Carlos Cevallos Case

Carlos Cevallos

AEM 2601: Managerial Economics Study Guide for Prelim #1 - March 7, 2013

STATISTICS

§ Managers need statistics (evidence) in order to make informed decisions, including:

o Information on profits and sales, sales staff performance tied to compensation, firms

considering buying vs. financing, etc.

§ Example from class: scalping at a Lady Gaga concert

§ "Statistical inference" way of thinking about a sample drawn from a population of interest

§ Variables can be either quantitative or categorical

§ Each visual representation of data (distribution, scatterplot, etc.) needs:

o Units, labels, title(s), interval spacing validity/uniformity

§ Quantitative data analysis includes:

o Min and Max (range), mean, median, mode, and distribution

§ Symmetry and mean are the most important characteristics to look for in a distribution

o 68%, 95%, 99.7%

o mean<median=skewed left (presence of outliers)

o mean=median=symmetric

o mean>median=skewed right (presence of outliers)

§ When interpreting data, ask:

o How is that measured? What is the sample?

o Relative to what? What does "big" mean?

o What assumptions are being made and how do they affect the results?

o Is causation implied when in fact it's correlation?

§ Consider omitted variables, sample selection bias, and simultaneous causality

STATISTICS/CAUSALITY

§ The response variable is the outcome Y-variable, whereas the explanatory variable is the

independent X-variable which explains why the responsible variable changes

§ When interpreting relationships, consider:

o Form: linear, curved, clustered, no pattern (random)

o Direction: positive, negative, or no direction (random)

o Strength: how closely the points fit the "form"

o Outliers: deviations from the pattern with a low probability of