Discrete Probabilities4-Discrete Probabilities - Student

DSC1007 Lecture 4
Discrete Probabilities
Discrete Probability
Random Variables
Discrete Probability Distributions
Summary Measures of Probability Distributions
Binomial Distribution
Poisson Distribution
Linear Functions of a Random Variable
Sums of Random Variables

Covariance and correlation
Joint probability distributions and independence
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
: can only assume values that are distinct and separate

Example 1
Example 2
0,
1,
2,
3,
4,
5, . . .
2.0, 2.5, 3.0, 3.5
Continuous : can take on any value within some interval of numbers

Examples : [ 0 , 100 ], [ 2 , 4 ]
Random Variables
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.
What are the possible outcomes of this experiment?

Outcome
L : Local
I : International
Random Variables
Example :
Let X = number of international students chosen

Outcome
L : Local
I : International
Probability Distribution
Recall
A probability distribution for a random variable

describes how probabilities are distributed over the
values of the random variable
Discrete Probability Distribution

A probability distribution for a discrete random variable X
consists of
(i)
possible values
x1, x2,
...,
xn
(ii) corresponding probabilities p1, p2, . . . , pn

with the interpretation that
P(X = x1) = p1, P(X = x2) = p2, . . . , P(X = xn) = pn
Note:
Probabilities must sum to 1 : p1 + p2 + . . . + pn = 1.0
( pi 0 )

A probability distribution for a discrete random variable X
consists of
(i)
possible values x1, x2,
. . . , xn
(ii) corresponding probabilities
p1, p2,
... , pn
with the interpretation that

P(X = x1) = p1, P(X = x2) = p2, . . . , P(X = xn) = pn

Return to this example.
Example :


Outcome
We
X is a r.v.
L :know
Local
I : International
Q: What is its probability

distribution?

Example :

Outcome
I
I
Probability distribution
X
P( X)
P( X= 0 )
P( X= 1 )
P( X= 2 )
P( X= 3 )

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.

Outcome
Probability of Outcome

Example :

X
P(X)
P(X=0) =
P(X=1) =
P(X=2) =
P(X=3) =

Example :

X
0
1
2
3
P(X)
Probability Distribution of X

AAhistogram
displayof
ofprobabilities
probabilitiesas
asaabar
barchart
chart
histogram is
is aa display
Example 1:
X = number of international students chosen

0.50
0.40
0.30
0.20
0.10
0.00
0

Example 2:
Let X be the random variable that denotes the number of orders
for Boeing 767 aircraft for next year.
Suppose that the number of orders for Boeing 767 aircraft for
next year is estimated to obey the following distribution:
Orders for Boeing 767
Aircraft next year
xi
Probability
pi
42
0.05
43
0.10
44
0.15
45
0.20
46
0.25
47
0.15
48
0.10

A histogram is a display of probabilities as a bar chart
Probability Distribution of the

Number of Orders of Boeing 767 Aircraft Next Year
0.35
0.30
Probability
0.25
0.20
0.15
0.10
0.05
0.00
43
44
45
46
Number of Orders
Page 9
47
48

X and Y denote the sales next year in the eastern division and
the western division of a company, respectively.
Eastern Division
Probability Distribution Function of Eastern

Division Sales
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
Probability Distribution Function of Western

Division Sales
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

Which division is going to perform better?
Eastern Division

Division Sales
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

Division Sales
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

Consider two r.v.s X, Y, with the following histograms:
Random variable X
Random variable Y
0.50
0.50
0.40
0.40
0.30
0.30
P(Y = y)
P(X =x) 0.20
0.20
0.10
0.10
0.00
0.00
0
3
x
3
y
Q: How to describe and compare X and Y ?

Summary statistics are used to summarize a set of
observations, in order to communicate the largest amount as
simply as possible.
Statisticians commonly try to describe the observations in
a measure of location, or central tendency, such as the mean,

median, mode etc
a measure of statistical dispersion like the standard deviation,
variance, range etc
a measure of the shape of the distribution like skewness or
kurtosis

Suppose the discrete r.v. X has probability distribution
x 1,
p1,
x 2,
p2,
.
.
.
.
.
.
,
,
The mean (or expected value) of X is
= =

=1
xn
pn

Suppose the discrete r.v. X has probability distribution
x 1,
p1,
x 2,
p2,
.
.
.
.
.
.
,
,
xn
pn
The variance of X is
= =

=1
2 2
=
=1
Standard Deviation :

Example :
Let X be the number that comes up on a roll of a die.
Compute the mean, variance and standard deviation of X.

