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QMM Epgdm 6
QMM Epgdm 6
MANAGEMENT
Chapter 4, 5 (part) : 149-188
DAY 6
Course content
Chapter Page number content
1 11-32 Introduction, variables, levels of measurement, types of statistics
2 33-98 Organizing and visualizing variables
3 99-148 Numerical descriptive measures – categorical / numerical – Measures of central
tendencies, measures of dispersion, skewness, kurtosis, measures of relations –
co variance and correlation
12 430-446 Simple linear regression, estimating bo and b1, measures of variations, SST, SSR
and SSE, coefficient of determination, coefficient of correlation.
4 149-182 Basic probability
5,6 183-232 Discrete probability distributions – binomial and poisson
Continuous probability distribution – Normal
7 234-257 Sampling distribution
8 258-293 Confidence interval – mean, proportion and determining sample size
9 294-304 Fundamentals of testing of hypothesis
11 402-415 Chi square test
15 15-1 to 15-17 Decision analysis
RECAP
• Introduction – definition, types of statistics, levels of
measurement
• Collection / compilation/ classification / tabulation
• Presentation – graphical and diagrammatic
• Measures of central tendencies
• Measures of dispersion
• Measures of skewness
• Exploratory data analysis
• Association between variables – covariance and
correlation
• Regression analysis – simple, measures of variations ( SSE,
SSR, SST, coefficient of determination and coefficient of
correlation)
INFERENCE STATISTICS
• Preliminaries concepts on probability and random
variables, theoretical distributions
• Sampling distribution
• Estimation and
• Testing of hypothesis
Probability
• Concepts
• Definition - different ways of assigning probability.
• Understand and apply marginal, union, joint, and
conditional probabilities.
• Solve problems using the laws of probability including
the laws of addition, multiplication and conditional
probability
• Revise probabilities using Bayes’ rule.
CERTAIN/ REAL UNCERTAIN/ABSTRACT
• Survey • Experiment
• Data • Events
Marks % # of students
0 – 25 45
25 – 50 280
50 – 75 205
75 –100 30
Introduction…
• Assuming the next exam is equally tough and
there is a same % of dull and bright students, she
can conclude that the % of students in the 4
classes of marks would be
0 .5 1
Probability:
• Simple event
• An event described by a single characteristic
• e.g., A red card from a deck of cards
• Joint event
• An event described by two or more characteristics
• e.g., An ace that is also red from a deck of cards
• Complement of an event A (denoted A’)
• All events that are not part of event A
• e.g., All cards that are not diamonds
Sample Space
The Sample Space is the collection of all possible events
e.g. All 6 faces of a die:
Black 2 24 26
Red 2 24 26
Total 4 48 52
• Decision Trees 2
Sample
Space
Sample
Space 24
Full Deck
of 52 Cards
2
24
Definition
• Classical method of assigning probability (rules and
laws)
• Axiomatic
Assessing Probability
There are three approaches to assessing
the probability of an uncertain event:
1. a priori -- based on prior knowledge of the process
X number of ways the event can occur
probability of occurrence
Assuming
T total number of elementary outcomes
all
outcomes 2. empirical probability
are equally
likely number of ways the event can occur
probability of occurrence
total number of elementary outcomes
3. subjective probability
based on a combination of an individual’s past experience,
personal opinion, and analysis of a particular situation
Example of a priori probability
X 12 face cards 3
T 52 total cards 13
Example of empirical probability
Find the probability of selecting a male taking statistics from the
population described in the following table:
Example – an analyst on share prices may opine that the price of Reliance share has a 20%
probability of increasing by Rs.500 in the next 2 months
• Estimating the probability that a person wins a jackpot lottery.
• Estimating the probability that the GM will lose its first ranking in car sales.
Axiomatic ( basic rules)
• Probability lies between 0 and 1
• P(sure event) = 1
• P( impossible event) = 0
• P(AUB) = P(A) +P(B) – P(AB)
Definitions
Simple vs. Joint Probability
• Simple Probability refers to the probability of a
simple event.
