Skip to Content
OpenStax Logo
Introductory Business Statistics

1.1 Definitions of Statistics, Probability, and Key Terms

Introductory Business Statistics1.1 Definitions of Statistics, Probability, and Key Terms
Buy book
  1. Preface
  2. 1 Sampling and Data
    1. Introduction
    2. 1.1 Definitions of Statistics, Probability, and Key Terms
    3. 1.2 Data, Sampling, and Variation in Data and Sampling
    4. 1.3 Levels of Measurement
    5. 1.4 Experimental Design and Ethics
    6. Key Terms
    7. Chapter Review
    8. Homework
    9. References
    10. Solutions
  3. 2 Descriptive Statistics
    1. Introduction
    2. 2.1 Display Data
    3. 2.2 Measures of the Location of the Data
    4. 2.3 Measures of the Center of the Data
    5. 2.4 Sigma Notation and Calculating the Arithmetic Mean
    6. 2.5 Geometric Mean
    7. 2.6 Skewness and the Mean, Median, and Mode
    8. 2.7 Measures of the Spread of the Data
    9. Key Terms
    10. Chapter Review
    11. Formula Review
    12. Practice
    13. Homework
    14. Bringing It Together: Homework
    15. References
    16. Solutions
  4. 3 Probability Topics
    1. Introduction
    2. 3.1 Terminology
    3. 3.2 Independent and Mutually Exclusive Events
    4. 3.3 Two Basic Rules of Probability
    5. 3.4 Contingency Tables and Probability Trees
    6. 3.5 Venn Diagrams
    7. Key Terms
    8. Chapter Review
    9. Formula Review
    10. Practice
    11. Bringing It Together: Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  5. 4 Discrete Random Variables
    1. Introduction
    2. 4.1 Hypergeometric Distribution
    3. 4.2 Binomial Distribution
    4. 4.3 Geometric Distribution
    5. 4.4 Poisson Distribution
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  6. 5 Continuous Random Variables
    1. Introduction
    2. 5.1 Properties of Continuous Probability Density Functions
    3. 5.2 The Uniform Distribution
    4. 5.3 The Exponential Distribution
    5. Key Terms
    6. Chapter Review
    7. Formula Review
    8. Practice
    9. Homework
    10. References
    11. Solutions
  7. 6 The Normal Distribution
    1. Introduction
    2. 6.1 The Standard Normal Distribution
    3. 6.2 Using the Normal Distribution
    4. 6.3 Estimating the Binomial with the Normal Distribution
    5. Key Terms
    6. Chapter Review
    7. Formula Review
    8. Practice
    9. Homework
    10. References
    11. Solutions
  8. 7 The Central Limit Theorem
    1. Introduction
    2. 7.1 The Central Limit Theorem for Sample Means
    3. 7.2 Using the Central Limit Theorem
    4. 7.3 The Central Limit Theorem for Proportions
    5. 7.4 Finite Population Correction Factor
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  9. 8 Confidence Intervals
    1. Introduction
    2. 8.1 A Confidence Interval for a Population Standard Deviation, Known or Large Sample Size
    3. 8.2 A Confidence Interval for a Population Standard Deviation Unknown, Small Sample Case
    4. 8.3 A Confidence Interval for A Population Proportion
    5. 8.4 Calculating the Sample Size n: Continuous and Binary Random Variables
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  10. 9 Hypothesis Testing with One Sample
    1. Introduction
    2. 9.1 Null and Alternative Hypotheses
    3. 9.2 Outcomes and the Type I and Type II Errors
    4. 9.3 Distribution Needed for Hypothesis Testing
    5. 9.4 Full Hypothesis Test Examples
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  11. 10 Hypothesis Testing with Two Samples
    1. Introduction
    2. 10.1 Comparing Two Independent Population Means
    3. 10.2 Cohen's Standards for Small, Medium, and Large Effect Sizes
    4. 10.3 Test for Differences in Means: Assuming Equal Population Variances
    5. 10.4 Comparing Two Independent Population Proportions
    6. 10.5 Two Population Means with Known Standard Deviations
    7. 10.6 Matched or Paired Samples
    8. Key Terms
    9. Chapter Review
    10. Formula Review
    11. Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  12. 11 The Chi-Square Distribution
    1. Introduction
    2. 11.1 Facts About the Chi-Square Distribution
    3. 11.2 Test of a Single Variance
    4. 11.3 Goodness-of-Fit Test
    5. 11.4 Test of Independence
    6. 11.5 Test for Homogeneity
    7. 11.6 Comparison of the Chi-Square Tests
    8. Key Terms
    9. Chapter Review
    10. Formula Review
    11. Practice
    12. Homework
    13. Bringing It Together: Homework
    14. References
    15. Solutions
  13. 12 F Distribution and One-Way ANOVA
    1. Introduction
    2. 12.1 Test of Two Variances
    3. 12.2 One-Way ANOVA
    4. 12.3 The F Distribution and the F-Ratio
    5. 12.4 Facts About the F Distribution
    6. Key Terms
    7. Chapter Review
    8. Formula Review
    9. Practice
    10. Homework
    11. References
    12. Solutions
  14. 13 Linear Regression and Correlation
    1. Introduction
    2. 13.1 The Correlation Coefficient r
    3. 13.2 Testing the Significance of the Correlation Coefficient
    4. 13.3 Linear Equations
    5. 13.4 The Regression Equation
    6. 13.5 Interpretation of Regression Coefficients: Elasticity and Logarithmic Transformation
    7. 13.6 Predicting with a Regression Equation
    8. 13.7 How to Use Microsoft Excel® for Regression Analysis
    9. Key Terms
    10. Chapter Review
    11. Practice
    12. Solutions
  15. A | Statistical Tables
  16. B | Mathematical Phrases, Symbols, and Formulas
  17. Index

