IBA-JU Master of Business Administration Course Instructor: Dr Swapan Kumar Dhar

Probability Distribution: A probability distribution gives the entire range of values that can occur based on an experiment. A probability distribution shows the possible outcomes of an experiment and the probability of each of these outcomes. Example: Suppose we are interested in the number of heads showing face up on three tosses of a coin. This is the experiment. The possible results are: zero heads, one head, two heads and three heads. What is the probability distribution for the number of heads? Solution: There are eight possible outcomes. Outcomes are: TTT, TTH, THT, THH, HTT, HTH, HHT, HHH. We can use the following table to find the probability distribution. Possible Result 1 2 3 4 5 6 7 8 Coin Toss Second T T H H T T H H Number of Heads 0 1 1 2 1 2 2 3

First T T T T H H H H

Third T H T H T H T H

The required probability distribution is shown in the following table. Number of Heads (X) 0 1 2 3 Total Probability of Outcomes P(x) 1/8 = 0.125 3/8 = 0.375 3/8 = 0.375 1/8 = 0.125 8/8 = 1.000

Discrete Probability distribution: The probability distribution of a discrete random variable is a table, graph or formula that gives the probability associated with each possible value that the random variable could assume. If we organize a set of possible values of a discrete random variable in a probability distribution, the distribution is a discrete probability distribution. Continuous Probability Distribution: If we organize a set of possible values of a continuous random variable in a probability distribution, the distribution is a continuous probability distribution. We denote the probability distribution of the discrete random variable x as probability distribution by f ( x) . In general, a discrete probability distribution p(x) must satisfy two conditions: A discrete probability distribution p(x) must be such that 1. p(x) > 0 for each value of x 2.

p ( x)

and the continuous

All x f ( x) must satisfy two conditions: f ( x) must be such that

p ( x) = 1

Similarly, a continuous probability distribution A continuous probability distribution

1. 2.

f ( x) > 0 for each value of x

f ( x)dx = 1
1

The first of these conditions says that each probability in a probability distribution must be zero or positive. The second condition says that the probabilities in a probability distribution must sum to 1. The Mean, Variance and Standard Deviation of a Probability Distribution The Mean, Variance and Standard Deviation of a Discrete Random Variable: The Mean: The mean of a probability distribution is also referred to as its expected value. It is a weighted average where the possible values of a random variable are weighted by their corresponding probabilities of occurrence. The expected value of a random variable is the mean value that would occur if we were to repeat an experiment indefinitely. That is, it is the mean value of what we expect to happen if such an experiment were repeated many times. Formula for computing the mean is

= E ( x) = xP ( x) where P ( x ) is the probability of a particular value x .

Variance and Standard deviation The variance of a discrete random variable X is:

2 =

All x

( x ) 2 p ( x) .

The standard deviation of X is the positive square root of the variance of X. That is,

2 The variance and the standard deviation measure the spread of the population of all possible observed values of the random variable. Example: Mr Adnan usually sells the largest number of cars on Friday. He has established the following probability distribution for the number of cars he expects to sell on a particular Friday. Number of Cars sold (X) Probability P ( x ) 0 0.10 1 0.20 2 0.30 3 0.30 4 0.10 Total 1.00

=+ 2 .

(a) What type of distribution is this? (b) On a typical Friday, how many cars should Adnan expect to sell? (c) What is the variance of the distribution? Solution: (a) This is an example of a discrete probability distribution. (b)

This value indicates that, over a large number of Fridays, Adnan expects to sell a mean of 2.1 cars a day. Thus mean is sometimes called the expected value. (c) The following table is useful for calculating variance and standard deviation. Number of cars sold 0 1 2 3 4
4

= E ( x) = xP( x) = 0 0.10 + 1 0.20 + 2 0.30 + 3 0.30 + 4 0.10 = 2.1.

( x)

Probability P ( x ) 0.10 0.20 0.30 0.30 0.10

(x )
0 2.1 1 2.1 2 2.1 3 2.1 4 2.1

( x )2
4.41 1.21 0.01 0.81 3.61

( x )2 P( x)
0.441 0.242 0.003 0.243 0.361

2 = ( x ) 2 p( x) = 1.290. Standard deviation = 1.290 = 1.136 .

x =0

Interpretation: If salesman Karim also sold a mean of 2.1 cars on Fridays and the variance in his sales was 1.91 cars, we would conclude that there is more variability in the Friday sales of Karim than in those of Adnan ( because 1.91>1.29). Here is an alternative formula for the variance. For the above data,

2 = x2 p ( x) 2

x2
0 1 4 9 16

P( x)
0.10 0.20 0.30 0.30 0.10

0 1 2 3 4 Total So,

x 2 P( x)
0.00 0.20 1.20 2.70 1.60 5.70

Example: Market researchers compiled the probabilities that various sizes of families would purchase single family homes in a particular suburban area adjacent to the city. A real estate agency in the suburb wishes to convey the information to its agents. The following Table lists the size of each family group and the probability of their purchasing a single- family home. Table: Family size and probability of purchasing single-family home: Size of Family Group 1 2 3 4 5 6 7 8 9 10 11 Prob. Of Purchasing a single-family home .01 .06 .05 .09 .10 .16 .18 .15 .11 .07 .02

2 = x 2 p ( x) 2 =5.70 - (2.10) 2 =1.29.

