.2

2_02_A
Range; IQR

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-31
 Today

n More numerical tools to describe data

n Range
n Interquartile range (IQR)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-32
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation
(Not covered in Econ 5)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-33
 2.2
Measures of Variability

Variation

Range Interquartile Variance Standard Coefficient of

Range Deviation Variation
(Not covered
in Econ 5)
n Measures of variation give
information on the spread
or variability of the data
values.

Same center,
different variation
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-34
 Range

n Simplest measure of variation

n Difference between the largest and the smallest
observations:

Range = Xlargest – Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-35
 Disadvantages of the Range
n Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5

n Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-36
 Interquartile Range

n Can eliminate some outlier problems by using

the interquartile range

n Eliminate high- and low-valued observations

and calculate the range of the middle 50% of
the data

n Interquartile range = 3rd quartile – 1st quartile

IQR = Q3 – Q1

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-37
 Interquartile Range

n The interquartile range (IQR) measures the

spread in the middle 50% of the data

n Defined as the difference between the

observation at the third quartile and the
observation at the first quartile

IQR = Q3 - Q1

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-38
 Box-and-Whisker Plot

n A box-and-whisker plot is a graph that describes the

shape of a distribution
n Created from the five-number summary: the
minimum value, Q1, the median, Q3, and the
maximum
n The inner box shows the range from Q1 to Q3, with a
line drawn at the median
n Two “whiskers” extend from the box. One whisker is
the line from Q1 to the minimum, the other is the line
from Q3 to the maximum value

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-39
 Box-and-Whisker Plot
The plot can be oriented horizontally or vertically

Example:
X Median X
minimum Q1 (Q2) Q3 maximum

25% 25% 25% 25%

12 30 45 57 70

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-40
 Example: El Nino and La Nina
n El Nino and La Nina are climate patterns
that occur every several years and
impact weather across the world
n Box-and-whisker plots on the side show
precipitation and temperature in the
Southern California Coast in December
through February during El Nino, neutral
conditions, and La Nina
n Based on the plots, what do we observe
about the effects of El Nino and La Nina?
n Compared to the neutral periods, El Nino
seems to increase, and La Nina seems to
decrease, the dispersion of precipitation
levels
n La Nina seems to also decrease the
median temperature when compared to
the neutral period
Source: [Link] accessed September 2, 2021
Copyright © 2021 UCSB Department of Economics Ch. 2-41
 Key points
n Range and interquartile range give you an idea
of the dispersion of data
n Next time
n Variance; standard deviation; z-score

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-42
 Statistics for
Business and Economics
8th Edition

Today: Section 2.2 (Continued)

2_02_B
Variance; standard deviation; z-score

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-43
 Today

n More numerical tools to describe data

n Variance
n Standard deviation
n z-score

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-44
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation
(Not covered in Econ 5)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-45
 Population Variance

n Average of squared deviations of values from

the mean
N
n Population variance:
å (x - μ)
i
2

σ =
2 i=1
N
Where μ = population mean
N = population size
xi = ith value of the variable x
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-46
 Sample Variance

n Average (approximately) of squared deviations

of values from the mean
n
n Sample variance:
å (x - x)
i
2

s =
2 i=1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-47
 Population Standard Deviation

n Most commonly used measure of variation

n Shows variation about the mean
n Has the same units as the original data

n Population standard deviation:

å i
(x - μ) 2

σ= i=1
N
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-48
 Sample Standard Deviation

n Most commonly used measure of variation

n Shows variation about the mean
n Has the same units as the original data

Sample standard deviation: n

å i
n
(x - x) 2

S= i=1
n -1

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-49
 Calculation Example:
Sample Standard Deviation
Sample
Data (xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16

(10 - X)2 + (12 - x)2 + (14 - x)2 + ! + (24 - x)2

s=
n -1

(10 - 16)2 + (12 - 16)2 + (14 - 16)2 + ! + (24 - 16)2

=
8 -1

130 A measure of the “average”

= = 4.3095
7 scatter around the mean
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-50
 Measuring variation

Small standard deviation

Large standard deviation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-51
 Comparing Standard Deviations
Mean = 15.5 for each data set

11 12 13 14 15 16 17 18 19 20 21
s = 3.338
(compare to the two
Data A cases below)

11 12 13 14 15 16 17 18 19 20 21
s = 0.926
(values are concentrated
Data B near the mean)

s = 4.570
11 12 13 14 15 16 17 18 19 20 21 (values are dispersed far
Data C from the mean)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-52
 Advantages of Variance and
Standard Deviation

n Each value in the data set is used in the

calculation

n Values far from the mean are given extra

weight
(because deviations from the mean are squared)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-53
 Using Microsoft Excel

n Descriptive Statistics can be obtained

from Microsoft® Excel
n Select:
data / data analysis / descriptive statistics

n Enter details in dialog box

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-54
 Using Excel

n Select data / data analysis / descriptive statistics

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-55
 Using Excel

n Enter input
range details

n Check box for

summary
statistics

n Click OK
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-56
 Excel output
Microsoft Excel
descriptive statistics output,
using the house price data:
House Prices:

