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Business
Statistics
Business
Statistics
2nd Edition

By Alan Anderson, PhD

Business Statistics For Dummies®, 2nd Edition
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Library of Congress Control Number: 2023949253

ISBN 978-1-394-21992-6 (pbk); ISBN 978-1-394-21994-0 (ebk); 978-1-394-21993-3 (ebk)

Contents at a Glance
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Part 1: Getting Started with Business Statistics. . . . . . . . . . . . . . . 5

CHAPTER 1: The Art and Science of Business Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CHAPTER 2: Pictures Tell the Story: Graphical Representations of Data. . . . . . . . . . . . 21
CHAPTER 3: Identifying the Center of a Data Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CHAPTER 4: Measuring Variation in a Data Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CHAPTER 5: Measuring How Data Sets Are Related to Each Other. . . . . . . . . . . . . . . . 71

Part 2: Probability Theory and Probability

Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
CHAPTER 6: Probability Theory: Measuring the Likelihood of Events. . . . . . . . . . . . . . 97
CHAPTER 7: Probability Distributions and Random Variables . . . . . . . . . . . . . . . . . . 115
CHAPTER 8: The Binomial and Poisson Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 127

CHAPTER 9: The Normal Distribution: So Many Possibilities!. . . . . . . . . . . . . . . . . . . 145

CHAPTER 10: Sampling Techniques and Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 165

Part 3: Drawing Conclusions from Samples. . . . . . . . . . . . . . . . . 185

CHAPTER 11: Confidence Intervals and the Student’s t-Distribution. . . . . . . . . . . . . . 187
CHAPTER 12: Testing Hypotheses about the Population Mean. . . . . . . . . . . . . . . . . . 205
CHAPTER 13: Applications of the Chi-Square Distribution. . . . . . . . . . . . . . . . . . . . . . . 245
CHAPTER 14: Applications of the F-Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Part 4: More Advanced Techniques: Regression

Analysis and Spreadsheet Modeling . . . . . . . . . . . . . . . . . . . . . . . . . 287
CHAPTER 15: Simple Regression Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
CHAPTER 16: Key Statistical Techniques in Excel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

Part 5: The Part of Tens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

CHAPTER 17: Ten Common Errors That Arise in Statistical Analysis . . . . . . . . . . . . . . 345
CHAPTER 18: (Almost) Ten Key Categories of Formulas for Business Statistics. . . . . 353

Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Table of Contents
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
About This Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Foolish Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Icons Used in This Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Beyond the Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Where to Go from Here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

PART 1: GETTING STARTED WITH BUSINESS

STATISTICS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CHAPTER 1: The Art and Science of Business Statistics. . . . . . . . . . . . 7
Representing the Key Properties of Data. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Analyzing data with graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Defining properties and relationships with
numerical measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Probability: The Foundation of All Statistical Analysis. . . . . . . . . . . . . . 13
Random variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Probability distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Using Sampling Techniques and Sampling Distributions . . . . . . . . . . . 17
Statistical Inference: Drawing Conclusions from Data. . . . . . . . . . . . . . 17
Confidence intervals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Hypothesis testing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Simple regression analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

CHAPTER 2: Pictures Tell the Story: Graphical

Representations of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Analyzing the Distribution of Data by Class or Category. . . . . . . . . . . . 22
Frequency distributions for quantitative data. . . . . . . . . . . . . . . . . .23
Frequency distribution for qualitative values . . . . . . . . . . . . . . . . . . 27
Cumulative frequency distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Histograms: Getting a Picture of Frequency Distributions . . . . . . . . . . 29
Checking Out Other Useful Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Line graphs: Showing the values of a data series. . . . . . . . . . . . . . . 31
Pie charts: Showing the composition of a data set. . . . . . . . . . . . . . 32
Scatter plots: Showing the relationship between two variables. . . 33

CHAPTER 3: Identifying the Center of a Data Set. . . . . . . . . . . . . . . . . . . 35

Looking at Methods for Finding the Mean. . . . . . . . . . . . . . . . . . . . . . . . 36
Arithmetic mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Geometric mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Weighted mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Table of Contents vii

 Getting to the Middle of Things: The Median of a Data Set . . . . . . . . . 42
Determining the Relationship Between the Mean and Median. . . . . . 44
Symmetrical. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Negatively skewed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Positively skewed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Discovering the Mode: The Most Frequently Repeated Element. . . . . 48
Computing the Mean, Median, and Mode with the
TI-84 Plus Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

CHAPTER 4: Measuring Variation in a Data Set. . . . . . . . . . . . . . . . . . . . . 53

