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Discrete Probabilities4-Discrete Probabilities - Student
Discrete Probabilities4-Discrete Probabilities - Student
Discrete Probabilities
Discrete Probability
Random Variables
Discrete Probability Distributions
Summary Measures of Probability Distributions
Binomial Distribution
Poisson Distribution
Linear Functions of a Random Variable
Random Variables
A random variable is a rule that assigns a numerical value
to each possible outcome of a probabilistic experiment.
A random variable (r.v.) may be discrete or continuous.
Discrete
Example 2
0,
1,
2,
3,
4,
5, . . .
Random Variables
A random variable is a rule that assigns a numerical value
to each possible outcome of a probabilistic experiment.
A random variable (r.v.) may be discrete or continuous.
Examples
1.Total number of points in a throw of 2 dice
2.Number of cups of cappuccino Edward will sell today
3.Number of Bs you will score in this semester
4.Time between this and the next slide
5.Your present weight in kg
Random Variables
Example :
Lets say that 30 % of BBA students are international
students. Suppose that each of the 3 BIZ1007 tutors randomly
selects one of his students to participate in a survey.
L : Local
I : International
Random Variables
Example :
Lets say that 30 % of BBA students are international
students. Suppose that each of the 3 BIZ1007 tutors randomly
selects one of his students to participate in a survey.
L : Local
I : International
Probability Distribution
Recall
A random variable is a rule that assigns a numerical value
to each possible outcome of a probabilistic experiment.
(i)
possible values
x1, x2,
...,
xn
Note:
Probabilities must sum to 1 : p1 + p2 + . . . + pn = 1.0
( pi 0 )
(i)
. . . , xn
p1, p2,
... , pn
Example :
We
X is a r.v.
L :know
Local
I : International
I
I
Probability distribution
X
P( X)
P( X= 0 )
P( X= 1 )
P( X= 2 )
P( X= 3 )
Probability of Outcome
P(X)
P(X=0) =
P(X=1) =
P(X=2) =
P(X=3) =
P(X)
Probability Distribution of X
xi
Probability
pi
42
0.05
43
0.10
44
0.15
45
0.20
46
0.25
47
0.15
48
0.10
Probability
0.25
0.20
0.15
0.10
0.05
0.00
43
44
45
46
Number of Orders
Page 9
47
48
Sales
($ million)
Probability
0.40
3.0
0.05
0.35
4.0
0.20
5.0
0.35
6.0
0.30
7.0
0.10
8.0
0.00
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
3.0
4.0
5.0
6.0
7.0
8.0
Sales ($ million)
Western Division
Sales
($ million)
Probability
0.40
3.0
0.15
0.35
4.0
0.20
5.0
0.25
6.0
0.15
7.0
0.15
8.0
0.10
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
3.0
4.0
5.0
6.0
Sales ($ million)
7.0
8.0
Sales
($ million)
Probability
0.40
3.0
0.05
0.35
4.0
0.20
5.0
0.35
6.0
0.30
7.0
0.10
8.0
0.00
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
3.0
4.0
5.0
6.0
7.0
8.0
Sales ($ million)
Western Division
Sales
($ million)
Probability
0.40
3.0
0.15
0.35
4.0
0.20
5.0
0.25
6.0
0.15
7.0
0.15
8.0
0.10
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
3.0
4.0
5.0
6.0
Sales ($ million)
7.0
8.0
Random variable Y
0.50
0.50
0.40
0.40
0.30
0.30
P(Y = y)
0.20
0.10
0.10
0.00
0.00
0
3
x
3
y
x 1,
p1,
x 2,
p2,
.
.
.
.
.
.
,
,
= =
=1
xn
pn
x 1,
p1,
x 2,
p2,
.
.
.
.
.
.
,
,
xn
pn
The variance of X is
= =
=1
2 2
=
=1
Standard Deviation :
P(X = x)
1/6
1/6
1/6
1/6
1/6
1/6
P( X)
= =
=1
P( X)
= =
0
1
2
3
= 2 =
=1
Sales
($ million)
Probability
0.40
3.0
0.05
0.35
4.0
0.20
5.0
0.35
6.0
0.30
7.0
0.10
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
0.00
3.0
4.0
5.0
6.0
7.0
8.0
Sales ($ million)
Sales
($ million)
Probability
0.40
3.0
0.15
0.35
4.0
0.20
5.0
0.25
6.0
0.15
7.0
0.15
8.0
0.10
Probability
0.30
0.25
0.20
0.15
0.10
0.05
0.00
3.0
4.0
5.0
6.0
Sales ($ million)
7.0
8.0
Use Excel
X (Eastern Division)
Y (Western Division)
Sales ($m)
Probability
Sales ($m)
Probability
3.0
0.05
3.0
0.15
4.0
0.20
4.0
0.20
5.0
0.35
5.0
0.25
6.0
0.30
6.0
0.15
7.0
0.10
7.0
0.15
8.0
0.00
8.0
0.10
Mean
5.20
5.25
Variance
1.06
2.3875
Std Dev
1.0296
1.5452
orders
170
200
260
165
120
50
35
1,000
xi
2
3
4
8
12
16
20
Probability
0.170
0.200
0.260
0.165
0.120
0.050
0.035
Binomial Distribution
Where do probability distributions come from?
