Measures of Central

Tendency

Dr. Durba Chakrabarty

ITM BUSINESS SCHOOL
PGDM 2023-2025
Measures of Location
 Also known as measure of central tendency, measures of centre or
central location
 A value used to describe the central tendency of a set of data
 A summary measure that attempts to describe a whole set of data
with a single value that represents the middle or centre of its
distribution.
 Common measures of location
 Mean
 Median
 Mode
 The arithmetic mean is the most widely reported measure of location
Mean
 Perhaps the most important measure of location is the mean.
 The mean of a data set is the average of all the data values.
 The sum of the value of each observation in a dataset divided
by the number of observations
 The mean can be used for both continuous and discrete
numeric data.
 The mean cannot be calculated for categorical data, as the
values cannot be summed.
 As the mean includes every value in the distribution the
mean is influenced by outliers (extreme observations) and
skewed distributions.
Sample Mean

𝑥=
∑ 𝑥𝑖
𝑛

where: Sxi = sum of the values of the n

observations
n = number of observations in the
sample
Population Mean m

𝜇=
∑ 𝑥𝑖
𝑁

where: Sxi = sum of the values of the N

observations
n = number of observations in the
population
 Sample Mean
• Example: Apartment Rents
Seventy efficiency apartments were randomly sampled in a college
town. The monthly rents for these apartments are listed below.

545 715 530 690 535 700 560 700 540 715
540 540 540 625 525 545 675 545 550 550
565 550 625 550 550 560 535 560 565 580
550 570 590 572 575 575 600 580 670 565
700 585 680 570 590 600 649 600 600 580
670 615 550 545 625 635 575 650 580 610
610 675 590 535 700 535 545 535 530 540
Example: Sample Mean
Example: The Arithmetic Mean of Grouped Data -

Following is frequency distribution for the vehicle selling prices.

Determine the arithmetic mean vehicle selling price.

9
Median
 The median of a data set is the value in the middle when
the data items are arranged in ascending order.
 The Median is the midpoint of the values after they have
been ordered from the smallest to the largest.
 There are as many values above the median as below it in
the data array.
 For an even set of values, the median will be the arithmetic
average of the two middle numbers.
Median
 Whenever a data set has extreme values, the median is the
preferred measure of central location.
 The median is the measure of location most often reported for
annual income and property value data.
 A few extremely large incomes or property values can inflate
the mean.
 The median is less affected by outliers and skewed data than
the mean and is usually the preferred measure of central
tendency when the distribution is not symmetrical.
 The median cannot be identified for categorical nominal data,
as it cannot be logically ordered.
Steps to finding the median for a set of data (Odd
observations):

 Arrange the data in increasing order, i.e. smallest to

largest.
 Find the location of the median in the ordered data by
(n+1)/2, where n is the sample size.
 The value that represents the location found in Step 2 is
the median.
Median
• For an odd number of observations:

26 18 27 12 14 27 19 7 observations

12 14 18 19 26 27 27 in ascending order

The median is the middle value

Median =19
Median
• For an even number of observations:

26 18 27 12 14 27 30 19 8 observations

12 14 18 19 26 27 27 30 in ascending order

The median is the average of the middle two values.

Median = (19 + 26)/2 = 22.5
Finding the Median

 To find the median for an even numbered data set

 Sort the observations and calculate the average of the two middle values

The number of hours a sample of 10 adults used

Facebook last month:

3 5 7 5 9 1 3 9 17 10
Arranging the data in ascending order gives:

1 3 3 5 5 7 9 9 10 17

Thus, the median is 6.