The science of statistics deals with the collection, analysis, interpretation, and presentation of data. We see and use data in our everyday lives.

In this course, you will learn how to organize and summarize data. Organizing and summarizing data is called descriptive statistics. Two ways to summarize data are by graphing and by using numbers (for example, finding an average). After you have studied probability and probability distributions, you will use formal methods for drawing conclusions from "good" data. The formal methods are called inferential statistics. Statistical inference uses probability to determine how confident we can be that our conclusions are correct.

Effective interpretation of data (inference) is based on good procedures for producing data and thoughtful examination of the data. You will encounter what will seem to be too many mathematical formulas for interpreting data. The goal of statistics is not to perform numerous calculations using the formulas, but to gain an understanding of your data. The calculations can be done using a calculator or a computer. The understanding must come from you. If you can thoroughly grasp the basics of statistics, you can be more confident in the decisions you make in life.

Probability

Probability is a mathematical tool used to study randomness. It deals with the chance (the likelihood) of an event occurring. For example, if you toss a fair coin four times, the outcomes may not be two heads and two tails. However, if you toss the same coin 4,000 times, the outcomes will be close to half heads and half tails. The expected theoretical probability of heads in any one toss is 1 2 1 2 or 0.5. Even though the outcomes of a few repetitions are uncertain, there is a regular pattern of outcomes when there are many repetitions. After reading about the English statistician Karl Pearson who tossed a coin 24,000 times with a result of 12,012 heads, one of the authors tossed a coin 2,000 times. The results were 996 heads. The fraction 996 2000 996 2000 is equal to 0.498 which is very close to 0.5, the expected probability.

The theory of probability began with the study of games of chance such as poker. Predictions take the form of probabilities. To predict the likelihood of an earthquake, of rain, or whether you will get an A in this course, we use probabilities. Doctors use probability to determine the chance of a vaccination causing the disease the vaccination is supposed to prevent. A stockbroker uses probability to determine the rate of return on a client's investments. You might use probability to decide to buy a lottery ticket or not. In your study of statistics, you will use the power of mathematics through probability calculations to analyze and interpret your data.

Key Terms

In statistics, we generally want to study a population. You can think of a population as a collection of persons, things, or objects under study. To study the population, we select a sample. The idea of sampling is to select a portion (or subset) of the larger population and study that portion (the sample) to gain information about the population. Data are the result of sampling from a population.

Because it takes a lot of time and money to examine an entire population, sampling is a very practical technique. If you wished to compute the overall grade point average at your school, it would make sense to select a sample of students who attend the school. The data collected from the sample would be the students' grade point averages. In presidential elections, opinion poll samples of 1,000–2,000 people are taken. The opinion poll is supposed to represent the views of the people in the entire country. Manufacturers of canned carbonated drinks take samples to determine if a 16 ounce can contains 16 ounces of carbonated drink.

From the sample data, we can calculate a statistic. A statistic is a number that represents a property of the sample. For example, if we consider one math class to be a sample of the population of all math classes, then the average number of points earned by students in that one math class at the end of the term is an example of a statistic. The statistic is an estimate of a population parameter, in this case the mean. A parameter is a numerical characteristic of the whole population that can be estimated by a statistic. Since we considered all math classes to be the population, then the average number of points earned per student over all the math classes is an example of a parameter.

One of the main concerns in the field of statistics is how accurately a statistic estimates a parameter. The accuracy really depends on how well the sample represents the population. The sample must contain the characteristics of the population in order to be a representative sample. We are interested in both the sample statistic and the population parameter in inferential statistics. In a later chapter, we will use the sample statistic to test the validity of the established population parameter.

A variable, or random variable, usually notated by capital letters such as X and Y, is a characteristic or measurement that can be determined for each member of a population. Variables may be numerical or categorical. Numerical variables take on values with equal units such as weight in pounds and time in hours. Categorical variables place the person or thing into a category. If we let X equal the number of points earned by one math student at the end of a term, then X is a numerical variable. If we let Y be a person's party affiliation, then some examples of Y include Republican, Democrat, and Independent. Y is a categorical variable. We could do some math with values of X (calculate the average number of points earned, for example), but it makes no sense to do math with values of Y (calculating an average party affiliation makes no sense).

