Statistics for Business - 1

Shankar Venkatagiri
Descriptive Statistics

Descriptive Statistics: Measures of Dispersion Transcript

Shankar: Welcome back! I'm Shankar Venkatagiri, your instructor for Statistics for Business
1.
So, we can say that Bermuda exhibits a lot more stable performance in its international
tourism receipts than Latvia. Now let's focus on Bermuda. If we draw a line at the average
receipts of $442 million, then we can claim that its yearly receipts do not deviate much from
the average. Can we say the same for Latvia?
So, what Im going to do is to calculate the mean receipts and its simply the average of D2
through S2 and I get that as my mean whereas, for Bermuda its going to be slightly
different. Now, having done this, Im going to look at the deviations from the mean and how
will I do this? I'm just going to say, my first entry here is as same as the actual minus the
mean and each time because Im always looking up this cell over here Im going to put a
dollar sign in there and I notice that its a negative number. This deviation can be negative.
And all of those numbers towards the edge becomes positive. Now, having calculated the
mean and the deviations from the mean, Im just going to go ahead and replicate these
operations to Bermuda as well and these are, in fact, the right amounts 488 minus442 is
around 46, as we know. So, having done this, we realize okay the numbers are different,
how about if we added up deviations for each country. So, we will look at total deviations
from the mean. And if I were to add up the deviations using the sum function, I need to add
up D4 through S4 and I get a zero, is it the same for Bermuda as well? Oh yes, they all total
up to zero. So there's no way to distinguish between these two countries right?
Lysa: How about we take the absolute values of these deviations?
Shankar: Absolutely, we will do that and then divide the sum of these absolute deviations by
the number of years to get an average deviation. Now, this is what is called Mean Absolute
Deviation and it is in short form, MAD.
Lysa: Ha Ha!, I like that.
Shankar: In Excel there's even a function for this, it is 'avedev'. So lets get back here, I have
absolute deviations, Im going to skip using the word mean, it is deviation from the mean, so
Im going to look at absolute value of this deviation over here and drag this all the way
across to 2010. You notice that all of the numbers are positive and we have 16 of these
numbers. Having done this, Im going to look at the mean absolute deviation and that is the

All Rights Reserved, Indian Institute of Management Bangalore

Statistics for Business - 1

Shankar Venkatagiri
Descriptive Statistics

average of deviations that belong to row number 6, so it is D6 through S6, and I get
something like $300.6 million. I could do the same thing with Bermuda over here and I get
close to about $47 million. Now, if I calculated the average deviation, let me just take a look,
I just need to look at the original set of numbers which is in the second row and calculate
average deviations, I have 'avedev' of D2 through S2 and I get pretty much the same
number. This tells us that Latvia's international tourism receipts are a lot more volatile than
Bermuda's and its a quantitative answer, mind you. Starting with the same deviations
there's one more way to quantify variation. Instead of taking absolute values, we simply
square the deviations.
Lysa: And then calculate their average.
Shankar: Yes, of course. I'm going to look at squared deviations so this means that Im
simply going to square the deviation and do this right across from 1995 through 2010. These
are my square deviations and if I were to average my square deviations and I get the
average of whatever is in the 8th row as D8 through S8. I'll now copy both of these rows
onto Bermuda and I get a different average square deviation. So we need to have a number
that talks about the annual variation. Therefore, we have average, whatever we have gotten
over 16 years.
Lysa: But, those are huge numbers.
Shankar: Of course, these numbers are what are popularly called the Statistical Variance.
Now we get the same answer with a neat spreadsheet function called VAR.P
Lysa: What's with the .P?
Shankar: Don't worry. For now we will say that P stands for Population and the square
numbers that we are averaging over belongs to the population. Careful though, if we use
the spreadsheet function called VAR without the .P, then the denominator in our average
turns out to be n minus 1 where n is 16 years of data and that turns out to be a different
answer.
Lysa: Hmm, that's a much higher figure.
Shankar: So let's go ahead and calculate this variance directly with the spreadsheet function.
So Ill call this variance in the cell and Ill calculate that by taking VAR.P of whatever is in D2
through S2. And I get pretty much the same numbers. Once again, we see that the variance
of the receipts for Bermuda is orders of magnitude less than that for Latvia.
Lysa: So many ways to talk about variation.

All Rights Reserved, Indian Institute of Management Bangalore

Statistics for Business - 1

Shankar Venkatagiri
Descriptive Statistics

Shankar: Yes, Lysa. There is one last measure of variation in a numerical data set and that is
standard deviation. It's simply the square root of the variance.
Lysa: That what it is.
Shankar: Yup. That simple. So I have the square roots' of the variance over here. Im going to
use the square root function and apply it to this number over here, I get about 348 or 350 if
we would round off for Latvia. For Bermuda I get about 58 or round about 60, so that's 350
for Latvia and about 60 for Bermuda.
Lysa: I like these numbers better.
Shankar: Me too! By taking square roots of squared deviations, these numbers reflect
simple deviations. In fact they are called, you guessed it - Standard Deviations. What's
more? We can express them using the same units as those of the original data. So, in this
segment we showed you how to quantify the spread or dispersion of tourism receipts for a
country. We compared Latvia and Bermuda which appear to be similar along their means
but highly different along their spreads. I now leave it to you to carry out the same
computations for the rest of the countries within our data set. You remember, we have to
do the same thing to the Final Countries tab. I bet you will have a lot to talk about.
Lysa: It's time I dispersed as well.
Shankar: So, see you again!

All Rights Reserved, Indian Institute of Management Bangalore