(Green) MathStat 1

Part 1 Probability and Distribution Theory
Statistical Inference and Regression

Analysis:
Stat-GB.3302.30, Stat-UB.0015.01
Professor William Greene
Stern School of Business
IOMS Department
Department of Economics
Part 1 Probability and

Distribution Theory
1 Probability
4/108
Sample Space
Random outcomes: The result of a process
l
l
l
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Scatterplot of Listing vs IncomePC
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
Marginal Plot of Listing vs IncomePC
Empirical CDF of Listing
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
Histogram of Listing
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000
Probability Plot of Listing

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Percent
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Frequency
Pie Chart of Percent vs Type
Mushroom and Onion

9.2%
Outcomes, experiments and sample spaces
Listing
Sequence of events,
Number of events,
Measurement of a length of time, space, etc.
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
5/108
Consumer Choice: 4 possible ways a

randomly chosen traveler might travel
between Sydney and Melbourne
= {Air, Train, Bus, Car}

600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
6/108
Market Behavior: Fair Isaacs credit card

service to major vendors
= {Reject, Accept}
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
7/108
Measurement of Lifetimes
A box of light bulbs states Average life is 1500

hours
Outcome = length of time until failure (lifetime) of a

randomly chosen light bulb
= {lifetime | lifetime > 0}
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
8/108
Events
Events are defined as

l Subsets of sample space, such as empty set
l Intersection of related events
l Complements such as A and not A
l Disjoint sets such as (train,bus),(air,car)
Any subset including is a disjoint union of

subsets:
= (Air, Train) (Bus, Car)

600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
9/108
Probability is a Measure
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Frequency
Listing
The sample space is a - field:

l Contains at least one nonempty subset (event)
l Is closed under complementarity
l Is closed under countable union
Probability is a measure defined on all subsets of
Axioms of Probability
l P() = 1
l A P(A) > 0
l If A B = {}, P(A B) = P(A) + P(B)
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
10/108
Implications of the Axioms

P(~A)
= 1 P(A) as A ~A =
P() = 0 as = ~ and P() = 1
B P(A) < P(B) as B = A + (~A B)
P(A B) = P(A) + P(B) P(A B)
A
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
11/108
Probability
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Frequency
Listing
Assigning probability: Size of an event relative to

size of sample space.
Counting rules for equally likely discrete outcomes
l Using combinations and permutations to count
elements
l Example: Discrete uniform, poker hands
l Example hypergeometric: the super committee
(House 242R,193D, Senate 49R, 51D&I)
Measurement for continuous outcomes
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
12/108
Applications:
Games of Chance; Poker
In
a 5 card hand from a deck of 52,

there are (52*51*50*49*48)/(5*4*3*2*1)
different possible hands. (Order
doesnt matter). 2,598,960 possible
hands.
How many of these hands have 4
aces? 48 = the 4 aces plus any of the
remaining 48 cards.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
13/108
Some Poker Hands

Full House 3 of one kind, 2 of another.
(Also called a boat.)
Royal Flush Top 5 cards in a suit
Flush 5 cards in a suit, not sequential

Straight Flush 5 sequential cards in the
same suit suit
Straight 5 cards in a numerical row, not the same

suit
4 of a kind plus any other card
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
14/108
5 Card Poker Hands
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
15/108
The Dead Mans Hand

The dead mans hand is 5 cards, 2 aces, 2 8s
and some other 5th card (Wild Bill Hickok was
holding this hand when he was shot in the back
and killed in 1876.) The number of hands with
two aces and two 8s is 4 4 44 = 1,584
2 2
The rest of the story claims that Hickok held all

black cards (the bullets). The probability for this
hand falls to only 44/2598960. (The four cards in
the picture and one of the remaining 44.)
Some claims have been made about the 5th card,
but noone is sure there is no record.
http://en.wikipedia.org/wiki/Dead_man's_hand
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
16/108
Budget Supercommittee
D
57
Senate
3
41

