Basic Business Statistics: A Casebook PDF
Preview Basic Business Statistics: A Casebook
Basic Business Statistics A Casebook Springer Science+Business Media, LLC Basic Business Statistics A Casebook Dean P. Foster Robert A. Stine Richard P. Waterman University of Pennsylvania Wharton School Springer Dean P. Foster Robert A.Stine Richard P.Waterman DepartmentofStatistics WhartonSchool University of Pennsylvania Philadelphia, PA 19104 USA LibraryofCongressCataloging-in-Publication Data Stine,Robert A. Basicbusinessstatistics:acasebookI Robert A.Stine,Dean P. Foster, RichardA.Waterman. p. cm. ISBN978-0-387-98246-5 ISBN978-1-4757-2717-3(eBook) DOI10.1007/978-1-4757-2717-3 \. Commercialstatistics. 2.Commercialstatistics-Casestudies. \. Foster,Dean P. II. Waterman, Richard A. III. Title. HF1017.S74 1997 . 519.5-DC21 97-12464 Printedon acid-freepaper. © I997SpringerScience+BusinessMediaNewYork OriginallypublishedbySpringer-VerlagNewYork,Incin1997. All rights reserved. Thiswork may not be translated or copied in wholeor in part without the written permission of the publisher (SpringerScience+BusinessMedia,LLC),exceptforbriefexcerpts inconnectionwithreviewsorscholarlyanalysis.Use in connection with any form of information storage and retrieval, electronic adaptation,computersoftware,or bysimilarordissimilar methodology now known or hereafterdevelopedisforbidden. The useof general descriptivenames, trade names,'trademarks,etc., inthis publication, even if theformerarenotespecially identified,isnottobetaken asasignthatsuchnames,asunderstood bytheTradeMarksandMerchandiseMarksAct,mayaccordinglybeusedfreelybyanyone. ProductionmanagedbyTimothyTaylor; manufacturingsupervised byJohannaTschebull. Camera-readycopy preparedfrom theauthors'WordPerfectfiles. 987654321 Contents Lecture Template vii Class 1. Overview and Foundations 3 Class 2. Statistical Summaries of Data 7 GMATScORES 11 RETURNS ON GENERAL MOTORS STOCK 25 SKEWNESS IN EXECUTIVE COMPENSATION 36 Class 3. Sources of Variation 43 VARIATION BY INDUSTRY IN EXECUTIVE COMPENSATION 47 PATTERNS IN EARLY INTERNATIONAL AIRLINE PASSENGER DATA 52 MONITORING AN AUTOMOTIVE MANUFACTURING PROCESS 57 Class 4. Standard Error 67 CONTROL CHARTS FOR MOTOR SHAFTS 70 CONTROL CHART ANALYSIS OF CAR TRUNK SEAM VARIATION 82 ANAL YSIS OF PRODUCTION OF COMPUTER CHIPS 91 Class 5. Confidence Intervals 95 INTERVAL ESTIMATES OFTHE PROCESS MEAN (CONTINUED) 99 PURCHASES OF CONSUMER GOODS 106 vi Contents Class 6. Sampling 109 INTERNET USE SURVEYS 113 HOTEL SATISFACTION SURVEY 116 Class 7. Making Decisions 129 SELECTING A PAINTING PROCESS 133 EFFECTS OF REENGINEERING A FOOD PROCESSING LINE 142 ANAL YSIS OF TIME FOR SERVICE CALLS 149 Class 8. Designing Tests for Better Comparisons 155 TASTE-TEST COMPARISON OF TEAS 158 PHARMACEUTICAL SALES FORCE COMPARISON 163 Class 9. Confounding Effects in Tests: A Case Study 169 WAGE DISCRIMINATION 173 Class 10. Covariance, Correlation, and Portfolios 185 STOCKS, PORTFOLIOS, AND THE EFFICIENT FRONTIER 188 Class 11. A Preview of Regression 213 PERFORMANCE OF MUTUAL FUNDS 216 Assignments 227 vii LECTURE TEMPLATE Quick recap of previous class Key application Overview (optional) Definitions These won't always make sense until you have seen some data, but at least you have them written down. Concepts A brief overview of the new ideas we will see in each class. Heuristics Colloquial language, rules of thumb, etc. Potential Confusers Nip these in the bud. Acknowledgments We have benefited from the help of many colleagues in preparing this material. Two have been very involved and we need to thank them here. Paul Shaman kept us honest and focused, and as the chairman of our department provided valuable resources. Dave Hildebrand offered numerous suggestions, and is the source of the data for many of our examples, including the car seam and computer chip data in Class 4 and the primer and food processing data in Class 7. We thank him for his generosity and encouragement along the way. Basic Business Statistics A Casebook Basic Business Statistics CLASS 1 3 Class 1. Overview and Foundations The notes for this class offer an overview of the main application areas of statistics. The key ideas to appreciate are data, variation, and uncertainty. Topics Variability Randomness Replication Quality control Overview of Basic Business Statistics The essential difference between thinking about a problem from a statistical