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CHAPTER 4

l MEASURES OF DISPERSION

CHAPTER 4 Measures
of Dispersion
LE AR NI NG OUTCOMES
By the end of this chapter, you should be able to:

1. Explain the measures of dipersion;

2. Calculate the measures of dispersion – range, mean deviation, standard deviation,


variance and coefficient of variation;

3. Explain the uses of these measures of dispersion; and

4 Explain the advantages and disadvantages of the measures of dispersion.

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MEASURES OF DISPERSION l CHAPTER 4

INTRODUCTION
The measures of central tendency fail to tell the whole story about a distribution of measurements.
Once we know the average value of a set of measurements, our next question should be: how
spread out are the measurements about their average value? Are the measurements highly
variable and widely dispersed about the average value? Let us look at the graphic below as an
example.

Imagine two mean salaries of two groups of different peoples are calculated. The
mean salary of two executives calculated is found to be RM2700, and another mean
salary of a clerk and a manager is found to be the same value. However, their
standard deviations are different.

Salary
RM2700

Two executives A clerk and a manager

The importance of looking beyond the average value is borne out by the fact that many
individuals make use of the concept of variability in everyday decision making. This concept is
of fundamental importance in statistical inference. It is therefore important that we are able to
measure the degree of variability in a set of measurements.

This topic will cover the calculation of measures of dispersion which include range, mean
deviation, standard deviation, variance and coefficient of variation. It also covers the advantages
and disadvantages of the measures and the times which he measures are appropriate to be
used.

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4.1 Introduction to Measures of Dispersion

Another important characteristic of a data set is how it is distributed, or how far each element
is from some measure of central tendancy (average). There are several ways to measure the
variability of the data. Although the most common and most important is the standard deviation,
which provides an average distance for each element from the mean, several others are also
important, and are hence discussed here.

Measures of dispersion are descriptive statistics that describe how similar a set of
scores are to each other. The more similar the scores are to each other, the lower
the measure of dispersion will be. The less similar the scores are to each other, the
higher the measure of dispersion will be.

In general, the more spread out a distribution is, the larger the measure of dispersion will be.

Let us look at one example which we will cover in this lesson. The example given below is the
steps in finding the variance and standard deviation of a given set of numbers.

Example
Find the variance and standard deviation of the following numbers: 1, 3, 5, 5, 6, 7, 9, 10 .

The mean = 46/ 8 = 5.75

Step 1:
(1 - 5.75), (3 - 5.75), (5 - 5.75), (5 - 5.75), (6 - 5.75), (7 - 5.75), (9 - 5.75), (10 - 5.75)
= -4.75, -2.75, -0.75, -0.75, 0.25, 1.25, 3.25, 4.25

Step 2:
22.563, 7.563, 0.563, 0.563, 0.063, 1.563, 10.563, 18.063

Step 3:
22.563 + 7.563 + 0.563 + 0.563 + 0.063 + 1.563 + 10.563 + 18.063
= 61.504

Step 4:
n=8

Therefore variance = 61.504/ 8


= 7.69 (3sf)

Step 5:
Standard deviation = 2.77 (3sf)

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MEASURES OF DISPERSION l CHAPTER 4

4.2 Range

Perhaps the simplest measure of dispersion is the range. The range can be thought of in two
ways as shown in Figure 4.1 below:

The range in measure of


dispersion are divided into
two ways:

As a quantity: the difference between As an interval; the lowest and highest


the highest and lowest scores in a scores may be reported as the range.
distribution.

“The range of scores on the exam was “The range was 62 to 94,” which would
32.” be written (62, 94)

Figure 4.1: Two ways of range in measure of dispersion

However, it is commonly determined as a quantity instead of an interval.


What is the range of the following data: 4 8 1 6 6 2 9 3 6 9

The range is used when you are presenting your results to people with little or no knowledge of
statistics. It is rarely used in scientific work as it is fairly insensitive because:
(a) It depends on only two scores in the set of data, the highest and lowest values.
(b) It is affected by extreme values since the highest and lowest values are usually extreme
values.
(c) It is difficult to determine the range when there are open-ended classes in a given data set.
(d) Two very different sets of data can have the same range.

For example:

i. 1 1 1 1 9 The range = 9 – 1 = 8
ii. 1 3 5 7 9 The range = 9 – 1 = 8

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CHAPTER 4 l MEASURES OF DISPERSION

4.3 Mean Deviation

The mean deviation is the mean of the distances between each value and the mean. It gives us
an idea of how spread out from the center the set of values is. The mean deviation is a useful
measure when your data distribution does not look like a normal curve - when the data is
skewed. It should be used when the median is the only measure of central tendency used. Figure
4.2 shows the formula and calculation for the mean deviation.

Formula and calculation for the mean deviation

Consider a set of n numbers

Then, the mean deviation = where = the absolute deviation

= the mean of the data set

= the total number of items

For grouped or ungrouped data with frequency, the formula for calculating the mean
deviation is:

where = the frequency of value in data set

Figure 4.2: The formula and calculation for the mean deviation

Before you calculate for the mean deviation, you first have to find the mean using the formulas
that you have been taught in the previous topic, Measures of Central Tendency.

1. A student took 5 exams in a class and had scores of 92, 75, 95, 90, and
98. Find the mean deviation for her test scores.