• ex. P(King)
• ex. P(Spade)
example:
A = aces; B = black cards;
C = diamonds; D = hearts
Y
X
Law of Addition
P( X Y ) P( X) P(Y ) P( X Y )
X Y
Rules of Probability- Addition
theorem
• The probability of the entire sample space is 1
• 0 p(A) 1
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
Marginal Probability Example
P(Ace)
2 2 4
P( Ace and Re d) P( Ace and Black )
52 52 52
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
Marginal & Joint Probabilities In
A Contingency Table
Event
Event B1 B2 Total
A1 P(A1 and B1) P(A1 and B2) P(A1)
CD No CD Total
CD No CD Total
P(A | B) P(A)
• Events A and B are independent when the probability of
one event is not affected by the fact that the other event
has occurred
Multiplication Rules
• Where B1, B2, …, Bk are k mutually exclusive and collectively exhaustive events
Problem Contingency Table
Counts
Telecommunication 40 10 50
Probability that a project is
undertaken by IBM given it is a
Computers 20 30 50 telecommunications project:
Total 60 40 100
Probabilities
P ( IBM T )
AT& T IBM Total P ( IBM T )
P (T )
Telecommunication .40 .10 .50
0.10
0.2
Computers .20 .30 .50 0.50
Carpenter 0 2 4 3 1
Lawyer 6 2 1 1 0
Therapist 0 5 2 1 2
System 2 1 4 3 0
Analyst
Problem ….
• Develop a joint probability table
• What is the p that one of the participants had a
score in the 80s
• What is the p of a score in the 80s given he was a
therapist
• What is the p that one of the participants was a
lawyer
• What is the p that one of the participants was a
lawyer and received a score under 50
• What is the p of a score under 50 given that he is
a lawyer
• What is the p of being a lawyer given that his
score is under 50
• What is the p of a score of 70 or higher
Problem
• Joint Probability table
Yes 45 55 60 50
No 35 45 35 45
No 5 5 5 5
opinion
Problem …
What is the probability that a consumer selected at
random
• Preferred the brand = 210/390
• Preferred the brand and was from Chennai = 60/390
• Preferred the brand given that he was from Chennai =
60/100
• Given that a consumer preferred the brand, what
is the p that he was from Mumbai = 50/210
Bayes’ Theorem
• Bayes’ Theorem is used to revise previously
calculated probabilities based on new information.
P(A | B i )P(B i )
P(B i | A)
P(A | B 1 )P(B 1 ) P(A | B 2 )P(B 2 ) P(A | B k )P(B k )
• where:
Bi = ith event of k mutually exclusive and collectively
exhaustive events
A = new event that might impact P(Bi)
Bayes’ Theorem …
Prior Probabilities
New Information
Bayesian Theorem
Posterior Probabilities
Bayes’ Theorem Example
• A drilling company has estimated a 40% chance of
striking oil for their new well.
• A detailed test has been scheduled for more
information. Historically, 60% of successful wells
have had detailed tests, and 20% of unsuccessful
wells have had detailed tests.
• Given that this well has been scheduled for a
detailed test, what is the probability
that the well will be successful?