Outcome
1
2
3
4
5
6
P(X = x)
1/6
1/6
1/6
1/6
1/6
1/6

Example :

X
0
1
2
3
P( X)
= =

=1

Example :

X
P( X)
= =
0
1
2
3
= 2 =

=1

X and Y denote the sales next year in the eastern division and
the western division of a company, respectively.
Eastern Division

Division Sales
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
Compute the mean, variance and standard deviation of

8.0
0.00
0.00
3.0
4.0
5.0
6.0
7.0
8.0
Sales ($ million)
X (eastern division sales) and Y (western division sales)

Western Division

Division Sales
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

Compute the mean, variance and standard deviation of
X (eastern division sales) and Y (western division sales)
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

Where do probability distributions come from?
I. Empirically (from data)

Example: KFC 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 in order
2
3
4
8
12
16
20
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
Let X = number of pieces of chicken in an order.

Develop a probability distribution for X.
Where do probability distributions come from?
II.Theoretically
The 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.
We say that X is a binomial r.v. drawn from a sample size n
and with probability of success p.
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.
We also say that X obeys a binomial distribution with

parameters n and p : Binomial (n, p) or B(n,p)
= =
!
! !
(1 ) for = 0, 1, . . . ,
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 )
Example :
Recall Example

XNote : X is a binomial variable!
Outcome
L
1with :
2p =
n = 3 trials
Success select international student
P(success) = 0.30
Example :
X obeys a binomial distribution with parameters n = 3

and p = 0.3 : Binomial (3, 0.3)
The probability distribution of X is given by:
= =
!
! !
(. ) (. ) for = 0, 1, . . . , 3
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 = (. )(. ) =
Compare above with

probability distribution
we obtained earlier
Example :

X obeys a binomial distribution with n = 3 and p = 0.3

Mean
Variance
= =
= 3 0.3
= .
= 2 = 1 = 3 0.3 0.7 = .
= =
!
! !
(1 ) for x = 0, 1, . . . , n
EXCEL Function : BINOMDIST (x, n, p, cumulative)

cumulative = 0 ( or FALSE) P ( X = x )
1 ( or TRUE) P ( X x )
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
P (X = 15) = BINOMDIST (15, 15, 0.75, 0)

P (X 14) = 1 P (X 13)
= 1 BINOMDIST (13, 15, 0.75, 1)
Case 1 - Application of Binomial

Distribution
An investment broker at the Michaels &
Dodson Company claims that he has
found a real winner out of 400 funds.
He has tracked a mutual fund that has
beaten a standard market index in 37 out
of the past 52 weeks.
Will you invest in the winner fund?
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?
Useful for modelling the number of occurrences of an event over a
specified interval of time or space.
Examples :
number of customer orders received in one hour

number of failures in a large computer system per month
Properties
Probability of an occurrence is the same for any two intervals of

equal length.
Occurrences in nonoverlapping intervals are independent of one

another.
was derived by the
French Mathematician
Simon Poisson in
1837.
His name is one of the
72 names inscribed on
the Eiffel Tower.
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.
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!
A random variable X is said to be a Poisson r.v. with parameter
(> 0) if it has the probability function
= =
It can be shown that
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
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.
Let X be the number of patient arrivals in 30 minutes

X is Poisson with parameter = 3
= =
for = 0, 1, 2, . . .
Excel Function : POISSON (x, , cumulative)
cumulative = 0 ( or FALSE) P ( X = x )
1 ( or TRUE) P ( X x )
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?

Example
Suppose daily demand for croissants at a bakery shop is given by
Daily Demand
Probability
60
0.05
64
0.15
68
0.20
72
0.25
75
0.15
77
0.10
80
0.10
Let X = daily demand for croissants

We can easily compute
E (X)
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

Example
X
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) =
0.75 E (X) + 135
Var (Y)
0.752 Var (X)
71.15
29.5275
Y = 0.75 X + 135
E (Y)
= ?
Var (Y) = ?
How are the means and variances related ?