3
2

0
How many possible committees? About 9.3E20

57(56)(55) 41(40)(39) 2(1)
3(2)(1)
3(2)(1) 2(1)
193 242 0
House

3 3 0
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
193(192)(191) 242(241)(240) 1
3(2)(1)
3(2)(1)
1
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
17/108
Conditional Probability
P(A|B)
= P(A,B)/P(B)
= Size of A relative to a subset of
Basic result p(A,B) = p(A|B) p(B)
(follows from the definition)
Bayes theorem
l Applications
mammography, drug
testing, lie detector test, PSA test.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
18/108
Using Conditional Probabilities: Bayes

Theorem
P(A,B)
P(A | B) =
P(B)
P(B | A)P(A)
=
P(B)
P(B | A)P(A)
=
P(A,B) + P(notA,B)
P(B | A)P(A)
=
P(B | A)P(A) + P(B | notA)P(notA)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
100000
15000
17500
20000
22500
25000
IncomePC
27500
30000
32500
6
4
200000
100000
15000
200000
400000
600000
Listing
800000
1000000
369687
156865
51
80
300000
10
Mean
StDev
N
10
500000
400000
20
300000
200000
60
50
40
30
Normal
100
12
700000
600000
70
14
800000
80
600000
200000
369687
156865
51
0.994
0.012
Computation
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
Definition
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Theorem
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Target
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
19/108
Drug Testing
Pepperoni
21.8%
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Meatball
Garlic 5.0%
2.3%
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Mushroom and Onion

9.2%
What are P(D|+) and P(N|)?

Note, P(D|+) = the probability that a patient actually has the
disease when the test says they do.
Percent
Frequency
Listing
Data
l P(Test correctly indicates disease)=.98 (Sensitivity)
l P(Test correctly indicates absence)=.95 (Specificity)
l P(Disease) = .005 (Fairly rare)
Notation
l + = test indicates disease, = indicates no disease
l D = presence of disease, N = absence of disease
Data:
l P(D) = .005 (Incidence of the disease)
l P(+|D) = .98
(Correct detection of the disease)
l P(|N) = .95
(Correct failure to detect the disease)
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
20/108
More Information
Deduce: Since P(+|D)=.98,
we know
P(|D)=.02
because
P(-|D)+P(+|D)=1
[P(|D) is the P(False negative).
Deduce: Since P(|N)=.95,
we know
P(+|N)=.05
because
P(-|N)+P(+|N)=1
[P(+|N) is the P(False positive).
Deduce: Since P(D)=.005,
P(N)=.995
because
P(D)+P(N)=1.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
21/108
Now, Use Bayes Theorem

We have P(+|D)=.98.
What is P(D|+)?
P(D and +)
P(+|D)P(D)
=
(By Bayes Theorem)
P(+)
P(+)
P(+) = P(D and +) + P(N and +)
P(D|+)=
= P(+|D)P(D) + P(+|N)P(N) so
P(D|+) =
=
P(+|D)P(D)
P(+|D)P(D)
=
P(+)
P(+|D)P(D) + P(+|N)P(N)
.98(.005)
= 0.08966 (!!)
.98(.005)+.05(.995)
Using the same approach, P(N|-) = 0.999889
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
22/108
Independent events
Definition:
P(A|B) = P(A)
Multiplication
rule P(A,B) = P(A)P(B)
Application:
Infectious disease
transmission
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
2 Random Variables
24/108
Random Variable
Definition:
Maps elements of the

sample space to a single variable:
Assigns a number to
l Discrete:
Payoff to poker hands

l Continuous: Lightbulb lifetimes
l Mixed:
Ticket sales with capacity
constraints. (Censoring)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
25/108

= {Reject, Accept}
X = 0=reject, 1=accept
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
26/108
Caribbean Stud Poker

{---------------- Sample Space --------------}
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
Variable
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Probability
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
27/108
Features of Random Variables

