The Big R-Book

♣B♣Levels of Measurement

B.1 Nominal Scale

level of measurement

Some things in this world can be ordered in a meaningful way. Numbers, such as sales, turnover, etc. are such examples. Other things such as colours, people, countries, etc. might be ordered in some way or another, but do not have an inherent dominant order.

For example,whenmaking a model for credit applications,we have usually information about the category of job. People that apply for a loan, choose one of the following that applies best: law enforcement, military, other government, blue collar worker, white collar worker, teacher, employee, self-employed, student, retired. This makes sense, because some professions are more risky and hence this will impact the quality of the credit. However, is there an order? This is an example of a nominal scale: we have only names, but no order imposes itself on these labels.

The nominal scale is the simplest form of classification. It contains labels that do not assume an order. Examples include asset classes, first names, countries, days of the month, weekdays, etc. It is not possible to use statistics such as average or median, and the only thing that can be measured is which label occurs the most (“modus” or “mode”).

scale – nominal

This scale can be characterised as represented in Table B.1

Table B.1: Characterization of the nominal scale of Measurement.

Aspect	Nominal scale
Characterization	Labels (e.g. asset classes, stock exchanges)
Permissible ...