Determining Variance and Standard Deviation . . . . . . . . . . . . . . . . . . . 54
Finding the sample variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Finding the sample standard deviation . . . . . . . . . . . . . . . . . . . . . . . 55
Calculating population variance and standard deviation . . . . . . . . 59
Finding the Relative Position of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Percentiles: Dividing everything into hundredths . . . . . . . . . . . . . . 63
Quartiles: Dividing everything into fourths. . . . . . . . . . . . . . . . . . . . 64
Interquartile range: Identifying the middle 50 percent. . . . . . . . . . 66
Measuring Relative Variation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Coefficient of variation: The spread of a data set
relative to the mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Comparing the relative risks of two portfolios . . . . . . . . . . . . . . . . . 68
Computing Measures of Dispersion with the TI-84 Plus Calculator. . . 69

CHAPTER 5: Measuring How Data Sets Are Related

to Each Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Understanding Covariance and Correlation . . . . . . . . . . . . . . . . . . . . . . 72
Sample covariance and correlation coefficient. . . . . . . . . . . . . . . . . 73
Population covariance and correlation coefficient. . . . . . . . . . . . . . 78
Comparing correlation and covariance . . . . . . . . . . . . . . . . . . . . . . . 83
Interpreting the Correlation Coefficient. . . . . . . . . . . . . . . . . . . . . . . . . . 86
Showing the relationship between two variables. . . . . . . . . . . . . . . 87
Application: Correlation and the benefits of diversification. . . . . . 89
Computing Covariance and Correlation with the TI-84 Plus
Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

PART 2: PROBABILITY THEORY AND PROBABILITY

DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
CHAPTER 6: Probability Theory: Measuring the
Likelihood of Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Working with Sets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Membership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Subset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

viii Business Statistics For Dummies

 Union. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Intersection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Complement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Betting on Uncertain Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
The sample space: Everything that can happen. . . . . . . . . . . . . . . 103
Event: One possible outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Computing probabilities of events . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Looking at Types of Probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Unconditional (marginal) probabilities: When
events are independent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Joint probabilities: When two things happen at once . . . . . . . . . . 108
Conditional probabilities: When one event depends
on another. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Determining independence of events . . . . . . . . . . . . . . . . . . . . . . . 109
Following the Rules: Computing Probabilities. . . . . . . . . . . . . . . . . . . . 110
Addition rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Complement rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Multiplication rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

CHAPTER 7: Probability Distributions and Random

Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Defining the Role of the Random Variable . . . . . . . . . . . . . . . . . . . . . . 116
Assigning Probabilities to a Random Variable. . . . . . . . . . . . . . . . . . . . 119
Calculating the probability distribution . . . . . . . . . . . . . . . . . . . . . . 119
Visualizing a probability distribution with a histogram. . . . . . . . . 121
Characterizing a Probability Distribution with Moments . . . . . . . . . . 121
Understanding the summation operator (∑). . . . . . . . . . . . . . . . . . 122
Expected value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Variance and standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

CHAPTER 8: The Binomial and Poisson Distributions . . . . . . . . . . . 127

Looking at Two Possibilities with the Binomial Distribution. . . . . . . . 128
Checking out the binomial distribution . . . . . . . . . . . . . . . . . . . . . . 128
Computing binomial probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Moments of the binomial distribution. . . . . . . . . . . . . . . . . . . . . . . 134
Graphing the binomial distribution . . . . . . . . . . . . . . . . . . . . . . . . . 135
Keeping the Time: The Poisson Distribution. . . . . . . . . . . . . . . . . . . . . 137
Computing Poisson probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Graphing the Poisson distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Computing Binomial and Poisson Probabilities with
the TI-84 Plus Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Computing binomial probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Computing Poisson probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Table of Contents ix
 CHAPTER 9: The Normal Distribution: So Many
Possibilities! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Comparing Discrete and Continuous Distributions. . . . . . . . . . . . . . . 146
Understanding the Normal Distribution . . . . . . . . . . . . . . . . . . . . . . . . 148
Graphing the normal distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Getting to know the standard normal distribution . . . . . . . . . . . . 151
Computing standard normal probabilities . . . . . . . . . . . . . . . . . . . 152
Computing normal probabilities other than standard normal. . . 159
Computing Probabilities for the Normal Distribution
with the TI-84 Plus Calculator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

CHAPTER 10: Sampling Techniques and Distributions. . . . . . . . . . . . 165

Sampling Techniques: Choosing Data from a Population. . . . . . . . . . 166
Probability sampling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Nonprobability sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Sampling Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Portraying sampling distributions graphically. . . . . . . . . . . . . . . . .175
Moments of a sampling distribution . . . . . . . . . . . . . . . . . . . . . . . . 177
The Central Limit Theorem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Converting X to a standard normal random variable . . . . . . . . . . 179

