1. Discuss the application of statistics in the three managerial decision making conditions.

Every decision problem has four basic features, mentioned below:

Alternative Courses of Action or Acts: Every decision-maker is faced with a set of several
alternative courses of action A1, A2 ... Am and he has to select one of them in view of the
objectives to be fulfilled.

States of Nature: The consequences of selection of a course of action are dependent upon
certain factors that are beyond the control of the decision-maker. These factors are known as
states of nature or events. It is assumed that the decision maker is aware of the whole list of
events S1, S2 ...Sn and exactly one of them is bound to occur. In other words, the events S1, S2,
Sn are assumed to be mutually exclusive and collective exhaustive.

Consequences: The results or outcomes of selection of a particular course of action are termed
as its consequences. The consequence, measured in quantitative or value terms, is called payoff
of a course of action. It is assumed that the payoffs of various courses of action are known to the
decision-maker.

Decision Criterion: Given the payoffs of various combinations of courses of action and the
states of nature, the decision-maker has to select an optimal course of action. The criterion for
such a selection, however, depends upon the attitude of the decision-maker.

These all are conducted with the help of statistics

Decision-making under Certainty

The conditions of certainty are very rare particularly when significant decisions are involved.
Under conditions of certainty, the decision-maker knows which particular state of nature will
occur or equivalently, he is aware of the consequences of each course of action with certainty.
Under such a situation, the decision-maker should focus on the corresponding column in the
payoff table and choose a course of action with optimal payoff. Under conditions of certainty,
accurate, measurable, and reliable information on which to base decisions is The cause and effect
relationships are known and the future is highly predictable under conditions of certainty
available.
Decision-making under Risk

When a manager lacks perfect information or whenever an information asymmetry exists, risk
arises. Under a state of risk, the decision maker has incomplete information about available
alternatives but has a good idea of the probability of outcomes for each alternative.

While making decisions under a state of risk, managers must determine the probability
associated with each alternative on the basis of the available information and his experience.

Decision-making under Uncertainty

When such conditions of uncertainty is there then to make decision, a businessman or manager
has two alternatives. First one is to apply some short method such as the rules etc., when it is
found that the future is so unpredictable that no refined analysis is possible; the other alternative
is to deal systematically with the uncertainty itself, with careful use of probabilities in addition to
the application of statistics whenever possible.

In general, it is always better to have an intermediate position between the above two alternatives
to avoid the minute analysis of every element of uncertainty. Now it is very clear that theory of
probability plays an important role while making decision under the condition of uncertainty.

2. What is the difference between percentile, decile and quartile? Show their differences using
relevant examples

Quartile

 The quartiles of a data set divide the data into four equal parts, with one-fourth of the data
values in each part.
 first quartile (designated Q1) = lower quartile = splits lowest 25% of data = 25th
percentile
 second quartile (designated Q2) = median = cuts data set in half = 50th percentile
 third quartile (designated Q3) = upper quartile = splits highest 25% of data, or
lowest 75% = 75th percentile
  The difference between the upper and lower quartiles is called the interquartile
range (IQR).

That is, after arranging the data in ascending order, Q1, Q2, & Q3 are, respectively
For example, in the data set below, with 20 values, the median is the average of 9 and 11, which
is 10.

 In the data set above, there are ten data values in each half, so the first quartile is the average
of the values in the fifth and sixth positions (both of which are 5, so the first quartile is 5)
and the third quartile is the average of the values in the fifteenth and sixteenth positions (17
and 20, so the third quartile is 18.5).
 Thus, in the sample data set given above, the IRQ is 18.5 – 5 = 13.5.

Decile: are the nine values, which divide the series in to ten equal parts. They are denoted by
D1, D2… D9.

D1 = Covers 10% of the distribution

D2 = Covers 20% of the distribution

D9 = Covers 90% of the distribution

Percentiles: are the 99 values, which divide the series in to 100 equal parts. They are denoted by
P1, P2… P99.

Note that: i. Q1 = P25 Q2 = D5 = P50 = median Q3 = P75

ii. D1 = P10, D2 = P20, D3 = P30, … , D9 = P90.

 For raw data and ungroup (discrete) frequencies:

First, for raw data, rearrange the values in the order of magnitude and for discrete frequencies ,
compute the Cfi column. Then apply the following formula.

i ( N + 1 )th
Qi = value of item
4
i ( N + 1 )th
Di = value of item
10
i ( N + 1 )th
Pi = value of item
100

For continuous frequencies :

1. Compute the <cfi column.

2. Determine the quartile, decile or percentile class.

3. Apply the following interpolation formula.

c iN
Qi = l +
f 4 (
− c.f )
c iN
Di = l +
f 10 (
− c.f )
c iN
Pi = l +
f 100 (
− c. f )
Example: For the data given below, compute the value of Q1, D3, P15 and interpret.