Probability
Distribution
l Mass
function:
Prob(X=x)=f(x)
l Density function: f(x), x = ...
Cumulative
l Prob(X
probabilities; CDF
< x)
l F(x)
Quantiles:
x such that F(x) = Q
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
Percent
900000
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
x = median, Q = 0.5.
Frequency
l Median:
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
28/108
Discrete Random Variables
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Frequency
Listing
Elemental building block

l Bernoulli: Credit card applications
l Discrete uniform: Die toss
Counting Rules
l Binomial: Family composition
l Hypergeometric: House/Senate Supercommittee
Models
l Poisson: Diabetes incidence, Accidents, etc.
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
29/108

X = 0=reject, 1=accept
Prob(X=x)=(1-p)(1-x)px, x=0,1
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
30/108
Binomial
n x
n-x
Prob(X=x)= p (1-p)
x
Sum of n Bernoulli trials
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
31/108
Examples
Family has 4 children.
4 1
Prob[4 daughters] =
4 2
1
1
1
2 16
Weapons system has 20 components. It will fail if 2 or more break down.

Prob any component fails is 0.2
Prob(system breaks down) = Prob[X 2] =
20 2 20 x
.2 .8
x
20
x=2
= 1 - Prob[X < 2]
= Prob(X=0) + Prob(X=1)
= (1).20 .820 + (20).21.819 = .819 (.8 + (20).2)) = .069167
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
32/108
Poisson
Approximation
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
Percent
900000
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
model for a type of process
Frequency
General
to binomial
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
33/108
Poisson Approximation to
Binomial
n
Prob(X=x|n,p)= p x (1 p )n x
x

1
n
n x
, = np
x

n!
= x
1
x ! n (n x)! n
exp() x
, x = 0,...,n
n
x!
Approximation improves as
0
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
90
400000
200000
100000
15000
60
50
40
30
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
Mean
StDev
N
369687
156865
51
80
200000
Normal
10
500000
300000

100
12
700000
400000
10
17500
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
Normal - 95% CI
99
700000
300000
100000

1
n
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Percent
n!
=

x !(n x)! n
= np, n ,p
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
34/108
Diabetes Incidence per 1000
exp(-7)7
Prob(D=d)
, d=0,1,...,1000.
d!
http://www.cdc.gov/diabetes/statistics/incidence/fig2.htm
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
35/108
Poisson Distribution of Disease

Cases in 1000 Draws with =7
Poisson Probabilities for Diabetes Cases
0.16
0.14
PoissonProbability
0.12
0.10
0.08
0.06
0.04
0.02
0.00
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
Mean
StDev
N
369687
156865
51
80
200000
Normal
10
500000
300000

100
12
700000
400000
10
16
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
14
900000
Mean
StDev
N
AD
P-Value
95
600000
12
Normal - 95% CI
99
700000
300000
100000
10
17500
20000
22500
25000
IncomePC
27500
30000
32500
Percent
900000
8
Cases
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Frequency
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
36/108
Poisson Process: Doctor visits in the survey year

by people in a sample of 27,326. = .8
Poisson probability model is a description of this process, not an approximation
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
37/108
Continuous RV
Density
function, f(x)
Probability
measure P(event)
obtained using the density.
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Lightbulb lifetimes?
Percent
Application:
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
38/108
Probability Density Function; PDF

Density: f(x) 0
Definition:
f(x)dx=1
Definition: CDF=Prob(X x)=F(x)=
f(x)dx
('Cumulative Density Function' or 'Distribution Function')

Probability: P()= f(x)dx
In range a to b Prob(a < X < b) = Prob(a X b) = f(x)dx

a
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
39/108
CDF and Quantiles

pth
= quantile; 0 < p < 1
Quantile
xp = F-1(p).
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Percent
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Frequency
Mushroom and Onion

9.2%
p = .5, xp = median
Listing
For
Percent
= xp such that F(xp) = p.
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
40/108
Model for Light Bulb Lifetimes

This is the exponential model for lifetimes. The model is f(time) = (1/) e-time/
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
41/108
Model for Light Bulb Lifetimes

The area under the entire curve is 1.0.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
42/108
Continuous Distribution
The probability associated with an interval such as 1000 < LIFETIME < 2000 equals the area under the curve
from the lower limit to the upper.
A partial area will be between