Data are the actual values of the variable. They may be numbers or they may be words. Datum is a single value.

Two words that come up often in statistics are mean and proportion. If you were to take three exams in your math classes and obtain scores of 86, 75, and 92, you would calculate your mean score by adding the three exam scores and dividing by three (your mean score would be 84.3 to one decimal place). If, in your math class, there are 40 students and 22 are men and 18 are women, then the proportion of men students is 22402240 and the proportion of women students is 18401840. Mean and proportion are discussed in more detail in later chapters.

NOTE

The words "mean" and "average" are often used interchangeably. The substitution of one word for the other is common practice. The technical term is "arithmetic mean," and "average" is technically a center location. However, in practice among non-statisticians, "average" is commonly accepted for "arithmetic mean."

Example 1.1

Determine what the key terms refer to in the following study. We want to know the average (mean) amount of money first year college students spend at ABC College on school supplies that do not include books. We randomly surveyed 100 first year students at the college. Three of those students spent $150, $200, and $225, respectively.

Solution 1.1

The population is all first year students attending ABC College this term.

The sample could be all students enrolled in one section of a beginning statistics course at ABC College (although this sample may not represent the entire population).

The parameter is the average (mean) amount of money spent (excluding books) by first year college students at ABC College this term: the population mean.

The statistic is the average (mean) amount of money spent (excluding books) by first year college students in the sample.

The variable could be the amount of money spent (excluding books) by one first year student. Let X = the amount of money spent (excluding books) by one first year student attending ABC College.

The data are the dollar amounts spent by the first year students. Examples of the data are $150, $200, and $225.

Try It 1.1

Determine what the key terms refer to in the following study. We want to know the average (mean) amount of money spent on school uniforms each year by families with children at Knoll Academy. We randomly survey 100 families with children in the school. Three of the families spent $65, $75, and $95, respectively.

Example 1.2

Determine what the key terms refer to in the following study.

A study was conducted at a local college to analyze the average cumulative GPA’s of students who graduated last year. Fill in the letter of the phrase that best describes each of the items below.

1. Population ____ 2. Statistic ____ 3. Parameter ____ 4. Sample ____ 5. Variable ____ 6. Data ____

  1. all students who attended the college last year
  2. the cumulative GPA of one student who graduated from the college last year
  3. 3.65, 2.80, 1.50, 3.90
  4. a group of students who graduated from the college last year, randomly selected
  5. the average cumulative GPA of students who graduated from the college last year
  6. all students who graduated from the college last year
  7. the average cumulative GPA of students in the study who graduated from the college last year
Solution 1.2

1. f; 2. g; 3. e; 4. d; 5. b; 6. c

Example 1.3

Determine what the key terms refer to in the following study.

As part of a study designed to test the safety of automobiles, the National Transportation Safety Board collected and reviewed data about the effects of an automobile crash on test dummies. Here is the criterion they used:

Speed at which cars crashed Location of “drive” (i.e. dummies)
35 miles/hour Front Seat
Table 1.1

Cars with dummies in the front seats were crashed into a wall at a speed of 35 miles per hour. We want to know the proportion of dummies in the driver’s seat that would have had head injuries, if they had been actual drivers. We start with a simple random sample of 75 cars.

Solution 1.3

The population is all cars containing dummies in the front seat.

The sample is the 75 cars, selected by a simple random sample.

The parameter is the proportion of driver dummies (if they had been real people) who would have suffered head injuries in the population.

The statistic is proportion of driver dummies (if they had been real people) who would have suffered head injuries in the sample.

The variable X = the number of driver dummies (if they had been real people) who would have suffered head injuries.

The data are either: yes, had head injury, or no, did not.

Example 1.4

Determine what the key terms refer to in the following study.

An insurance company would like to determine the proportion of all medical doctors who have been involved in one or more malpractice lawsuits. The company selects 500 doctors at random from a professional directory and determines the number in the sample who have been involved in a malpractice lawsuit.

Solution 1.4

The population is all medical doctors listed in the professional directory.

The parameter is the proportion of medical doctors who have been involved in one or more malpractice suits in the population.

The sample is the 500 doctors selected at random from the professional directory.

The statistic is the proportion of medical doctors who have been involved in one or more malpractice suits in the sample.

The variable X = the number of medical doctors who have been involved in one or more malpractice suits.

The data are either: yes, was involved in one or more malpractice lawsuits, or no, was not.

Citation/Attribution

Want to cite, share, or modify this book? This book is Creative Commons Attribution License 4.0 and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/introductory-business-statistics/pages/1-introduction
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/introductory-business-statistics/pages/1-introduction
Citation information

© Nov 29, 2017 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License 4.0 license. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.