Marks Below 10 10 - 20 20 - 40 40 – 60 60 - 80 Above 80

No. of Students 10 15 25 30 14 6
<cfi 10 25 50 80 94 100
Solution:

th
N
 Q1 – size of 4 item = 25th item 10 – 20 quartile class

l = 10, c = 10, f = 15, c.f = 10

 c
Q1 = l +
f ( n4 − c . f ) = 10 + 1015 ( 25 − 10 ) = 20

Mark of 25% of students is less than 20.

th
3N
 D3 – size of 10 item = 30th item 20 – 40 decile class

L = 20, c = 20, f = 25, c.f = 25

c
D3 = l +
f (103 n − c . f ) = 20 + 2025 (30 − 25 ) = 24

Mark of 30% of students is below 24.

th
15N
 P15 – size of 100 item = 15th item 10 – 20 percentile class

L = 10, c = 10, f = 15, c.f = 10

c 15 n 10
P15 = l +
f ( 100 )
− c . f = 10 +
15
(15 − 10 ) = 13 . 3

Mark of 15% of students is below 13.3.

3.Discuss the concept of mean deviation, coefficient of mean deviation and coefficient of
variance

Mean deviation (M.D): The mean deviation is defined as a statistical measure, which is used to
calculate the average deviation from the mean value of the given data set. is the arithmetic mean
of the absolute deviations of the values from the mean or median. If the deviations are taken
from the mean then it is called M.D around the mean, if the deviations are taken from the
median, it is called M.D around the median, or if the deviations are taken from the mode, it is
called M.D around the mode.
Coefficient of mean deviation: A relative measure of dispersion based on the mean deviation is
called the coefficient of the mean deviation or the coefficient of dispersion. It is defined as the
ratio of the mean deviation of the average used in the calculation of the mean deviation. Thus:

Coefficient of M.D (about mean) = Mean Deviation from Mean/Mean

Coefficient of M.D (about median) = Mean Deviation from Median/Median

Coefficient of M.D (about mode) = Mean Deviation from Mode/Mode

The coefficient of variation (CV): is a statistical measure of the dispersion of data points in a
data series around the mean. The coefficient of variation represents the ratio of the standard
deviation to the mean, and it is a useful statistic for comparing the degree of variation from one
data series to another, even if the means are drastically different from one another.

s
X 100 %,
CV = x ×100%, CV =σ/µ ×100%

4. Discuss the concepts of skewness and kurtosis using explanatory examples

Skewness: is the measure of asymmetry or departure from symmetry.

The shape of any distribution mostly follows one of the following; symmetry or skewed.
  Symmetrical Distribution: It is clear from the diagram (a) that in a symmetrical
distribution the values of mean, median and mode coincide. The spread of the frequencies
is the same on both sides of the center point of the curve.
 Positively Skewed Distribution: In the positively skewed distribution the value of the mean
is maximum and that of mode least-the median lies in between the two as is clear from the
diagram (b).
 Negatively Skewed Distribution: In a negatively skewed distribution the value of mode is
maximum and that of mean least-the median lies in between the two.

Kurtosis: is defined as the parameter of relative sharpness of the peak of the probability
distribution curve. It ascertains the way observations are clustered around the center of the
distribution. It is used to indicate the flatness or peakedness of the frequency distribution curve
and measures the tails or outliers of the distribution.

Positive kurtosis represents that the distribution is more peaked than the normal distribution,
whereas negative kurtosis shows that the distribution is less peaked than the normal distribution.
There are three types of distributions:

1. Leptokurtic: Sharply peaked with fat tails, and less variable.

2. Mesokurtic: medium peaked
3. Platykurtic: Flattest peak and highly dispersed.
 The main difference between skewness and kurtosis is that the former talks of the degree of
symmetry, whereas the latter talks of the degree of peakedness, in the frequency distribution.

5. Discuss the grouped and stacked types of bar chart or bar diagram using relevant examples.

Bar graphs are the pictorial representation of data (generally grouped), in the form of vertical or
horizontal rectangular bars, where the length of bars are proportional to the measure of data.
They are also known as bar charts. Bar graphs are one of the means of data handling in statistics.

Grouped bar graph: The grouped bar graph is also called the clustered bar graph, which is used
to represent the discrete value for more than one object that shares the same category. In this type
of bar chart, the total number of instances are combined into a single bar. In other words, a
grouped bar graph is a type of bar graph in which different sets of data items are compared. Here,
a single color is used to represent the specific series across the set. The grouped bar graph can be
represented using both vertical and horizontal bar charts.

60

50

40
A
30 B
C
20

10

0
sales($) in 2001 sales($)in2002 sales($) in 2003

Stacked bar graph: The stacked bar graph is also called the composite bar chart, which divides
the aggregate into different parts. In this type of bar graph, each part can be represented using
different colors, which helps to easily identify the different categories. The stacked bar chart
requires specific labeling to show the different parts of the bar. In a stacked bar graph, each bar
represents the whole and each segment represents the different parts of the whole.
100
90
80
70
60 C
50
B
40
30 A
20
10
0
sales($) in 2001 sales($)in2002 sales($) in 2003

6. Discuss Geometric Mean and Harmonic Mean for grouped and ungrouped data

Geometric mean: is defined at the nth root of the product of n observations of a distribution.
The geometric mean G.M., for a set of numbers x1, x2, … , xn is given as

G.M. = (x1. x2 … xn)1⁄n =√n x 1. x 2 … … xn

or, G. M. = (π i = 1n xi) 1⁄n = n√( x1, x2, … , xn).