0.0 and 1.0, and will produce a
probability.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
43/108
Probability of a Single Value Is Zero
The probability associated with a single point, such as LIFETIME=2000, equals 0.0.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
44/108
Probabilities via the CDF

b
Prob(a X b) = f ( x)dx
a
= F (b) F ( a)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
45/108
Probability for a Range of Values Based on CDF
Prob(Life < 2000)
(.7364)
Minus
Prob(Life < 1000)
(.4866)
Equals
Prob(1000 < Life < 2000) (.2498)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
46/108
Common Continuous RVs
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Percent
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Frequency
Mushroom and Onion

9.2%
Listing
Continuous random variables are all models; they do

not occur in nature. The model builders toolkit:
l Continuous uniform
l Exponential
l Normal
l Lognormal
l Gamma
l Beta
Defined for specific types of outcomes
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
47/108
Continuous Uniform
= 1/(b a), a < x < b
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
= x/(b a), a < x < b.
Percent
F(x)
Frequency
f(x)
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
48/108
Exponential
f(x)
= exp(-x), x > 0, 0 otherwise

F(x) = 1 exp(-x), x > 0
Median: F(M) = .5
1 exp(-M) = .5
exp(-M) = .5
M = ln.5
M = -ln.5/
= (ln2)/
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
49/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
49
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
50/108
Gamma Density Uses the

Gamma Function
Definition
( P ) =
x P 1e x dx (Note the limits of integration.)
Extremely Useful Recurrence (Prove by integration by parts)

( P) = ( P 1)( P 1)
Implication for positive integers: ( P) = ( P 1)! and (1) = 0! = 1
Also useful special case: (1 / 2) =
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
51/108
Gamma Distributed Random Variable

P x P 1ex
f ( x | , P ) =
, x 0, > 0, P > 0.
( P )
Used to model nonnegative random
variables e.g., survival of people and
electronic components
Two special cases
P = 1 is the exponential distribution
P = and = is the chi squared
with one degree of freedom
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
52/108
Beta Uses Beta Integrals

Beta density is used to model a random variable that ranges
from 0 to 1 such as a proportion
1
(a, b) = x a 1 (1 x)b 1 dx =
0
(a )(b)
( a + b)
(a + b) a 1
x (1 x)b 1 ,
(a )(b)
0 x 1, a > 0, b > 0.
The beta density is f(x|a,b) =
Useful special case, a = 1 and b = 1 is the Uniform(0,1)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
53/108
Normal Density The Model

1
1 x -
f(x) =
exp -
2
2
, - < x < +
Mean = , standard deviation =
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
54/108
Normal Distributions
The scale and location

(on the horizontal
axis) depend on and
. The shape of the
distribution is always
the same. (Bell curve)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
55/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
56/108
Standard Normal Density (0,1)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
57/108
Lognormal Distribution
(ln x )2
f ( x) =
exp
, x > 0.
2
2
x 2
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
58/108
Censoring and Truncation
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Percent
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Frequency
Mushroom and Onion

9.2%
Listing
Censoring
l Observation mechanism. Values above or below a certain
value are assigned the boundary value
l Applications, ticket market: demand vs. sales given capacity
constraints; top coded income data
Truncation
l Observation mechanism. The relevant distribution only
applies in a restricted range of the random variable
l Application: On site survey for recreation visits. Truncated
Poisson
l Incidental truncation: Income is observed only for those
whose wealth (not income) exceeds $100,000.
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
59/108
Truncated Random Variable

Untruncated
variable has density f(x)