PART 3: DRAWING CONCLUSIONS FROM SAMPLES. . . . . . 185

CHAPTER 11: Confidence Intervals and the Student’s

t-Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Almost Normal: The Student’s t-Distribution . . . . . . . . . . . . . . . . . . . . 188
Properties of the t-distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Degrees of freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Moments of the t-distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Graphing the t-Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Probabilities and the t-Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Point Estimates vs. Interval Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Estimating Confidence Intervals for the Population Mean. . . . . . . . . 195
Known population standard deviation. . . . . . . . . . . . . . . . . . . . . . . 196
Unknown population standard deviation . . . . . . . . . . . . . . . . . . . . 199
Computing Confidence Intervals for the Population
Mean with the TI-84 Plus Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
Population standard deviation is known. . . . . . . . . . . . . . . . . . . . . 202
Population standard deviation is unknown. . . . . . . . . . . . . . . . . . . 203

x Business Statistics For Dummies

CHAPTER 12: Testing Hypotheses about the
Population Mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Applying the Key Steps in Hypothesis Testing for a
Single Population Mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Writing the null hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Coming up with an alternative hypothesis . . . . . . . . . . . . . . . . . . . 206
Choosing a level of significance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Computing the test statistic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Comparing the critical value(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
Using the decision rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Testing Hypotheses About Two Population Means . . . . . . . . . . . . . . . 223
Writing the null hypothesis for two population means. . . . . . . . . 224
Defining the alternative hypotheses for two
population means. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Determining the test statistics for two population means . . . . . . 225
Testing Hypotheses about Population Means with the
TI-84 Plus Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Single population mean. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Two population means. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

CHAPTER 13: Applications of the Chi-Square Distribution. . . . . . . 245

Staying Positive with the Chi-Square Distribution . . . . . . . . . . . . . . . . 246
Representing the chi-square distribution graphically . . . . . . . . . . 247
Defining a chi-square random variable . . . . . . . . . . . . . . . . . . . . . . 248
Checking out the moments of the chi-square distribution. . . . . . 249
Testing Hypotheses about the Population Variance . . . . . . . . . . . . . . 250
Defining what you assume to be true: The null hypothesis . . . . . 250
Stating the alternative hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Choosing the level of significance. . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Calculating the test statistic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Determining the critical value(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
Practicing the Goodness of Fit Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
Comparing a population to the Poisson distribution. . . . . . . . . . . 259
Comparing a population to the normal distribution . . . . . . . . . . . 265
Conducing a Goodness of Fit Test with the TI-84 Plus Calculator . . . 270

CHAPTER 14: Applications of the F-Distribution . . . . . . . . . . . . . . . . . . . 273

Getting to Know the F-Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Defining an F random variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Measuring the moments of the F-distribution . . . . . . . . . . . . . . . . 276
Testing Hypotheses about the Equality of Two Population
Variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
The null hypothesis: Equal variances. . . . . . . . . . . . . . . . . . . . . . . . 279
The alternative hypothesis: Unequal variances . . . . . . . . . . . . . . . 279

Table of Contents xi
 The test statistic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
The critical value(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
The decision about the equality of two population variances . . . 282
Testing Hypotheses about Two Population Variances
with the TI-84 Plus Calculator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

PART 4: MORE ADVANCED TECHNIQUES: REGRESSION

ANALYSIS AND SPREADSHEET MODELING. . . . . . . . . . . . . . . . . 287

CHAPTER 15: Simple Regression Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 289

The Fundamental Assumption: Variables Have a Linear
Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Defining a linear relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Using scatter plots to identify linear relationships. . . . . . . . . . . . . 292
Defining the Population Regression Equation . . . . . . . . . . . . . . . . . . . 295
Estimating the Population Regression Equation. . . . . . . . . . . . . . . . . . 297
Testing the Estimated Regression Equation . . . . . . . . . . . . . . . . . . . . . 303
Using the coefficient of determination (R 2 ). . . . . . . . . . . . . . . . . . . 303
Computing the coefficient of determination. . . . . . . . . . . . . . . . . . 305
The t-test. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
Using Statistical Software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
Assumptions of Simple Linear Regression . . . . . . . . . . . . . . . . . . . . . . 313
Conducting Simple Regression Analysis with the TI-84 Plus
Calculator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

CHAPTER 16: Key Statistical Techniques in Excel. . . . . . . . . . . . . . . . . . 317