II.Theoretically
Let
X = number of successes in n trials.
We say that X is a binomial r.v. drawn from a sample size n
and with probability of success p.
Binomial Distribution
Consider experiment consisting of n independent trials
Each trial has exactly two outcomes : success or failure
Each trial has same probability: success p, failure 1 p
Let
X = number of successes in n trials.
Binomial Distribution
= =
!
! !
(1 ) for = 0, 1, . . . ,
Binomial Distribution
Expected Value and Variance
If X obeys a binomial distribution with parameters n and
p , then the mean, variance and standard deviation of X
are:
Mean
Variance
Std deviation
= =
= 2 = (1 )
=
(1 )
Binomial Distribution
Example :
Lets say that 30 % of BBA students are international students.
Suppose that each of the 3 BIZ1007 tutors randomly selects one
of his students to participate in a survey.
Recall Example
Outcome
L
1with :
2p =
n = 3 trials
Success select international student
P(success) = 0.30
Binomial Distribution
Example :
Lets say that 30 % of BBA students are international students.
Suppose that each of the 3 BIZ1007 tutors randomly selects one
of his students to participate in a survey.
!
! !
(. ) (. ) for = 0, 1, . . . , 3
Binomial Distribution
X obeys binomial distribution with n = 3 and p = 0.3
The probability distribution of X is given by:
= =
=0 =
=1 =
!
! !
!
0! 0 !
!
1! 1 !
(. ) (. ) for = 0, 1, . . . , 3
(. )0 (. )0 = (. ) =
(. )1 (. )1 = (. )(. ) =
Binomial Distribution
Example :
Lets say that 30 % of BBA students are international students.
Suppose that each of the 3 BIZ1007 tutors randomly selects one
of his students to participate in a survey.
= =
= 3 0.3
= .
= 2 = 1 = 3 0.3 0.7 = .
Binomial Distribution
= =
!
! !
(1 ) for x = 0, 1, . . . , n
Binomial Distribution
EXCEL Function : BINOMDIST (x, n, p, cumulative)
Example Summary :
number of lasers (out of 15) that will pass the test
X Binomial (15, 0.75)
P (X = 15) = 0.013363
P (X 14) = 0.0802
Question 1
We say a fund beats the market purely by
chance if each week the fund has a fiftyfifty chance of beating the market index,
independently of its performance in other
weeks.
What is the probability for such fund to
beat the market 37 out of 52 weeks?
Question 2
Suppose that all the 400 funds beat
market purely by chance. What is the
probability that the best of them beats the
market 37 out of 52 weeks?
Conclusion?
Poisson Distribution
Useful for modelling the number of occurrences of an event over a
specified interval of time or space.
Examples :
Poisson Distribution
Poisson Distribution
was derived by the
French Mathematician
Simon Poisson in
1837.
His name is one of the
72 names inscribed on
the Eiffel Tower.
Poisson Distribution
Examples and Applications:
The number of soldiers killed by horse-kicks
each year in each corps in the Prussian
cavalry.
The number of phone calls arriving at a call
centre per minute.
The number of goals in sports involving two
competing teams.
The number of infant death per year.
Poisson Distribution
A random variable X is said to be a Poisson r.v. with parameter
(> 0) if it has the probability function
= =
for = 0, 1, 2, . . .
Note:
X is a discrete r.v. that takes on values 0, 1, 2, . . .
=0 =
0
0!
=1 =
1
1!
Poisson Distribution
A random variable X is said to be a Poisson r.v. with parameter
(> 0) if it has the probability function
= =
Mean
Variance
E(X)
Var (X) =
for = 0, 1, 2, . . .
Thus, parameter
can be interpreted as
the average number
of occurrences per
unit time or space
Poisson Distribution
X is said to be a Poisson r.v. with parameter (> 0) if
= =
for = 0, 1, 2, . . .
Example
Patients arrive at the A & E of a hospital at the average rate of 6 per hour
on weekend evenings. What is the probability of 4 arrivals in 30 minutes
on a weekend evening?