Truncated variable has density
f(x)/Prob(x is in range)
f(x)
Truncated Normal: f(x|x a)=
Prob(x a)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
),x a
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
1- (a-)
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
( )
(x-)
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
60/108
Truncated Normal:
f(x|x>a) = f(x)/Prob(x>a)
F(x | x > XL )
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
61/108
Truncated Poisson
f(x)=
exp(-) x / (x+1)
f(x|x>0)
= f(x)/Prob(x>0)
= f(x) / [1 Prob(x=0)]
= {exp(-) x / (x+1)} / {1 - exp(-)}
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
62/108
Representations of a Continuous
Random Variable
Representations
l Density,
f(x)
l CDF, F(x) = Prob(X < x)
l Survival, S(x) = Prob(X > x) = 1-F(x)
l Hazard function, h(x) = -dlnS(x)/dx
Representations
are one to one

each uniquely determines the
distribution of the random variable
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
63/108
Application: A Memoryless Process

Hazard Rate
h(t ) = lim t
0 Prob(t < T < t+t|T t)
= Probability of failure in the next t interval given that
failure has not occurred up to t.
In a memoryless process, the hazard rate does not depend on how
long the process has been ongoing.
h(t) = (a constant)
d ln S (t )
= .
dt
General solution: S(t) = Kexp(-t)
h(t)= -
Terminal condition: S(0) = 1, so K = 1 and S(t) = exp(-t)

F(t) = 1 - S(t) = 1 - exp(-t) = the CDF of the exponential random variable
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
64/108
A Change of Variable
Theorem: x = a continuous RV with
continuous density f(x). y=g(x) is a
monotonic function over the range of x.
y=g(x), f(y) = f(x(y)) |dx(y)/dy)|
= f(x(y)) |dg-1(y)/dy)|
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
65/108
Change of Variable Applications

Standardized
to normal
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
probability transform
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Fundamental
Percent
Lognormal
normal
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
66/108
Standardized Normal
X ~ N[, 2]
Prob[X < a] = F(a)
Prob[X < a] = Prob[(X - )/ ] < (a - )/
y = (x - )/
l J = dx(y)/dy =
l f(y) = f(y+ ) = [1/sqr(2)]exp(-y2/2)
Only a table for the standard normal is needed.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
67/108
Textbooks Provide Tables of

Areas for the Standard Normal
Econometric Analysis, WHG, 2008,

Appendix G, page 1093, Rice Table 2
Note that values are only given for z
ranging from 0.00 to 3.99. No values
are given for negative z.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
68/108
Computing Probabilities
Standard
Normal Tables give probabilities

when = 0 and = 1.
For other cases, do we need another
table?
Probabilities for other cases are obtained
by standardizing.
l Standardized
variable is z = (x )/
l z has mean 0 and standard deviation 1
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
69/108
Standard Normal Density
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
70/108
Standard Normal Distribution Facts

The
random variable z runs from - to +

(z) > 0 for all z, but for |z| > 4, it is
essentially 0.
The total area under the curve equals 1.0.
The curve is symmetric around 0. (The
normal distribution generally is symmetric
around .)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
71/108
Only Half the Table Is Needed
The area to left of 0.0 is exactly 0.5.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
72/108
Only Half the Table Is Needed
The area left of 1.60 is exactly 0.5 plus the area between 0.0 and 1.60.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
73/108
Areas Left of Negative Z
Area left of -1.6 equals area right of +1.6.
Area right of +1.6 equals 1 area to the left of +1.6.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
74/108
Computing Probabilities by Standardizing:

Example
P [ 4.5 x 8 | = 3.5, = 2.0 ]
x
8
4.5
=P

x 3.5
8 3.5
4.5 3.5
=P
2.0
2.0
2.0
= P[0.5 z 2.25]
= P[z 2.25] - P[z 0.5]
= 0.9878 0.6915
= 0.2963
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
75/108
Lognormal Distribution
(lnx-) 2
f(x)=
exp , x > 0.
2
2
x 2
y = lnx, x = exp(y), dx/dy = exp(y)

( y ) 2
1
f(y) =
exp
exp( y )
2
2
exp( y ) 2
( y ) 2
=
exp
.
2
2
2
If x has a lognormal distribution, ln x has a normal distribution
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
76/108
Lognormal Distribution of
Monthly Wages in NLS
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
76
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
77/108
Log of Lognormal Variable
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
77
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
78/108
Fundamental Probability
Transformation
x ~ f(x). F(x) is the cdf of x.
What is the distribution of y = F(x), 0 y 1?
The CDF of y is F(y).
Prob(Y y) = Prob(F(x) y)
= Prob(x F-1 (y)]
= F(F-1 (y))
= y
This is a uniform distribution.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
79/108
Random Number
Generation
The
CDF is a monotonic function of x

