Probability and (Discrete) Random

Variables


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The Kentucky Fried Chicken restaurant on Claremont Mesa Blvd.
sells chicken in buckets of 2, 3, 4, 8, 12, 16 or 20 pieces. Over the
last week, orders for fried chicken had the following data:

Pieces
Orders X Probability
in Order
2 170 2 0.170
3 200 3 0.200
4 260 4 0.260
8 165 8 0.165
12 120 12 0.120
16 50 16 0.050
20 35 20 0.035
TOTAL 1000 TOTAL 1.000
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 : = 0/0 8 /9 8

A golfer has 12 golf shirts in his closet.

Suppose 9 of these shirts are white and
the others blue. He gets dressed in the
dark, so he just grabs a shirt and puts it
on. He plays golf two days in a row and
does not do laundry.
What is the likelihood both shirts selected
are white?

- A : / = = 8 1 2 B . - = 0/0 8
, .
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1 :2 :/8 = 0/0 8 / 1 :2 = 8 1 2 B 5A : /
= = 8 1 2 /8 B , . E.
- 2 =9 : = 0/0 8 B = 0 :5 8 1 2 B
=9 8/ , () , ( , )E(
, . /:2 . , . , . E.
 5 2 7 5 )14 525 4 5 1014
Red White
) ( 3

Domestic

Australian

French
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P ( R ∩ D)
P ( R | D) =
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P (R Ç D ) = P (D | R ) × P ( R )

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 n
; . E ( X ) = µ x = å P ( X = xi )xi
i =1
; : . n
= å pi xi
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n
; . Var ( X ) = s = å P ( X = xi )( xi - µ x )
2 2
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i =1
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= å pi ( xi - µ x )
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 Standard Deviation ~ Risk
Expected Return [%]
13.5

12.5 GM

11.5 Exxon

10.5

9.5 Boeing

8.5
11 12 13 14 15 16 17

Risk (ST Dev) [%]



X P(X=x) µ x = 16 ×1 + 16 × 2 + 16 × 3 + 16 × 4 + 16 × 5 + 16 × 6 = 3.5
1 1/6
2 1/6
3 1/6 2 2 2
4 1/6 σ x2 = 16 ⋅ (1− 3.5) + 16 ⋅ ( 2 − 3.5) + 16 ⋅ (3 − 3.5)
5 1/6
2 2 2
+ 16 ⋅ ( 4 − 3.5) + 16 ⋅ ( 5 − 3.5) + 16 ⋅ ( 6 − 3.5)
6 1/6 = 2.917

s x = 2.917 = 1.708


Your favorite café sells hot coffees and teas as well as
cold beverages. From past sales data, you know that
their sales obey the following probability distribution.
Number sold
Probability
Hot Cold
0.1 360 360
0.1 790 110
0.15 840 30
0.05 260 90
0.15 190 450
0.1 300 230
0.1 490 60
0.1 150 290
0.1 550 140
0.05 510 290
Mean 457 210
St Dev 244.3 145.6

Q: In your favorite café, a hot beverage sells for $1.50 and a cold beverage
sells for $2.50. What are the mean and variance of the beverage sales?

500
Lo Hot
Cold Beverages

400
Hi Cold
300
Average = 210
200

Average = 457
Hi Hot
100
Lo Cold
0
0 200 400 600 800 1000

Hot Beverages
 .

Cov( X , Y ) = E [( X - µ X ) × (Y - µY )]
= å P( X = xi , Y = yi ) × [( xi - µ X ) × ( yi - µY )]
i

Notation: s 12 = Cov( X 1 , X 2 )

Note: s 11 = Cov( X 1 , X 1 ) = Var ( X 1 )


Number sold
Probability
Hot Cold
0.1 360 - 457 360 - 210
0.1
* 790 - 457
* 110 - 210
0.15 * 840 - 457 * 30 - 210
0.05
. 260 - 457
. 90 - 210
0.15 . 190 - 457 . 450 - 210
0.1 300 - 457 230 - 210
0.1 . 490 - 457 . 60 - 210
0.1 150 - 457 290 - 210
0.1 * 550 - 457 * 140 - 210
0.05 * 510 - 457 * 290 - 210
Mean 457 210
St Dev 244.3 145.6

Cov(X,Y) = 0.1 * (360-457) * (360-210) + 0.1 * (790-457) * (110-210) + …

+ 0.1 * (550-457) * (140-210) + 0.05 * (510-457) * (290-210)
= - 27,260
 Cov( X , Y )
Corr ( X , Y ) =
s XsY

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1 < 0)1 > 1 < 0

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E(aX+ bY) = aE(X)+bE(Y)



VAR(aX + bY) = a2VAR(X) + b2VAR(Y)

VAR(aX + bY) = a2VAR(X) + b2VAR(Y) + 2abCOV(X, Y)

or, equivalently:

VAR(aX + bY) = a2VAR(X) + b2VAR(Y) + 2absXsYCORR(X, Y)








 67= C C 9 76:9 Probability
Number sold
Hot Cold
Mean 457 210
In your favorite café, a hot beverage sells for $1.50 St Dev 244.3 145.6
and a cold beverage sells for $2.50 Cov
Corr
-27,260
-.766
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