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Random Variables - Mean, Variance, Standard Deviation

A Random Variable is a set of possible values from a random experiment.

Example: Tossing a coin: we could get Heads or Tails.


Let's give them the values Heads=0 and Tails=1 and we have a Random Variable "X":

So:

We have an experiment (like tossing a coin)

We give values to each event

The set of values is a Random Variable

Learn more at Random Variables.

Mean, Variance and Standard Deviation


They have special notation:

is the Mean of X and is also called the Expected Value of X

Var(X) is the Variance of X

is the Standard Deviation of X

Mean or Expected Value

When we know the probability p of every value x we can calculate the Expected Value
(Mean) of X:

= xp
Note: is Sigma Notation, and means to sum up.
To calculate the Expected Value:

multiply each value by its probability

sum them up

It is a weighted mean: values with higher probability have higher contribution to the mean.

Variance
The Variance is:

Var(X) = x2p 2
To calculate the Variance:

square each value and multiply by its probability

sum them up and we get x2p

then subtract the square of the Expected Value 2

Standard Deviation
The Standard Deviation is the square root of the Variance:

= Var(X)

An example will help!

You plan to open a new McDougals Fried Chicken, and found these stats for
similar restaurants:
Percent

Year's Earnings

20%

$50,000 Loss

30%

$0

40%

$50,000 Profit

10%

$150,000 Profit

Using that as probabilities for your new restaurant's profit, what is the Expected Value and
Standard Deviation?

The Random Variable is X = 'possible profit'.


Sum up xp and x2p:

Probability Earnings ($'000s)


p
x
0.2
0.3
0.4
0.1

p = 1

xp

x2p

-10
0
20
15

500
0
1000
2250

xp = 25

x2p = 3750

-50
0
50
150

= xp = 25
Var(X) = x2p 2 = 3750 252 = 3750 625 = 3125
= 3125 = 56 (to nearest whole number)

But remember these are in thousands of dollars, so:

= $25,000

= $56,000

So you might expect to make $25,000, but with a very wide deviation possible.
Let's try that again, but with a much higher probability for $50,000:

Example (continued):
Now with different probabilities (the $50,000 value has a high probability of 0.7 now):

Probability Earnings ($'000s)


p
x
0.1
0.1
0.7
0.1

-50
0
50
150
Sums:

p = 1

xp

x2p

-5
0
35
15

250
0
1750
2250

xp = 45

x2p = 4250

= xp = 45
Var(X) = x2p 2 = 4250 452 = 4250 2025 = 2225
= 2225 = 47 (to nearest whole number)
In thousands of dollars:

= $45,000

= $47,000

The mean is now much closer to the most probable value.


And the standard deviation is a little smaller (showing that the values are more central.)

Continuous
Random Variables can be either Discrete or Continuous:

Discrete Data can only take certain values (such as 1,2,3,4,5)

Continuous Data can take any value within a range (such as a person's height)

Here we looked only at discrete data, as finding the Mean, Variance and Standard Deviation
of continuous data needs Integration.

Summary
A Random Variable is a variable whose possible values are numerical outcomes
of a random experiment.
The Mean (Expected Value) is: = xp
2

The Variance is: Var(X) = x p

The Standard Deviation is: = Var(X)

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