If u = F(x), x = F-1(u)
We can generate u with a computer
l Example:
Exponential
l Example: Normal
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
80/108
Generating Random Samples

Exponential
l u
= F(x) = 1 exp(-x)
l 1 u = exp(-x)
l x = (-1/ ) ln(1 u)
Normal
(,)
l u
= (z)
l z = -1(u)
l x = z + = -1(u) +
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
81/108
U[0,1] Generation
Linear
congruential generator
x(n) = (a x(n-1) + b)mod m
Properties of RNGs
l Replicability
they are not RANDOM
l Period
l Randomness
tests
The
Mersenne twister: Current state of the

art (of pseudo-random number generation)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
3 Joint Distributions
83/108
Jointly Distributed Random

Variables
Usually some kind of association
between the variables. E.g., two
different financial assets
Joint cdf for two random variables
F(x, y) = Prob(X < x, Y < y)
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
84/108
Probability of a Rectangle
a1
b1
b2
Prob[a1 < x < b1, a2 < y < b2]
a2
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
100000
15000
17500
20000
22500
25000
IncomePC
27500
30000
32500
6
4
200000
100000
15000
200000
400000
600000
Listing
800000
1000000
369687
156865
51
80
300000
10
Mean
StDev
N
10
500000
400000
20
300000
200000
60
50
40
30
Normal
100
12
700000
600000
70
14
800000
80
600000
200000
369687
156865
51
0.994
0.012
F(a1,a2)
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
Percent
900000
F(a1,b2)
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Frequency
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
F(b1,a2)
Listing
Mushroom and Onion

9.2%
Percent
F(b1,b2)
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
85/108
Joint Distributions
Discrete:
Multinomial for R kinds of

success in N independent trials
Continuous:
Bi- and Multivariate
normal
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
Percent
900000
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Conditional regression models
Frequency
Mixed:
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
86/108
Multinomial Distribution
N trials, X1 ,...,X N
R different types of 'success'
Outcome: x1 ,...,x R such that
R
r =1
x r =N
N x1
xR
Prob[X1 =x1 ,...,X R =x R ] =
p
...
p
1
R
x
...
x
1 R
Example: Mix of suits in 13 card bridge hand
13!
1
Prob[XS ,X D ,X C ,X H ] =

XS! X D! X C! X H ! 4
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
100000
15000
17500
20000
22500
25000
IncomePC
27500
30000
32500
6
4
200000
100000
15000
200000
400000
600000
Listing
800000
1000000
369687
156865
51
80
300000
10
XH
Mean
StDev
N
10
500000
400000
20
300000
200000
60
50
40
30
1

4
Normal
100
12
700000
600000
70
XC
14
800000
80
600000
200000
369687
156865
51
0.994
0.012
1

4
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
XD
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
1

4
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
XS
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
87/108
Probabilities: Inherited Color Blindness

Inherited color blindness has different incidence rates in men and women.
Women usually carry the defective gene and men usually inherit it.
Pick an individual at random from the population.
B=1 = has inherited color blindness, B=0, not color blind
G=0 = MALE = gender, G=1, Female
Marginal: P(B=1)
= 2.75%
Conditional: P(B=1|G=0)
= 5.0%
(1 in 20 men)
P(B=1|G=1)
= 0.5%
(1 in 200 women)
Joint:
P(B=1 and G=0)
= 2.5%
P(B=1 and G=1)
= 0.25%
Meatball
Garlic 5.0%
2.3%
Pepperoni
21.8%
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Mushroom and Onion