perspective as opposed to any other viewpoint is that statistics explicitly incorporates variability. What do we mean by the word "variability"? Take your admission to the MBA program as an example. Do you believe there was an element of uncertainty in it? Think about your GMAT score. If you took the test again, would you get exactly the same score? Probably not, but presumably the scores would be reasonably close. Your test score is an example of a measurement that has some variability associated with it. Now think about those phone calls to the Admissions Office. Were they always answered immediately, or did you have to wait? How long did you wait? Was it a constant time? Again, probably not. The wait time was variable. If it was too long, then maybe you just hung up and contemplated going to a different school instead. It isn't a far leap from this example to see the practical relevance of understanding variability - after all, we are talking about customer service here. How are you paying for this education? Perhaps you have invested some money; maybe you purchased some bonds. Save the collapse of the government, they are pretty certain, nonvariable, riskless investments. Perhaps, however, you have invested in the stock market. This certainly is riskier than buying bonds. Do you know how much your return on these stocks will be in two years? No, since the returns on the stock market are variable. What about car insurance? If you have registered your car in Philadelphia then you have seen the insurance market at work. Why is the insurance so high? Most likely the high rates are the result of large numbers of thefts and uninsured drivers. Is your car certain to be stolen? Of course not, but it might be. The status of your car in two years, either stolen or not stolen, is yet another "variable" displaying uncertainty and variation. The strength of statistics is that it provides a means and a method for extracting, quantifying, and understanding the nature of the variation in each of these questions. Whether the 4 CLASS 1 Basic Business Statistics underlying issue is car insurance, investment strategies, computer network traffic, or educational testing, statistics is the way to describe the variation concisely and provide an angle from which to base a solution. What This Material Covers A central theme of these case studies is variability, its measurement and exploitation in decision-making situations. A dual theme is that of modeling. In statistics, modeling can be described as the process by which one explains variability. For an example, let's go back to the question about car insurance. Why are the rates high? We have already said that it's probably because there are many thefts and lots of uninsured drivers. But your individual insurance premium depends on many other factors as well, some of which you can control while others are outside your reach. Your age is extremely important, as is your prior driving history. The number of years you have had your license is yet another factor in the equation that makes up your individual insurance premium. International students face real challenges! These factors, or variables as we are more likely to call them, are ways of explaining the variability in individual insurance rates. Putting the factors together in an attempt to explain insurance premiums is an example of "building a model." The model-building process - how to do it and how to critique it - is the main topic of this text. In this course, you will learn about variability. In our sequel, Business Analysis Using Regression you can learn about using models to explain variability. What Is Not Covered Here A common misconception about statistics is that it is an endless list of formulas to be memorized and applied. This is not our approach. We are more concerned about understanding the ideas on a conceptual level and leveraging the computational facilities available to us as much as possible. Virtually no formulas and very little math appears. Surprisingly, rather than making our job easier, it actually makes it far more of a challenge. No more hiding behind endless calculations; they will happen in a nanosecond on the computer. We will be involved in the more challenging but rewarding work of understanding and interpreting the results and trying to do something useful with them!
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