ClassNotes-Chapter-01 - Chapter 1 Introduction to...

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1 © Sven Thommesen 2011 Chapter 1: Introduction to statistics. Data. [Edited 10/23/08] [1.0] What is statistics? The purpose of the field of statistics is to allow decision makers to make better decisions on the basis of available data. The textbook de fines it this way: the field of statistics is “the art and science of collecting, analyzing, presenting, and interpreting data.” The “science” part of it is based in mathematics and rests on probability theory. [So there are limits to how easy or fun we can make this subject if you hate math!] The “art” part comes into play because at every turn the statistician is called upon to exercise judgment: what data to use, how to collect it, how to exclude potentially bad data, what mathematical procedures to use, etc. We will see some of these judgment issues as we proceed through the course. [1.0.1] Business statistics is statistics used for decision making in a business context.
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2 [1.1] Examples of the use of statistics in the “real world:” in account ing, auditing a large firm‟s accounts receivable by inspecting some small sample of transactions; in finance, comparing data for one company with data for another, or with data for the whole industry, or comparing current data for the company with past results; in marketing, using point-of-sale (POS) data to better understand consumer behavior and preferences (example: Wal-Mart); in production, using statistical sampling as a part of quality control; in production, using POS data to drive the production mix almost in real time (example: Levi‟s); in economics and politics, using past data with models of the economy to forecast future performance (of inflation, unemployment, GDP, etc.); in demographics, using data on past birth and death rates to project population and cohort sizes (and hence the need for schools, nursing homes, etc.) in the future; in sports, using data on past performance of your favorite team or player to predict the outcomes of future games or matches. In popular usage, the term “a statistic” is used to mean some impersonal numerical fact, e.g. “the latest victim of drive -by shootings in this area just became another statistic.” The field of “statistics” concerns itself with what one can do with such impersonal data.
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3 [1.2] Statistical data and their referents The world is full of entities (people, automobiles, light bulbs, national economies) and all those entities have numerous qualities or attributes or characteristics . For example, an automobile has a certain number of seats, a certain color, a certain engine size, and so on. These are all objective characteristics which we can count or measure or categorize or describe in some fashion. When the entities are people, we have an additional kind of attribute: mental attributes su ch as the person‟s beliefs or opinions about some question or other or his mental or emotional state. This kind of subjective information has to be collected by asking people to answer a survey (and you have no way of knowing whether the answers you get are true!)
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