Statistical Learning

Introduction to Statistics
Outline

1. Why Statistics
2. Statistical Methods
3. Types of Statistics - Descriptive and Inferential
Statistics
4. Data Sources and Types of Datasets
5. Attributes of Datasets
 Why Statistics is So Important?

Three significant events triggered the current meteoric growth in the

use of analytical decision making and Statistics is central to all of them.

Event1
• Technological developments, Revolution of Internet and
social networks, data generated from mobile phones and
other electronic devices, produce large amount of data from
which insights will have to be sifted.

• The discovery of pattern and trends from these data for

organizations will pave the way for improving profitability,
understanding customer expectations, and appropriately
pricing their products so that they can gain competitive
advantage in the marketplace.
 Why Statistics is So Important?

Event 2
• Advances in enormous computing power to effectively
process and analyze massive amounts of data

• Sophisticated and faster algorithms for solving

problems

• Data Visualization for Business Intelligence and

Artificial Intelligence
 Why Statistics is So Important?

Event 3

• Large data storage capability

• Parallel computing, and cloud computing coupled with

better computer hardware have enabled businesses
and other organizations to solve large scale problems
faster than ever before without sacrificing
 Big Data

Big data
• A set of data that cannot be managed, processed, or
analyzed with traditional software/algorithms within a
reasonable amount of time.

• Big data revolves around

Volume Velocity Variety Value Veracity

Walmart handles over one million purchase transactions

per hour.

Facebook processes more than 250 million picture uploads

per day.
 Statistics - Methods

Classification

• Classification techniques helps in segmenting the customers into

appropriate groups based on key characteristics.

• For example, using appropriate statistical model, an organization

could easily segment the customers into Long Term
Customers, Medium Term Customers, and Brand Switchers.

• Another application in this context is classifying customers

into “Buyers and Non-Buyers.”

• Classification helps professionals understand the customer

behavior and position their products and brands using
appropriate strategies.
 Statistics - Methods
Pattern Recognition

• “A picture is worth thousand words” and it reveals hidden

pattern in the data that could be leveraged by retail
professionals. Pattern recognition techniques include Histogram,
Box Plot, Scatter Plot and other Visual Analytics.

• For example, histogram drawn for income of a particular class of

customers may reveal a symmetrical bell curve pattern or may
be left or right skewed.

• Relationship between age and expenditure could be

captured using a scatter plot.

• Box Plot enables identification of outliers (extreme

points) apart from providing the distribution pattern.
 Statistics - Methods
Association

• Association Analysis helps in determining which of the items go

together. Association rules include a set of analytics that
focuses on discovering relationships that exist among
specific objects.

• In this context, market basket analysis refers to an association rule

that generates the probability for an outcome.

• For example, market basket analysis may lead to a finding that if

customers buy coffee, there is a 40% probability that they also
buy bread.

• Association rules can be adapted by organizations to store lay

cross selling
out, items among others.
bundling, discount and sales promotion decisions,
and
 Statistics - Methods
Predictive Modeling

• Both customer segmentation as well as identifying and targeting

most profitable customers can be facilitated by predictive models.

• Regression can be used for predicting the amount of expenditure

on a particular product based on input variables income, age, and
gender.

• Organizations can leverage on other advanced models that

comprise Logistic Regression, and Neural Networks for predicting a
target variable as well as classifying and predicting into which
group the consumer belongs to.

• For example, these models can classify and predict buyers and
non-buyers, and defaulters and non-defaulters on credit card loan.
 Classical Definition of Statistics

“ By Statistics, we mean methods specially adopted to the

elucidation of quantitative data affected to a marked extent
by multiplicity of causes”.
Yule and Kendal

It is interesting to see what Thomas Davenport means by

Business Analytics and note the similarities and dissimilarities
between the two.

“Business Analytics (BA) can be defined as the broad use of

data and quantitative analysis for decision making within
organizations”.
 Types of Statistics

Descriptive Statistics is Inferential Statistics is a

concerned with Data method used to talk about
Summarization, a Population Parameter
Graphs/Charts, and from a Sample.
Tables
Population, Parameter, Sample, Statistic
A Population is the universe of possible data for a specified object. Example:
People who have visited or will visit a website.

A Parameter is a numerical value associated with a population. Example: The

average amount of time people spend on a website.

A Sample is a selection of observations from a population. Example: People (or IP

addresses) who visited a website on a specific day.

A Statistic is a numerical value associated with an observed sample. Example: The

average amount of time people spent on a website on a specific day.
 Data Sources

Primary Data are collected by the organization itself for

a particular purpose. The benefits of primary data are that they
fit the needs exactly, are up to date, and reliable.

Secondary Data are collected by other organizations or for other

purposes. Any data, which are not collected by the organization
for the specified purpose, are secondary data. These may be
published by other organizations, available from research
studies, published by the government, web, social media and so
on.
 Types of Data

Qualitative Data are nonnumeric Quantitative data can be classified

in nature and can't be into discrete type or continuous
measured. Examples are gender, type. Discrete type can take only
religion, and place of birth. certain values, and there are
discontinuities between values,
such as the number of rooms in a
Quantitative Data are numerical
hotel, which cannot be in fraction.
in nature and can be
Continuous type can take any
measured. Examples are balance in
value within a specific interval,
your savings bank account, and
such as the production quantity of a
number of members in your
particular type of paper
family.
(measured in kilograms).
 Types of Data Sets

• Record
• Relational records
• Data matrix, e.g., numerical matrix,
crosstabs
• Document data: text documents: term-
frequency vector
• Transaction data
• Graph and network
• World Wide Web
• Social or information networks
• Molecular Structures
• Ordered
• Video data: sequence of images
• Temporal data: time-series
• Sequential Data: transaction sequences
• Genetic sequence data
• Spatial, image and multimedia:
• Spatial data: maps
• Image data
• Video data
 Data Objects

• Data sets are made up of data objects.

• A data object represents an entity.
• Examples:
• sales database: customers, store items, sales
• medical database: patients, treatments
• university database: students, professors, courses
• Also called samples , examples, instances, data points, objects, tuples.
• Data objects are described by attributes.
• Database rows -> data objects; columns ->attributes.
 Attributes

• Attribute (or dimensions, features, variables): a data field,

representing a characteristic or feature of a data object.
• E.g., customer _ID, name, address
• Types:
• Nominal
• Binary
• Ordinal
• Numeric: quantitative
• Interval-scaled
• Ratio-scaled
 Attribute Types

• Nominal: categories, states, or “names of things”

• Hair_color = {auburn, black, blond, brown, grey, red, white}
• marital status, occupation, ID numbers, zip codes
• Binary
• Nominal attribute with only 2 states (0 and 1)
• Symmetric binary: both outcomes equally important
• e.g., gender
• Asymmetric binary: outcomes not equally important.
• e.g., medical test (positive vs. negative)
• Convention: assign 1 to most important outcome (e.g., HIV positive)
• Ordinal
• Values have a meaningful order (ranking) but magnitude between
successive values is not known.
• Size = {small, medium, large}, grades, army rankings
 Numeric Attribute Types

• Quantity (integer or real-valued)

• Interval
• Measured on a scale of equal-sized units
• Values have order
• E.g., temperature in C˚or F˚, calendar dates
• No true zero-point
• Ratio
• Inherent zero-point
• We can speak of values as being an order of
magnitude larger than the unit of measurement
(10 K˚ is twice as high as 5 K˚).
• e.g., temperature in Kelvin, length, counts,
monetary quantities