This is a probability distribution of purchasing single-family home. There is a 0.79 probability that a home is sold to a family with five or more members. That is, larger size families tend to buy more spacious homes with higher sale prices. Thus, the sales agent will direct advertising efforts to families of five or more members. An agency may also want to know the expected value of family members for each sale. It computes the expected value as follows: E(X) = XP(X) = 1X0.01 +2 X 0.06 + +11 X 0.02 = 6.47 = 7. Thus, on the average, the family size for a sale is 6.47. This value simply gives the mean value that we expect to occur in a great many repeated trials. The Binomial Distribution: The Binomial Experiment An experiment that satisfies the following four conditions is called a binomial experiment. 1. There are n identical trials. That is, all the trials are performed under identical conditions. 2. Each trial has two and only two outcomes. These outcomes are usually called a success and a failure. 3. The probability of success is denoted by p and that of failure by q and p + q = 1 . The probabilities p and q remain constant for each trial. 4. The trials are independent. In other words, the outcome of one trial does not affect the outcome of another trial. The form of Binomial distribution is

P(x) =

n x n x ; x = 0,1,..., n x p q
n! x !( n x ) !
p xqn x

P(x) =

Where n = number of independent trials X = number of successes, P = probability of success Q = probability of failure = 1 p. Let us begin with an example. Example: Suppose that historical sales records indicate that 40 per cent of all customers who enter a discount department store make a purchase. What is the probability that two of the next three customers will make a purchase? In order to find this probability, we first note that the experiment of observing three customers making a purchase decision has several distinguishing characteristics: 1. The experiment consists of three identical trials: each trial consists of a customer making a purchase decision. 2. Two outcomes are possible on each trial: the customer makes a purchase (which we call a success and denote as S), or the customer does not make a purchase (which we call a failure and denote as F). 3. Since 40 percent of all customers make a purchase, it is reasonable to assume that P(S), the probability that a customer makes a purchase, is .4 and is constant for all customers. This implies that P(F), the probability that a customer does not make a purchase, is .6 and is constant for all customers. 4. We assume that customers make independent purchase decisions. That is, we assume that the outcomes of the three trials are independent of each other. It follows that the sample space of the experiment consists of the following eight sample space outcomes: SSS SSF SFS FSS FFS FSF SFF FFF Here the sample space outcome SSS represents all three customers making purchases. On the other hand, the sample space outcome SFS represents the first customer making a purchase, the second customer not making a purchase, and the third customer making a purchase. In order to find the probability that three of the next five customers make purchases, we calculate

p ( X = 3) =

5! 3 53 3 2 (0.4) (0.6) = (0.4) (0.6) 3!( 5 3 ) ! 3!2! = 5 4 3 2 1 (3 2 1)(2 1) 3 2 (0.4) (0.6) = 10 0.064 0.36

5!

= 0.2304.
Characteristics of this distribution: 1. Mean,

= np , Variance, 2 = npq , and standard deviation, =

npq .

2.Variance < mean. Example: There are five flights daily from Dhaka airport to Calcutta airport.. Suppose the probability that any flight arrives late is 0.20. What is the probability that none of the flights are late today? What is the probability that one of the flights is late today? Solution: The probability that a particular flight is late is 0.20, so let p = 0.20. There are five flights, so n = 5 and x, random variable refers the number of successes. In this case, a success is a plane that arrives late.

Because there are no late arrivals x = 0.

P(there are no late arrivals)= 0.3277. The probability that exactly one of the five flights will arrive late today is

5 P ( x = 0) = P (0) = (0.20)0 (1 0.20)5 0 = 1 1 0.3277 = 0.3277. 0

The entire probability distribution is shown as Number of late Flights Probability 0 0.3277 1 0.4096 2 0.2048 3 0.0512 4 0.0064 5 0.0003 Total 1.0000 Mean = np= (5)(0.20) = 1.0 and variance = npq= 0.80. Example: In a course 20% students got A grade. Five students are randomly selected from this group of students. Find the probability that out of 5 students (i) 2 students got A (ii) at lest one student got A (iii) at best 1 student got A. Solution: let X be number of students getting A. The probability of getting A is p = 0.2.