2. Find the mean deviation of the following data set:

No. of absentees ( ) 1 2 3 4 5 6 7
Frequency ( ) 2 4 6 8 5 3 2

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MEASURES OF DISPERSION l CHAPTER 4

The following data relate to diameters of 50 iron rods:

Diameter (cm) 2.0-2.1 2.2-2.3 2.4-2.5 2.6-2.7 2.8-2.9


Frequency 4 16 18 8 4

The mean deviation is not a popular measure of dispersion. Its use is rather limited. The mean
deviation may be used to compare the variability between two distributions of data sets.

Generally, the smaller the mean deviation, the better for the data set.

4.4 Variance and Standard Deviation

Variance is one of the two most widely accepted measures of dispersion of a set of data. The
other is standard deviation. The variance and standard deviation, coupled with the measures of
central tendency will give a better description of the data set.

Variance and standard deviation measuring how widely spread the values in a data set are.

If many data points are close to the mean, then the variance or standard deviation is small; if
many data points are far from the mean, then the variance or standard deviation is large. If all
data values are equal, then the variance or standard deviation is zero.

When the deviate scores are squared in variance, their unit of measure is squared as well. For
example, if people’s weights are measured in kgs, then the variance of the weights would be
expressed in kg2 (or squared kgs). Since squared units of measure are often awkward to deal
with, the square root of variance is often used instead.

As a summary, variance is the square of standard deviation while standard deviation is the
square root of variance which the formulas are shown in Figure 4.3 and 4.4.

4.4.1 Variance

For the variance deviation, an example and the formula are shown in Figure 4.3:

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CHAPTER 4 l MEASURES OF DISPERSION

The formula for variance are for ungrouped data

where = sample variance

= sample variance

and for ungrouped or grouped data with frequency

where = frequency

The is termed deviation.


A more convenient formula for sample variance:

and

Figure 4.3: The formula and calculation for variance deviation

Standard deviation is the square root of the variance which the formulas are (see Figure 4.4):

Formula for standard deviation

or

and

or

Figure 4.4: Formula for standard deviation

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MEASURES OF DISPERSION l CHAPTER 4

1.Find the variance and standard deviation of the following sample


of measurements:

3.4 2.5 4.1 1.2 2.8 3.7

2.The following table gives the average yield of rice per plant for a
random sample of 250 plants.

Yield per plant (g) 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0
No. of plants 6 12 42 72 68 32 10 8

1.Given the following sample data, calculate the variance and standard
deviation.

34 46 32 55 48 39 50 43

2.Find the variance and standard deviation from the data given below:

x 2-4 5-7 8-10 11-13 14-16

f 2 4 8 2 2

4.5 Coefficient of Variation

Coefficient of variation is a relative measure of dispersion and is


very useful to compare two distributions in terms of their standard
deviations expressed as percentages of the mean.

Denoted by the symbol V, coefficientof variation is independent of the units used in the
measurements of the two data sets to be compared. Thus, V can be used to compare the variation
in two sets of data of different units of measurements.

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CHAPTER 4 l MEASURES OF DISPERSION

Coefficient of variation,

In comparing two or more assets with differing expected returns, the higher the coefficient of
variation shows the greater the risk.

The annual (percentage) rates of return over the past 10 years for
two mutual funds are as follows. Which fund would you classify as
having the higher level of risk?

Fund A Fund B
8.3 12.1
-6.2 -2.8
20.9 6.4
-2.7 12.2
33.6 27.8
42.9 25.3
24.4 18.2
5.2 10.7
3.1 -1.3
30.5 11.4

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MEASURES OF DISPERSION l CHAPTER 4

SUMMARY

1 The range is calculated by simply taking the difference between the maximum and
minimum values in the data set.

2 The average difference between each data point and the mean value, and divide by the
number of points.

3 The variance of a data set is calculated by taking the arithmetic mean of the squared
differences between each value and the mean value.

4 The coefficient of variation is a normalized measure of dispersion of a probability


distribution. It is the ratio of the standard deviation to the mean.

Glossary
Range The difference between the largest and smallest
values in a statistical distribution.

Mean deviation The mean deviation is the mean of the distances


between each value and the mean.

Absolute Absolute values are always a positive values. It is


sometimes called modulus.

Variance It is one measure of statistical dispersion, averaging


the squared distance of its possible values from the
mean.

Standard deviation It is the square root of variance.

Coefficient of variation It is the ratio of standard deviation to the mean.

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CHAPTER 4 l MEASURES OF DISPERSION

References

Anderson, Sweeney, Williams, Statistics for Business and Economics, 7th edition, South-
Western, 1999.

David M.Levine, Timothy C.Krehbiel & Mark L.Berenson, Business Statistics: A First
Course, 4th Edition, Prentice Hall, 2006.

Gerald, Keller & Brian, Warrack, Essentials of Business Statistics: A Systematic


Approach, Wadsworth Publishing Company, USA., 1991.

Goh Ooi Lip, Business Statistics, Cambridge, 2000.

Manson R.D., D. Aa, Lind, Statistical Techniques in Business and Economics, 10th
Edition, Boston, McGraw Hill, 1999.

McClave, Benson, Sincich. Statistics for Business and Economics, 8th edition, Prentice
Hall, 2001.

Paul Newbold, William L.Carlson & Betty Thorne, Statistics for Business and
Economics, Interntional Edition, Prentice Hall, 2003.

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