$2,000,000
500,000
300,000
100,000
100,000

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-57
 The Empirical Rule

n If the data distribution is bell-shaped, then

the interval:
n μ ± 1σ contains about 68% of the values in
the population or the sample

68%

μ
μ ± 1σ
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-58
 The Empirical Rule
(continued)
n μ ± 2σ contains about 95% of the values in
the population or the sample
n μ ± 3σ contains almost all (about 99.7%) of
the values in the population or the sample

95% 99.7%

μ ± 2σ μ ± 3σ

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-59
 z-Score

A z-score shows the position of a value

relative to the mean of the distribution.
n indicates the number of standard deviations a
value is from the mean.
n A z-score greater than zero indicates that the value is
greater than the mean
n a z-score less than zero indicates that the value is
less than the mean
n a z-score of zero indicates that the value is equal to
the mean.
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-60
 z-Score
(continued)

n If the data set is the entire population of data

and the population mean, µ, and the population
standard deviation, σ, are known, then for each
value, xi, the z-score associated with xi is

xi - μ
z=
σ

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-61
 z-Score
(continued)
n If intelligence is measured for a population
using an IQ score, where the mean IQ score
is 100 and the standard deviation is 15, what
is the z-score for an IQ of 121?

x i - μ 121 - 100
z= = = 1.4
σ 15
A score of 121 is 1.4 standard
deviations above the mean.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-62
 Example: PISA Scores
n Program for International Student
Assessment (PISA) measures
reading, math, science, and finance
literacy of 15-year-olds in different
countries all over the world
n Screenshot on the side shows the
standard deviations of average
scores on the financial literacy scale
n Which regions have the highest standard
deviation?
n Which regions have the lowest standard
deviation?
n What does this imply about the dispersion
of scores among students from these
regions?

Source: [Link] accessed September 2, 2021

Copyright © 2021 UCSB Department of Economics Ch. 2-63
 Key points
n Variance and standard deviation also give you
dispersion information
n Used extensively in statistics
n A z-score can tell you how many standard
deviations you are from the mean

n Next time
n Weighted data; covariation; correlation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-64
 Statistics for
Business and Economics
8th Edition

Today: Section 2.3

2_03_A
Weighted means and variances

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-65
 Today

n More numerical tools to describe data

n Weighted means
n Weighted variances

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-66
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-67
 Measures of Central Tendency
Overview
Central Tendency

Mean Median Mode

åx i
x= i=1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value
(if one exists)
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-68
 Measures of Central Tendency
Overview
Central Tendency

Mean

n What happens if Example: What if

åx i some data points you have
x= i=1 should be education data
n weighted more by city? (Note
Arithmetic than others? cities vary in size)
average
(unweighted)
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-69
 Recall: Arithmetic Mean (unweighted)
n The arithmetic mean (mean) is the most
common measure of central tendency
n For a population of N values:
N

åx
x1 + x 2 + ! + x N
i Population
μ= = i=1
values
N N
Population size

n For a sample of size n:

n

åx i
x1 + x 2 + ! + x n Observed
x= i=1
= values
n n
Sample size
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-70
 2.3
Weighted Mean
and Measures of Grouped Data

n The weighted mean of a set of data is

n

åw x i i
w 1x1 + w 2 x 2 + ! + w n x n
x= i=1
=
n n
n Where wi is the weight of the ith observation
and n = åw i

n Use when data is already grouped into n classes, with

wi values in the ith class

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-71
 Approximations for Grouped Data
Suppose data are grouped into K classes, with
frequencies f1, f2, . . ., fK, and the midpoints of the
classes are m1, m2, . . ., mK

n For a sample of n observations, the mean is

K

åfm i i
K
where n = å fi
x= i=1
i=1
n

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-72
 Approximations for Grouped Data
Suppose data are grouped into K classes, with
frequencies f1, f2, . . ., fK, and the midpoints of the
classes are m1, m2, . . ., mK

n For a sample of n observations, the variance is

K

åi i
f (m - x) 2

s2 = i=1
n -1

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-73
 Example: GPA
n Imagine you’re taking four courses
this quarter
n Three courses are worth 4 units
each, and one course is worth 2
units
n You perform well in your 4 credit
courses and receive A- in each of
them
n Unfortunately, you get only a C+ in
your 2-credit course
n Recall that an A- contributes 3.7
grade points towards your GPA
calculation, while a C+ contributes
2.3 points
n Calculate your GPA this quarter!