9.2%
Percent
Frequency
Listing
Percent
Listing
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
88/108
Marginal Distributions
Prob[X=x] = y Prob[X=x,Y=y]
Color Blind
Plain
32.5%
G=1
.4975
.0025
0.50
Total
.97255
.0275
1.00
600000
500000
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Prob[G=0]=Prob[G=0,B=0]+
Prob[G=0,B=1]
Percent

900000
400000
Mushroom
16.2%
0.50
900000
Total
Frequency
Sausage
5.8%
.025
700000
Listing
Pepper and Onion

7.3%
.475
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
B=1
Listing
Pepperoni
21.8%
G=0
Listing
Meatball
Garlic 5.0%
2.3%
B=0
Percent
Mushroom and Onion

9.2%
Gender
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
89/108
Joint Continuous Distribution

Probability associated with a region A
Prob((X,Y) A)=
f(x,y)dydx
f(x,y) is the joint density function

Joint CDF
For a region A = {(X,Y) with X x, Y y}
F(x,y) =
f(x,y)dydx
Joint density
2 F(x,y)
f(x,y) =
xy
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
90/108
Marginal Distributions
If f(x,y) is the joint density, x A, y B, then f(y) =
f(x,y)dx
Example: f(x,y) = (x)e ( x ) y , y 0, 0 x 1.

f(y) =
(x)e-(x)y dx. Make the change of variable to t = x
1 -ty
1 (-y)t
te
dt
=
te dt. Now let a = -y
0
0
1 at
t 1 at
f(y) =
te
dt
=
- 2 e 0 where a = -y
0
a a
1
f(y) = 2 2 1-ye-y -e-y
y
f(y) =
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
91/108
Two Leading Applications
Function - Application in Finance
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
Normal Distribution
Percent
Bivariate
Frequency
Copula
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
92/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
93/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
94/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
95/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
96/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
97/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
98/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
99/108
The Bivariate Normal Distribution

(x, y) distributed as bivariate normal if
(1) Infinite range - < x,y < +
(2) Normal marginal distributions:
2
2
1
1 x x
1
1
y
f(x) =
exp
exp
, f(y) =
2 y
x 2
y 2
2 x
(3) Joint Density

2
2
x x
1
1 x x
y
f(x,y)=
exp
2
+
2
2
2(1
x
2 x y 1
(6) New parameter is the correlation between x and y.
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
y y

20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
100/108
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
101/108
Independent Random Variables

y) = Prob(X < x, Y < y)
= Prob(X < x) Prob(Y < y)
= FX(x) FY(y)
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
= 2 F(x,y)/x y
= f(x) f(y)
Percent
f(x,y)
Frequency
F(x,
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
102/108
Independent Normals
(x, y) distributed as bivariate normal
2
2
x x
1
1 x x
y
f(x,y) =
exp
+
2(1 2 ) x y
2 x y 1 2
x
(2) Uncorrelated; = 0
y y

y
2
2

1
1 x x
f(x,y) =
exp

+
2 x y
2 x y
1 y 2
1 x 2 1
y
x
=
exp
exp

2 y
x 2
2 x y 2
In the bivariate normal case (not generally), correlation = 0 implies indepencence

1
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
103/108
Conditional Distributions
Conditional Probability: Prob(X A | Y B)
Prob(X A and Y B)
Prob(Y B)
In the discrete case: Prob(X = x | Y = y)

Prob(X = x and Y = y)
Prob(Y = y)
Color Blind
.025
0.50
G=1 (F)
.4975
.0025
0.50
Total
.97255
.0275
1.00
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
Listing
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Percent
Pepperoni
21.8%
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
.475
Listing
Meatball
Garlic 5.0%
2.3%
Total
G=0 (M)
Mushroom and Onion

9.2%
B=1
(Yes)
Percent
B=0
(No)
Frequency
Gender
Prob(Not color blind given male)

Prob(B=0|G=0)
= Prob(B=0,G=0) / Prob(G=0)
=
.475 / .50
=
.950
Prob(B=1|G=0) = .025/.5 = .05
Prob(B=1|G=0)+Prob(B=0|G=0)=1
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
104/108
Conditional Distribution
Continuous Normal
f (y, x)
f (x)
(x, y) distributed as bivariate normal
f(y|x) =
x 2 y 2
y y
y
x
x
f(x,y) =
exp
2