Implementing Excel Functions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Checking Out Excel’s Key Statistical Functions . . . . . . . . . . . . . . . . . . . 318
Measures of central tendency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
Measures of dispersion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Measures of association. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Discrete probability distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 324
Continuous probability distributions . . . . . . . . . . . . . . . . . . . . . . . . 326
Confidence intervals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
Regression analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Going Deeper with the Analysis ToolPak. . . . . . . . . . . . . . . . . . . . . . . . 334
Computing covariance and correlation . . . . . . . . . . . . . . . . . . . . . . 335
Computing descriptive statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Regression analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Hypothesis testing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

xii Business Statistics For Dummies

PART 5: THE PART OF TENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

CHAPTER 17: Ten Common Errors That Arise in Statistical

Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Designing Misleading Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
Drawing the Wrong Conclusion from a Confidence Interval . . . . . . . 347
Misinterpreting the Results of a Hypothesis Test. . . . . . . . . . . . . . . . . 348
Placing Too Much Confidence in the Coefficient of
Determination (R 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
Assuming Normality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Thinking Correlation Implies Causality. . . . . . . . . . . . . . . . . . . . . . . . . . 349
Drawing Conclusions from a Regression Equation When
the Data Do Not Follow the Assumptions. . . . . . . . . . . . . . . . . . . . . . . 350
Using Regression Analysis to Make Predictions About
Values Outside the Range of Sample Data . . . . . . . . . . . . . . . . . . . . . . 350
Placing Too Much Confidence in Forecasts. . . . . . . . . . . . . . . . . . . . . . 351
Using the Wrong Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

CHAPTER 18: (Almost) Ten Key Categories of Formulas for

Business Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Summary Measures of a Population or a Sample . . . . . . . . . . . . . . . . 353
Probability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
Discrete Probability Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Continuous Probability Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 357
Sampling Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
Confidence Intervals for the Population Mean. . . . . . . . . . . . . . . . . . . 358
Testing Hypotheses about Population Means . . . . . . . . . . . . . . . . . . . 359
Testing Hypotheses about Population Variances. . . . . . . . . . . . . . . . . 361
Using Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362

INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

Table of Contents xiii

Introduction
H
ave you always been scared to death of statistics? You and just about ever-
yone else! The equations are extremely intimidating, and the terminology
sounds so . . . boring.

Why, then, is statistics so important? All business disciplines can be analyzed with
statistical principles. Statistics make it possible to analyze real-world problems
with actual data so that we can understand if our marketing strategy is really
working, or how much a company should charge for its products, or any of a mil-
lion other practical business questions.

Without a formal framework for analyzing these types of situations, it would be

impossible to have any confidence in our results. This is where the science of
statistics comes in. Far from being an overbearing collection of equations, it is a
logical framework for analyzing practical business problems with real-world data.

This book is designed to show you how to apply statistics to practical situations
in a step-by-step manner so that by the time you’re done, you’ll know as much
about statistics as people with far more education in this area!

About This Book

All business degrees require at least some statistics courses, and there’s a good
reason for that! All business disciplines are empirical by nature, meaning that
they need to analyze actual data to be successful. The purpose of this book is to:

»» Give you the principles on which statistical analysis is based

»» Provide you with many worked-out examples of these principles so that you
can master them

»» Improve your understanding of the circumstances in which each statistical

technique should be used

As a For Dummies title, this book is organized into modules; you can skip around
and learn about various statistical techniques in the order that suits you. In cases
where the contents of a chapter are based on previous readings, you are guided

Introduction 1
 back to the original material. Along the way are many helpful tips and remind-
ers so that you get the most out of each chapter. I explain each equation in great
detail, and all key terms are explained in depth.

In this updated Second Edition, I show you how to use the Texas Instruments
TI-84 Plus and TI-84 Plus CE calculators to obtain results quickly and easily for
just about every problem you will encounter in this book. I also added a new chap-
ter that shows how easily statistical problems can be solved using Microsoft Excel.

This book can’t make you an expert in statistics, but it provides you with a way of
improving your knowledge very quickly so that you can use statistics in practical
settings right away.

Foolish Assumptions
I am willing to make the following assumptions about you as the reader of this
book:

»» You need to use the techniques in this book in a practical setting and have
little or no previous experience with statistics.

OR

»» You’re a student who feels overwhelmed by a traditional statistics course and

feels the need for more background. You can benefit from seeing more
examples of the material; statistics is a science that can be learned
through practice!

OR

»» You’re simply interested in improving your knowledge of this field.

In all of these cases, you’re extremely well motivated and can put as much effort
into learning statistics as you need. Congratulations! Your reward for reading this
book will be a greater understanding of business statistics.

2 Business Statistics For Dummies

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