Fundamental Concepts of Statistics

Descriptive statistics is the study of how data can be summarized effectively to describe the important aspects of large data sets.

Statistical inference involves making forecasts, estimates, or judgments about a larger group from the smaller group actually observed.

A population is defined as all members of a specified group.

Any descriptive measure of a population characteristic is called a parameter.

A sample is a subset of a population.

A sample statistic (or statistic) is a quantity computed from or used to describe a sample.

Four major measurement scales:

Nominal scales: the weakest level. Categorize data but do not rank them.

Ordinal scales: a stronger level. Sort data into categories that are ordered with respect to some characteristic..

Interval scales: not only ranking but also assurance that the differences between scale values are equal.

Ratio scales: the strongest level. They have all the characteristics of interval measurement scales as well as a true zero point as the origin.

[Practice Problems] Published ratings on stocks ranging from 1 (strong sell) to 5 (strong buy) are

examples of which measurement scale?

A.       Ordinal

B.        Interval

C.        Nominal

[Solutions] A

The buy rating scale indicates that a stock ranked 5 is expected to perform better than a stock ranked 4, but it tells us nothing about the performance difference between stocks ranked 4 and 5 compared with the performance difference between stocks ranked 1 and 2, and so on.