What is an outlier in the context of data analysis?

An outlier in the context of data analysis refers to a data point that is significantly different from the rest of the data set. Specifically, it is a number that lies far above or below most others. Outliers can indicate variability in the data, measurement errors, or exceptional circumstances that warrant further investigation. They are important in statistical analysis because they can have a substantial effect on the results, such as the mean, standard deviation, and overall interpretation of the data.

In practical terms, when analyzing data, such as in total compensation studies, identifying outliers helps organizations understand discrepancies or unusual patterns that could impact compensation strategies. Therefore, by focusing on numbers that stand apart from the majority of the data, analysts can glean insights that might reveal trends or areas for further examination.