Median
• Example: Apartment Rents
Averaging the 35th and 36th data values:
Median = (575 + 575)/2 = 575

525 530 530 535 535 535 535 535 540 540
540 540 540 545 545 545 545 545 550 550
550 550 550 550 550 560 560 560 565 565
565 570 570 572 575 575 575 580 580 580
580 585 590 590 590 600 600 600 600 610
610 615 625 625 625 635 649 650 670 670
675 675 680 690 700 700 700 700 715 715

Note: Data is in ascending

order.
Mode

 The mode of a data set is the value that occurs with

greatest frequency.
 The greatest frequency can occur at two or more different
values.
 If the data have exactly two modes, the data are bimodal.
 If the data have more than two modes, the data are
multimodal.
Mode

 The mode has an advantage over the median and the

mean as it can be found for both numerical and
categorical (non-numerical) data.
 In some distributions, the mode may not reflect the
center of the distribution very well.
 In some cases, particularly where the data are
continuous, the distribution may have no mode at all (i.e.
if all values are different).
Mode
• Example: Apartment Rents
550 occurred most frequently (7 times)
Mode = 550
525 530 530 535 535 535 535 535 540 540
540 540 540 545 545 545 545 545 550 550
550 550 550 550 550 560 560 560 565 565
565 570 570 572 575 575 575 580 580 580
580 585 590 590 590 600 600 600 600 610
610 615 625 625 625 635 649 650 670 670
675 675 680 690 700 700 700 700 715 715

Note: Data is in ascending

order.
Weighted Mean

 In some instances the mean is computed by giving each

observation a weight that reflects its relative importance.
 The choice of weights depends on the application.
 The weights might be the number of credit hours earned
for each grade, as in GPA.
 In other weighted mean computations, quantities such as
pounds, dollars, or volume are frequently used.
Weighted Mean
𝑥=
∑ 𝑤𝑖 𝑥𝑖
∑ 𝑤𝑖
where: xi = value of observation i
wi = weight for observation i

Numerator: sum of the weighted data

values
Denominator: sum of the weights
If data is from a population, m replaces .
The Weighted Mean

 The weighted mean is found by multiplying each observation, x, by its

corresponding weight, w

 The Carter Construction Company pays its hourly employees $16.50, $19.00,
or $25.00 per hour. There are 26 hourly employees: 14 are paid at the $16.50
rate, 10 at the $19.00 rate, and 2 at the $25.00 rate.
 What is the mean hourly rate paid for the 26 employees?
Geometric Mean
 The geometric mean is calculated by finding the nth root of
the product of n values
 Useful in finding the average change of percentages, ratios,
indexes, or growth rates over time.
 It is often used in analyzing growth rates in financial data
(where using the arithmetic mean will provide misleading
results).
 It should be applied anytime you want to determine the mean
rate of change over several successive periods (be it years,
quarters, weeks, . . .).
Geometric Mean
 Other common applications include changes in populations of
species, crop yields, pollution levels, and birth and death rates.
 Wide application in business and economics because we are often
interested in finding the percentage changes in sales, salaries, or
economic figures, such as the GDP, which compound or build on
each other.
 The geometric mean will always be less than or equal to the
arithmetic mean.

𝑥 𝑔= √ ( 𝑥1 ) ( 𝑥 2 ) …( 𝑥 𝑛 )
𝑛

= [(x1)(x2)…(xn)]1/n
EXAMPLE – Geometric Mean

Suppose you receive a 5 percent increase in

salary this year and a 15 percent increase
next year. The average annual percent
increase is 9.886, not 10.0. Why is this so? We
begin by calculating the geometric mean.

GM  ( 1.05 )( 1.15 )  1.09886

EXAMPLE – Geometric Mean (2)

The return on investment earned by Atkins

construction Company for four successive
years was: 30 percent, 20 percent, -40
percent, and 200 percent. What is the
geometric mean rate of return on investment?

GM  4 ( 1.3 )( 1.2 )( 0.6 )( 3.0 )  4 2.808  1.294

Quartiles, Deciles & Percentiles
 To gain a deeper understanding of the patterns and characteristics
of our data, we dive further into quartiles, deciles & percentiles.

 These provide valuable insights into the distribution and spread of

data, allowing us to analyze specific segments of a dataset with
precision

 Median is the middle point in the data set, divides into two equal
parts, having the same number of dataset in the left, and in the
right.
Quartiles, Deciles & Percentiles

 The values which divide an array (a set of data arranged in

ascending or descending order) into four equal parts are
called Quartiles.

 The values which divide an array into ten equal parts are
called deciles.

 The values which divide an array into one hundred equal

parts are called percentiles.