Source: [Link] accessed September 2, 2021

Copyright © 2021 UCSB Department of Economics Ch. 2-74
 Example: GPA
(continued)
Multiply points from each letter grade
by corresponding course units

4 ∗ 3.7 + 4 ∗ 3.7 + 4 ∗ 3.7 + 2 ∗ 2.3

𝐺𝑃𝐴 = = 3.5
4+4+4+2

Sum up all the course units

Copyright © 2021 UCSB Department of Economics Ch. 2-75

 Key points

n It is sometimes appropriate to find weighted

averages and variances
n Next time
n Covariance; correlation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-76
 Statistics for
Business and Economics
8th Edition

Today: Section 2.4

2_03_B
Covariance; correlation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-77
 Today

n More numerical tools to describe data

n Covariance
n Correlation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-78
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

Standard Deviation

Coefficient of Variation

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-79
 2.4
Measures of Relationships
Between Variables

Two measures of the relationship between

variables are

n Covariance
n a measure of the direction of a linear relationship
between two variables

n Correlation Coefficient
n a measure of both the direction and the strength of a
linear relationship between two variables

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-80
 Covariance
n The covariance measures the strength of the linear relationship
between two variables

n The population covariance:

N

å (x - µ i x )(y i - µ y )
Cov (x , y) = s xy = i=1
N
n The sample covariance:
n

å (x - x)(y - y)
i i
Cov (x , y) = s xy = i=1
n -1
n Only concerned with the direction of the relationship
n No causal effect is implied

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-81
 Interpreting Covariance

n Covariance between two variables:

Cov(x,y) > 0 x and y tend to move in the same direction

Cov(x,y) < 0 x and y tend to move in opposite directions

Cov(x,y) = 0 x and y might be independent (if x and y are

independent, their covariance is 0, but the converse is not
always true, i.e., cov(x, y) can be 0 for variables that are
not independent)

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-82
 Coefficient of Correlation
n Measures the relative strength of the linear relationship
between two variables

n Population correlation coefficient:

Cov (x , y)
ρ=
σXσY
n Sample correlation coefficient:
Cov (x , y)
r=
sX sY

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-83
 Features of
Correlation Coefficient, r

n Unit free
n Ranges normalized between –1 and 1
n The closer to –1, the stronger the negative linear
relationship
n The closer to 1, the stronger the positive linear
relationship
n The closer to 0, the weaker any linear relationship

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-84
 Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0
Y
Y Y

X X X
r = +1 r = +.3 r=0
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-85
 Using Excel to Find
the Correlation Coefficient
n Select Data / Data Analysis

n Choose Correlation from the selection menu

n Click OK . . .

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-86
 Using Excel to Find
the Correlation Coefficient
(continued)

n Input data range and select

appropriate options
n Click OK to get output

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-87
 Interpreting the Result

Scatter Plot of Test Scores

n r = .733 100

95

There is a relatively

Test #2 Score
90
n
85

strong positive linear 80

relationship between 75

test score #1 70
70 75 80 85 90 95 100

Test #1 Score
and test score #2

n Students who scored high on the first test tended

to score high on second test

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-88
 Example: Gender Bias during
Economics Talks
n Are female presenters treated differently than male
presenters during economics talks?
n Dupas et al. (2021) recruit coders to watch economics
talks and report on the number of interactions between
the audience and the presenter as well as the tone of
each interaction
n “We find that even after including rich controls women
presenters are asked more questions and the
questions asked of women are more likely to be
patronizing or hostile.”
Dupas et al.

Source: [Link] accessed September 2, 2021

Copyright © 2021 UCSB Department of Economics Ch. 2-89
 Example: Gender Bias during
Economics Talks
(continued)

n How can we be sure that the data

reported by coders is reliable?
n Dupas et al. ask two coders to
watch the same talk and then
calculate the correlation between
the coders’ responses
n Graph on the side shows the
relationship between the question
count reported by each coder as
well as the corresponding
correlation
n Is the correlation strong?
n Are you convinced that the coding
process was reliable?

Source: [Link] accessed September 2, 2021

Copyright © 2021 UCSB Department of Economics Ch. 2-90
 Key points

n Covariance and correlation are tools to find if

there is a linear relationship between two
variables

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-91
 Chapter Summary
n Described measures of central tendency
n Mean, median, mode
n Illustrated the shape of the distribution
n Symmetric, skewed
n Described measures of variation
n Range, interquartile range, variance and standard deviation
n Discussed measures of grouped data
n Calculated measures of relationships between
variables
n Covariance and correlation coefficient

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-92
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recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-93