The geometric mean of two numbers, say x, and y is the square root of their product x×y. For
three numbers, it will be the cube root of their products i.e., (x y z) 1⁄3.or√3 xyz

 Relation Between Geometric Mean and Logarithms:In order to make our calculation easy
and less time consuming we use the concept of logarithms in the calculation of geometric
means.

Since, G.M. = (x1. x2 … xn) 1⁄n Taking log on both sides, we have

log G.M. = 1⁄n (log ((x1. x2 … xn))

or, log G.M. = 1⁄n (log x1 + log x2 + … + log xn) or, log G.M. = (1⁄n) ∑ i= 1n log xi

or, G.M. = Antilog(1⁄n (∑ i= 1n log xi)).

 Geometric Mean of Frequency Distribution

For a grouped frequency distribution, the geometric mean G.M. is

G.M. = (x1 f1. x2 f2 … xn fn) 1⁄N , where N = ∑ i= 1n fi

Taking logarithms on both sides, we get:

log G.M. = 1⁄N (f1 log x1 + f2 log x2 + … + fn log xn) = 1⁄N [∑ i= 1n fi log xi ].

Harmonic Mean: A simple way to define a harmonic mean is to call it the reciprocal of the
arithmetic mean of the reciprocals of the observations. The most important criteria for it is that
none of the observations should be zero. A harmonic mean is used in averaging of ratios. The
most common examples of ratios are that of speed and time, cost and unit of material, work and
time etc. The harmonic mean (H.M.) of n observations is

 In the case of frequency distribution, a harmonic mean is given by

7. Discuss and justify how “outlier” can strongly affect the mean and standard deviation of a
variable

Effects on mean

Mean is calculated using the simple formula:

mean = (sum of observations) / (number of observations)

 But while the mean is a useful and easy to calculate, it does have one drawback: It can be
affected by outliers. In particular, the smaller the dataset, the more that an outlier could affect
the mean. To illustrate this, consider the following classic example: Ten men are sitting in a
bar. The average income of the ten men is 50,000birr. Suddenly one man walks out and the
 riches man walks in. Now the average income of the ten men in the bar is 40 million. This
example shows how one outlier (richest man) could drastically affect the mean.

An outlier can affect the mean by being unusually small or unusually large. In the previous
example, the richest man had an unusually large income, which caused the mean to be
misleading. However, an unusually small value can also affect the mean. To illustrate this,
consider the following example:

Ten students take an exam and receive the following scores:

[0, 88, 90, 92, 94, 95, 95, 96, 97, 99] , The mean score is 84.6.

However, if we remove the “0” score from the dataset, then the mean score becomes 94.

Effects on standard deviation

Outliers increase the standard deviation.

Mean is most affected by outliers, since all values in a sample are given the same weight when
calculating mean. A value that is far removed from the mean is going to likely skew your results
and increase the standard deviation.

Say you have five values: 2, 1, 2, 1.5, and 2.1. Your mean would be 1.72 and your standard
deviation would be 0.47. All of your values are pretty close to each other in their distribution,
thus your standard deviation is small.

Then say you have five values: 2, 1, 2, 1.5, and 10. Your mean would be 3.3 and your standard
deviation would be 3.77. That one outlier (10) makes your standard deviation much greater when
compared to the earlier set of numbers. The effect would be less though if our sample size was
larger and we only had one outlier.

Part II- Workout

According to a recent study conducted by businessmen, 76% of all shareholders have some
college education. Suppose that 37% of all adults have some college education and 22% of all
adults are shareholders. For a randomly selected adult:
Let: shareholder=A and college education= B
P(A)=0.22, P(B)=0.37,

A. What is the probability that the person did not own shares of stock?
P (Ǡ) = 1-P (A)
1- 0.22 =0.78
B. What is the probability that the person owns shares of stock or had some college education?
A given student in the college suggested that the probability is 0.4228, how did he give this
value?
P ( A∪ B ) = P ( A ) + P ( B ) − P ( A∩ B )

Where A , B are events and ( A∩ B ) is the int er section of A and B .

P (A Ս B) = P (A) + P (B) – P (A Ո B)
=0.22+0.37- 0.76*0.22
= 0.59 – 0.1672
=0.4228
C. What is the probability that the person has neither some college education nor owns shares of
stock?

P( A ¿ B ) = 1 – P (AUB)
=1- 0.4228 = 0.5772
D. What is the probability that the person does not own shares of stock or has no college
education?

P( A ¿ B ) = 1 – P(A n B)
= 1 – 0.1672 = 0.8382

E. What is the probability that the person owns only shares of stock or had some college
education but not both? If a given shareholder predicted this value at 0.2556, show that the
solution would be true.

P (AUB) – P (A n B) = 0.4227 – 0.1672 = 0.2556