E (Y)
Note:
If Y = a X + b
E (Y)
= a E (X) + b
Var (Y) = a2 Var (X)
Formulas apply
to continuous
r.v.s as well
Covariance and Correlation

How do we summarize the relationship between two variables?
Specifically : how do we summarize what we observe in a scatter
plot?
Examples:
Unemployment rate
vs
Crime rate
Stock market
vs
Property market
Time spent on DSC1007
vs
DSC1007 Exam marks

Q : How do we describe the relationship between two rvs?
Example: Chain of upscale cafs sells gourmet hot coffees and cold beverages.
From past sales data, daily sales at one of their caf obey the following
probability distribution for (X, Y),
X = # hot coffees, Y = # cold beverages sold per day
Probability
No. of Hot Coffees Sold
No. of Cold Drinks Sold
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

Scatter Plot of Daily Sales for
Hot Coffees and Cold Beverages
500
400
Cold 300
Beverage
Sales 200
100
0
0
200
400
600
Hot Coffee Sales
800
1000
Comment : It seems that smaller sales of hot coffees are

often accompanied by larger sales of cold
beverages.

Scatter Plot of Daily Sales for
Hot Coffees and Cold Beverages
500
400
Cold 300
Beverage
Sales 200
100
0
0
200
400
600
Hot Coffee Sales
800
1000
Comment : Hot coffee sales greater than the average number

sold per day are typically accompanied by cold beverage sales
that are smaller than the average sold per day.

We now define the covariance of two random variables X and
Y with means X and Y :
Probability
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
,

= , =

Covariance
,

= , =
Observe from the above that:

(, ) =
()

Probability
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

Probability
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
Cov (X,Y) = 0.10 (360457)(360210) + 0.10 (790457)(110210)

+ . . . + 0.05 (510457)(290210) = 27,260

Covariance
,

= , =
We introduce a standardized measure of interdependence

between two rvs :
Correlation
(, )
, =

Comments :
The measure of correlation is unit-free.
Corr (X, Y) is always between 1.0 and 1.0

Correlation
Corr (X,Y) =
=
(, )
, =

1.0
perfect positive linear relationship
no linear relationship between X and Y
= 1.0
perfect negative linear relationship

If higher than average values of X are apt to occur with higher
than average values of Y, then Cov(X, Y) > 0 and Corr(X, Y) > 0.
X and Y are positively correlated.
If higher than average values of X are apt to occur with lower

than average values of Y, then Cov(X, Y) < 0 and Corr(X, Y) < 0.
X and Y are negatively correlated.

Correlation is not the same as Causality!
Common fallacy
A occurs in correlation with B
Therefore : A causes B
Joint Probability Distributions

Consider two random variables X and Y that assume values given by
Probability
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 )
f is called the joint probability distribution function of ( X ,Y)
Joint Probability Distributions

The concept of independent events leads quite naturally to a similar
definition for independent random variables.
Two random variables X and Y are said to be independent if

P ( X =x , Y=y ) = P ( X =x ) P(Y=y )
Roughly :
X and Y are independent if knowing the value of one

does not change the distribution of the other.
Thus, if X and Y are independent, then

E ( X Y) = E ( X ) E (Y)
It follows that if X and Y are independent, then
Cov ( X , Y ) = 0
( or Co r r ( X , Y ) = 0 )

We know : independent random variables are always uncorrelated.
But
: dependent random variables may also be uncorrelated!!
Example : Consider r.v.s X and Y with the following joint probability distribution
P (X , Y)
1/3
1/3
1/3
Check : are X and Y independent?
Check : are X and Y uncorrelated?
Sum of Random Variables

Mean
E(aX + bY) = aE(X) + bE(Y)
Variance
Var(aX + bY) = a2Var(X) + b2Var(Y) + 2abCov(X,Y)
or :
Var(aX + bY) = a2Var(X) + b2Var(Y) + 2abXY Corr(X,Y)
Note: Formulas apply to continuous r.v.s as well