Can expect patient arrivals to be approximately Poisson.
Average arrival rate is 6 / hour.
Poisson Distribution
= =
for = 0, 1, 2, . . .
cumulative = 0 ( or FALSE) P ( X = x )
1 ( or TRUE) P ( X x )
Poisson Distribution
Excel Function : POISSON (x, , cumulative)
Example Summary :
Let X be the number of patient arrivals in 30 minutes
X is Poisson with parameter = 3
P (X = 4) = 0.1680
P (X = 4)
= POISSON (4, 3, 0)
Managing TV Inventory
Kriegland is a department store that sells
various brands of flat-screen TVs. One of
the managers biggest problems is to
decide on an appropriate inventory policy
for stocking TVs.
Discussion 1
Why is it important to decide a right
inventory level?
What are the factors to consider when
deciding the inventory level?
Discussion 2
The manager knows that the historical
average demand per month is
approximately 17.
If the manager attempts to find the
probability distribution of demand in a
typical month. How might he proceed?
Probability
60
0.05
64
0.15
68
0.20
72
0.25
75
0.15
77
0.10
80
0.10
71.15
Var (X)
29.5275
Suppose it costs $135 per day to run the croissant operation, and
that the cost of producing one croissant is $0.75.
Daily cost of croissant operations = 0.75 X + 135
Probability
Y = .75X + 135
60
0.05
180.00
64
0.15
183.00
68
0.20
186.00
72
0.25
189.00
75
0.15
191.25
77
0.10
192.75
80
0.10
195.00
E (X)
Var (X) =
Var (Y)
71.15
29.5275
Y = 0.75 X + 135
E (Y)
= ?
Var (Y) = ?
Note:
If Y = a X + b
E (Y)
= a E (X) + b
Formulas apply
to continuous
r.v.s as well
vs
Crime rate
Stock market
vs
Property market
vs
pi
xi
yi
0.10
0.10
0.15
0.05
0.15
0.10
0.10
0.10
0.10
0.05
360
790
840
260
190
300
490
150
550
510
360
110
30
90
450
230
60
290
140
290
X = 457.00
Y = 210.00
244.28
145.64
Mean
Standard Deviation
200
400
600
Hot Coffee Sales
800
1000
200
400
600
Hot Coffee Sales
800
1000
P ( X = x 1, Y = y 1 )
x1
y1
P ( X = x 2 , Y = y2 )
x2
y2
P ( X = xN, Y = yN )
xN
yN
Covariance
,
= , =
= , =
()
pi
xi
yi
0.10
0.10
0.15
0.05
0.15
0.10
0.10
0.10
0.10
0.05
360
790
840
260
190
300
490
150
550
510
360
110
30
90
450
230
60
290
140
290
X = 457.00
Y = 210.00
244.28
145.64
Mean
Standard Deviation
pi
xi
yi
0.10
0.10
0.15
0.05
0.15
0.10
0.10
0.10
0.10
0.05
360
790
840
260
190
300
490
150
550
510
Mean
Standard Deviation
457
457
457
457
457
457
457
457
457
457
360
110
30
90
450
230
60
290
140
290
210
210
210
210
210
210
210
210
210
210
X = 457.00
Y = 210.00
244.28
145.64
= , =
Correlation
(, )
, =
Comments :
The measure of correlation is unit-free.
Corr (X, Y) is always between 1.0 and 1.0
Corr (X,Y) =
=
(, )
, =
1.0
= 1.0
p1
P ( X = x1, Y = y1 )
x1
y1
p2
P ( X = x 2 , Y = y2 )
x2
y2
pN
P ( X = xN, Y = yN )
xN
yN
Denote by f(x i ,y i )
( or Co r r ( X , Y ) = 0 )
But
Example : Consider r.v.s X and Y with the following joint probability distribution
P (X , Y)
1/3
1/3
1/3
Variance
Var(aX + bY) = a2Var(X) + b2Var(Y) + 2abCov(X,Y)
or :
Var(aX + bY) = a2Var(X) + b2Var(Y) + 2abXY Corr(X,Y)
pi
xi
yi
0.10
0.10
0.15
Suppose
0.05:
0.15
0.10
0.10
0.10
0.10
0.05
360
360
790
110
840
30
cold beverages
(Y)
are
$2.50/glass;
260
90
190
450
hot coffees (X)
$1.50/cup.
300
230
490
60
150
290
550
140
510
290
Mean
Standard Deviation
X = 457.00
Y = 210.00
244.28
145.64
E(X) = 457,
E(Y) = 210,
SD(1.5X + 2.5Y) = ?
E(X) = 457,
E(Y) = 210,