Bayes’ Theorem Example
(continued)
P(D | S)P(S)
P(S | D)
P(D | S)P(S) P(D | U)P(U)
(0.6)(0.4)
(0.6)(0.4) (0.2)(0.6)
0.24
0.667
0.24 0.12
Sum = 0.36
Problem 13
The probability of 3 events A, B and C occurring
are
p(A) = .35 p(B) = .45 p(C) = 0.2
Assuming that A, B or C has occurred, the
probabilities of another event, X, occurring are
p(X/A) = .8 p(X/B) = .65 p(X/C) = 0.3
.35
.20
.3 .3*.2 = .06 .06/.6325=.0949
.5
.5
.60 .5*.6 = .30 .71
.5
.2
.03 .006 .2727
Chapter 5
Random
Variables
Related to frequency distributions by simply replaces the actual numbers (frequencies) with the
T H 1 2/4 = 0.50
2 1/4 = 0.25
H T
Probability
0.50
0.25
H H
0 1 2 X
Discrete Random Variable
• A random variable that assumes a finite number of
values or an infinite sequence of values such as 0, 1,
2…. is a discrete random variable
variable
not ‘counted’
Continuous Random Variable
• Example
• Temperature between 29oC and 30oC can be 29.1, 29.5
or 29.9
• Time between customer arrivals at a bank
• Current Ratio of a motorcycle distributorship
• Elapsed time between arrivals of bank customers
• Percent of the labor force that is unemployed
Discrete random variable Continuous random variable
• (X, p(x)) • (x, f(x))
• PMF (probability mass function) • PDF ( Probability Density
Function)
• P(x) = 1
• f(x)dx = 1
E(X) E(X)
V(X) V(X)
• Decide which of the following distributions are probability
distributions:
a. The distribution takes the values -2,-1 ,0,1 and P(-2) =-0.5, P(-1) =
0.7, P(0) = 0.2 and P(1) = 0.6
b. The distribution takes the values 1,2,3,4 and corresponding
probabilities are 0.1,0.2,0.25,0.3
c. The distribution takes the values 20,30,40,50 with corresponding
probabilities as 0.1,0.2,0.3,0.4
Discrete Random Variables
Expected Value (Measuring Center)
• Expected Value (or mean) of a discrete
random variable (Weighted Average)
N
E(X) Xi P( Xi )
i1
X P(X)
• Example: Toss 2 coins,
0 0.25
X = # of heads,
1 0.50
compute expected value of X:
2 0.25
E(X) = ((0)(0.25) + (1)(0.50) + (2)(0.25))
= 1.0
Discrete Random Variables
Measuring Dispersion
• Variance of a discrete random variable
N
σ [X i E(X)] P(Xi )
2 2
i1
N
σ σ2 i
[X
i1
E(X)]2
P(Xi )
where:
E(X) = Expected value of the discrete random variable X
Xi = the ith outcome of X
P(Xi) = Probability of the ith occurrence of X
Discrete Random Variables
Measuring Dispersion
(continued)
σ [X i
E(X)] P(X i ) 2
Distribution of Daily
Crises P
Number of r 0.5
Probability o
Crises 0.4
b
0 0.37 a 0.3
b
1 0.31 i
0.2
2 0.18 l 0.1
3 0.09 i
0
4 0.04 t 0 1 2 3 4 5
y
5 0.01 Number of Crises
Mean of the Crises Data Example
E X X P( X ) 115
.
X P(X) XP(X) P
r 0.5
0 .37 .00
o 0.4
1 .31 .31 b
a 0.3
2 .18 .36 b
0.2
i
3 .09 .27
l 0.1
4 .04 .16 i
0
t 0 1 2 3 4 5
5 .01 .05 y
Number of Crises
1.15
Variance & SD - Crises Data
X P( X ) 141
2
2
141
. 119
2
. .
X P(X) (X- ) (X- ) 2 (X- ) 2 P(X)
0 .37 -1.15 1.32 .49
1 .31 -0.15 0.02 .01
2 .18 0.85 0.72 .13
3 .09 1.85 3.42 .31
4 .04 2.85 8.12 .32
5 .01 3.85 14.82 .15
1.41
Problem
• An auto dealer determines the demand he can
expect for autos during a 1-month period. The
probability of demand for 50, 55, 60 & 65 cars
sold per month is 0.15, 0.2, 0.3 and 0.35. Find
the expected value
Mean 114 81
SD 42 29.14
CV 36.84% 35.97%
Return – Share 1
Risk – Share 2
Problem
The probability distribution for the # of TV sets
per household is
X 0 1 2 3 4 5
P(X) .01 .23 .41 .2 .1 .05
If Walters purchases stock whenever the expected rate of return exceeds 10 per cent, will he
purchase the stock, according to these data? What is your suggestion to Walters?
• Answer= Yes, he will purchase the stock because he carefully studies any potential investment.