EF 507
QUANTITATIVE METHODS FOR ECONOMICS AND
FINANCE
FALL 2008
Chapter 1
Why Study Statistics?
Chap 1-1
Chapter Goals
After completing this chapter, you should be able to:

Explain how decisions are often based on incomplete
information

Explain key definitions:
 Population vs. Sample
 Parameter vs. Statistic
 Descriptive vs. Inferential Statistics


Describe random sampling
Explain the difference between Descriptive and
Inferential statistics
Chap 1-2
Dealing with Uncertainty
Everyday decisions are based on incomplete
information
Consider:

The price of IBM stock will be higher in six months
than it is now.

If the budget deficit is as high as predicted, interest
rates will remain high for the rest of the year.
Chap 1-3
Dealing with Uncertainty
(continued)
Because of uncertainty, the statements
should be modified:

The price of IBM stock is likely to be higher in six
months than it is now.

If the budget deficit is as high as predicted, it is
probable that interest rates will remain high for the
rest of the year.
Chap 1-4
Key Definitions

A population is the collection of all items of interest or
under investigation


N represents the population size
A sample is an observed subset of the population

n represents the sample size

A parameter is a specific characteristic of a population

A statistic is a specific characteristic of a sample
Chap 1-5
Population vs. Sample
Population
a b
Sample
cd
b
ef gh i jk l m n
o p q rs t u v w
x y
z
Values calculated using
population data are called
parameters
c
gi
o
n
r
u
y
Values computed from
sample data are called
statistics
Chap 1-6
Examples of Populations

Names of all registered voters in Istanbul

Annual returns of all stocks traded on the IMKB

Grade point averages of all the students in your
university
Chap 1-7
Random Sampling
Simple random sampling is a procedure in which
each member of the population is chosen strictly by
chance,
 each member of the population is equally likely to be
chosen,
and
 every possible sample of n objects is equally likely to be
chosen

The resulting sample is called a random sample
Chap 1-8
Descriptive and Inferential Statistics
Two branches of statistics:

Descriptive statistics


Collecting, summarizing, and processing data to
transform data into information
Inferential statistics

provide the bases for predictions, forecasts, and
estimates that are used to transform information
into knowledge
Chap 1-9
Descriptive Statistics

Collect data


Present data


e.g., Survey
e.g., Tables and graphs
Summarize data

X

e.g., Sample mean =
i
n
Chap 1-10
Inferential Statistics

Estimation


e.g., Estimate the population
mean weight using the sample
mean weight
Hypothesis testing

e.g., Test the claim that the
population mean weight is 75
kg
Inference is the process of drawing conclusions or
making decisions about a population based on
sample results
Chap 1-11
The Decision Making Process
Decision
Knowledge
Experience, Theory,
Literature, Inferential
Statistics, Computers
Information
Descriptive Statistics,
Probability, Computers
Begin Here:
Identify the
Problem
Data
Chap 1-12
Chapter Summary

Reviewed incomplete information in decision
making

Introduced key definitions:



Population vs. Sample

Parameter vs. Statistic

Descriptive vs. Inferential statistics
Described random sampling
Examined the decision making process
Chap 1-13

A company has developed a new battery, but the
average lifetime is unknown. In order to estimate this
average, a sample of 100 batteries is tested and the
average lifetime of this sample is found to be 250 hours.
The 250 hours is the value of:
a) a parameter.
b) a statistic.
c) a sampling frame.
d) a population.
Chap 1-14

A summary measure that is computed from a
population is called
a) a parameter
b) a statistic
c) a population
d) inferential statistics
Chap 1-15

An office supply warehouse has boxes of pencils, 100 pencils to the
box. Information about the entire warehouse as well as a sample of the
boxes is shown below:
Number of defectives
per box
0
1
2
3
4








Number of boxes
(in warehouse)
1500
250
75
40
10
Number of boxes
(in sample)
50
20
3
3
1
Describe the population.
ANSWER: All boxes of pencils in the warehouse
What is the population size?
ANSWER: 1875 boxes
Describe the sample.
ANSWER: The boxes of pencils sampled.
What is the sample size?
ANSWER: 77 boxes
Chap 1-16