5 P ( x = 1) = P (1) = (0.20)1 (1 0.20)5 1 = 5 0.20 0.4096 = 0.4096. 1

5 = (0.20) 2 (1 0.20)52 = 0.2048. 2 5 0 5 (iii) P ( X 1) = 1 P ( X < 1) = 1 P ( X = 0) = 1 (0.20) (0.8) = 0.6723. 0 5 5 0 5 1 4 (iii) P ( X 1) = P ( X = 0) + P ( X = 1) == (0.20) (0.8) + (0.20) (0.8) = 0.7373. 0 1 Example: Let X denotes the number of mechanical components that are defective in a testing process and assume that X is a binomial random variable with p = 0.001 . If 1000 pf these
(i) P (2 students got A) = P components are tested, find the following: (a) P ( X = 1) (b) P ( X 1) (c) P ( X 2) and mean and variance of Solution: We know,

X.

n x nx f ( x) = x p q ; x = 0,1,2,..., n. 1000 1 999 (a) P ( X = 1) = (0.001) (0.999) = 0.368. 1 1000 0 1000 = 1 (0.999)1000 = 0.632. (b) P ( X 1) = 1 P ( X = 0) = 1 (0.001) (0.999) 0 2 1000 x 1000 x = 0.920. (c) P ( X 2) = (0.001) (0.999) x =0 x (d ) Mean = E ( X ) = np = 1000 0.001 = 1, V ( X ) = npq = 1000 0.001 0.999 = 0.999.
Example: Selina, a student of IBA is taking a course in Statistics on a pass fail basis. The examinations contain only multiple choice questions. Each question has four possible answers, of which only one may be correct. There are 25 questions on the last examination in the course. Selina needs only 10 correct answers to pass the course. she decides that she can guess and still correctly answer 10 questions. Instead of studying statistics, the night before the examination, she goes to a marriage party.

What is the probability of correctly answering 10 questions? What is the probability of correctly answering at least 10 questions? What is the probability of correctly answering at most 10 questions? Compute the expected number of correct answers for the examination and the standard deviation for the examination. (e) Is the student making a correct decision? Why? The Poisson Distribution: We now discuss a discrete random variable that describes the number of occurrences of an event over a specified period of time or space or interval. The interval may be time, distance, area or volume. For instance, we might wish to describe (1) the number of customers, who arrive at the checkout counters of a grocery store in one hour, or (2) the number of major fires in a city during the last two months, or (3) the number of cars waiting for service in a workshop. This distribution is named after the French mathematician Simeon D Poisson. The Poisson distribution is a discrete probability distribution because counting forms it. The Poisson distribution can be described mathematically by the formula:

(a) (b) (c) (d)

Where, (mu) = the mean number of occurrences(successes) in a particular interval, e = 2.71828 x = the number of occurrences ( successes) P(x) = the probability for a specified value of X. Here is the parameter of the distribution. Example: The probability that a check cashed by a bank will bounce is 0.0003 and 10000 checks are cashed. Find the mean and variance for the number of bad checks. Solution: Here mean, = np = 10000 0.0003 = 3.0 = variance. Example: What probability model is appropriate to describe a situation where 100 misprints are distributed randomly through the 100 pages of a book? For this model, what is the probability that a page observed at random will contain at least 3 misprints? Solution: Since 100 misprints are distributed randomly throughout the 100 pages of a book, therefore on an average there is only one mistake on a page. This means, the probability of there

xe P( x) = x!

; x = 0,1,..., .

being a misprint,

p=

1 100

= 0.01 , is very small and the number of words, n in 100 pages are very

large. Hence, Poisson distribution is best suited in this case. Average number of misprints in one page,

= np =

100

1 100

= 1.

Probability of at least three misprints in a page is

P ( x 3) = 1 P ( x < 3) = 1 [ P ( x = 0) + P ( x = 1) + P ( x = 3)] =1[

0 1 1 e + 1 1 1 e + 2 1 1 e ]

0!
1

1!
1 e

2!

= 1 [e + e +
1 1

P ( x 3) = 1 2.5e = 1 2.5

= 1 2.5

1 2.71828

= 1 2.5 0.3679 = 0.0802.

Example: Customers arrive at a photocopying machine at an average rate of two every 5 minutes. Assume that these arrivals are independent, with a constant arrival rate. Find the probability that more than two customers arrive in a 5- minute period.

Solution: Let X denote the number of arriving customers in a 5-minute period and the problem follows a Poisson model. Since the mean number of arrivals in 5 minutes is 2, then = 2. To find the probability that more than two customers arrive, first compute the probability of at most two arrivals in a 5 - minute period, and then use the complement rule.

P ( X = 0) = P ( X = 1) = P ( X = 2) =

2 0 e 2

0! 2 1 e 2 1! 2 2 e 2 2!

=e

= =

1 = 0.1353 2 e 2 = 0.2707 2 e 1 = 0.2707 2 e

= 2e

= 2e

Thus, the probability of more than two arrivals in a 5 minute period is

P ( X > 2) = 1 P ( X 2) = 1 [0.1353 + 0.2707 + 0.2707] = 0.3233.