If X and Y are independent Cov(X,Y)= 0
Variance
Var(aX + bY) = a2Var(X) + b2Var(Y) + 2abCov(X,Y)

Example: Chain of upscale cafs sells gourmet hot coffees and cold beverages.
From past sales data, daily sales at one of their caf obey the following
probability distribution for (X, Y),
Probability
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

cold beverages (Y) are $2.50/glass;
hot coffees (X) $1.50/cup.
E(X) = 457,
Var (X) = 59,671
E(Y) = 210,
Var (Y) = 21,210
Cov (X,Y) = 27,260
Determine the following :

mean and standard deviation of daily sales of cold beverages
E(2.5Y) = 2.5
? E(Y)
SD(2.5Y) = ?2.5 SD(Y) = 2.5Var (Y)
mean and standard deviation of daily sales of hot coffees

E(1.5X) = 1.5
? E(X)
SD(1.5X) = ?1.5 SD(X) = 1.5Var(X)
mean and standard deviation of total daily sales of all beverages

E(1.5X + 2.5Y) = ?
SD(1.5X + 2.5Y) = ?

cold beverages (Y) are $2.50/glass;
hot coffees (X) $1.50/cup.
E(X) = 457,
Var (X) = 59,671
E(Y) = 210,
Var (Y) = 21,210
Cov (X,Y) = 27,260
Determine the following :

mean and standard deviation of daily sales of cold beverages
E(2.5Y) = 2.5
? E(Y)
SD(2.5Y) = ?2.5 SD(Y) = 2.5Var (Y)
mean and standard deviation of daily sales of hot coffees

E(1.5X) = 1.5
? E(X)
SD(1.5X) = ?1.5 SD(X) = 1.5Var(X)
mean and standard deviation of total daily sales of all beverages

E(1.5X + 2.5Y) = ?
SD(1.5X + 2.5Y) = ? Var (1.5X + 2.5Y)
= 1.5 2 Var(X) + 2.5 2 Var(Y) + 2*1.5*2.5*Cov(X,Y)

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DSC1007 Lecture 4

Sums of Random Variables

Joint probability distributions and independence

: can only assume values that are distinct and separate

2.0, 2.5, 3.0, 3.5

Continuous : can take on any value within some interval of numbers

What are the possible outcomes of this experiment?

Let X = number of international students chosen

A probability distribution for a random variable

Discrete Probability Distribution

(ii) corresponding probabilities p1, p2, . . . , pn

Discrete Probability Distribution

possible values x1, x2,

(ii) corresponding probabilities

with the interpretation that

Discrete Probability Distribution

Lets say that 30 % of BBA students are international

Let X = number of international students chosen

Q: What is its probability

Discrete Probability Distribution

Let X = number of international students chosen

Discrete Probability Distribution

Let X = number of international students chosen

Discrete Probability Distribution

Let X = number of international students chosen

Discrete Probability Distribution

Let X = number of international students chosen

Discrete Probability Distribution

X = number of international students chosen

Discrete Probability Distribution

Discrete Probability Distribution

Probability Distribution of the

Discrete Probability Distribution

Probability Distribution Function of Eastern

Probability Distribution Function of Western

Discrete Probability Distribution

Probability Distribution Function of Eastern

Probability Distribution Function of Western

Discrete Probability Distribution

P(X =x) 0.20

Q: How to describe and compare X and Y ?

Summary Measures of Probability Distributions

a measure of location, or central tendency, such as the mean,

Summary Measures of Probability Distributions

The mean (or expected value) of X is

Summary Measures of Probability Distributions

Summary Measures of Probability Distributions

Compute the mean, variance and standard deviation of X.

Summary Measures of Probability Distributions

Let X = number of international students chosen

Summary Measures of Probability Distributions

Let X = number of international students chosen

Summary Measures of Probability Distributions

Probability Distribution Function of Eastern

Compute the mean, variance and standard deviation of

X (eastern division sales) and Y (western division sales)

Probability Distribution Function of Western

Summary Measures of Probability Distributions

X (eastern division sales) and Y (western division sales)

Summary Measures of Probability Distributions

I. Empirically (from data)

Let X = number of pieces of chicken in an order.

The Binomial Distribution