+

2
2
2(1 ) x y
2 x y 1
x y
1 x 2
1
x
f(x) =
exp

x 2
2 x
2

)(x
)]
1
1
1
1
y
y
x
x
y|x
=
f (y | x) =
exp
exp
2
y|x 2
2 y|x
y 2 1 2
y 1 2
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
105/108
Bivariate Normal
Joint
distribution is bivariate normal

Marginal distributions are normal
Conditional distributions are normal
y|x = Y +
y
x
(x x )
= the conditional mean function

= the regression function of y on x.
Note : y|x = + x
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
106/108
Y and
Y|X
Y
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
107/108
Model Building
Pepperoni
21.8%
Sausage
5.8%
900000
800000
800000
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
900000
Normal - 95% CI
90
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
500000
900000
Mean
StDev
N
AD
P-Value
95
600000
300000
100000

99
700000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Meatball
Garlic 5.0%
2.3%
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
Mushroom and Onion

9.2%
Percent
Frequency
Listing
Typically f(y|x) is of interest

x is generated by a separate process f(x)
Joint distribution is f(y,x)=f(y|x)f(x)
Ex: demographic
y = log(household income|family size)
x = family size
l y|x ~ Normal(y|x , y|x )
l x ~ Poisson ()
Percent
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000
108/108
X=4
X=3
X=2
X=1
y|x ~ Normal[ 20 + 3x, 42 ], x = 1,2,3,4; Poisson
600000
500000
400000
Mushroom
16.2%
Plain
32.5%
Normal - 95% CI
90
500000
400000
200000
100000
15000
60
50
40
30
17500
20000
22500
25000
IncomePC
27500
30000
32500
200000
100000
15000
400000
600000
Listing
800000
1000000
369687
156865
51
80
200000
Mean
StDev
N
10
500000
300000
Normal
100
12
700000
400000
10
14
800000
600000
70
20
300000
200000
369687
156865
51
0.994
0.012
80
600000
900000
Mean
StDev
N
AD
P-Value
95
700000
300000
100000

99
17500
20000
22500
25000
IncomePC
27500
30000
32500
1000000
60
800000
40
Listing
800000
800000
Percent
900000
Frequency
Sausage
5.8%
900000
700000
Listing
Pepper and Onion

7.3%
Boxplot of Listing
Category
Pepperoni
Plain
Mushroom
Sausage
Pepper and Onion
Mushroom and Onion
Garlic
Meatball
Listing
Pepperoni
21.8%
Listing
Meatball
Garlic 5.0%
2.3%
Percent
Mushroom and Onion

9.2%
20
600000
400000
0
0
200000
300000
400000
500000 600000
Listing
700000
800000
900000
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
10
20
30
40
50
60
70
80
90
Listing
200000
15000
20000
25000
IncomePC
30000

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Part 1 Probability and Distribution Theory

Statistical Inference and Regression

Part 1 Probability and Distribution Theory

Part 1 Probability and

Part 1 Probability and Distribution Theory

Part 1 Probability and Distribution Theory

Scatterplot of Listing vs IncomePC

Marginal Plot of Listing vs IncomePC

Empirical CDF of Listing

Probability Plot of Listing

Scatterplot of Listing vs IncomePC

Pepper and Onion

Pie Chart of Percent vs Type

Mushroom and Onion

Outcomes, experiments and sample spaces

Part 1 Probability and Distribution Theory

Consumer Choice: 4 possible ways a

= {Air, Train, Bus, Car}

Scatterplot of Listing vs IncomePC

Marginal Plot of Listing vs IncomePC

Empirical CDF of Listing

Probability Plot of Listing

Scatterplot of Listing vs IncomePC

Pepper and Onion

Pie Chart of Percent vs Type

Mushroom and Onion

Part 1 Probability and Distribution Theory

Market Behavior: Fair Isaacs credit card

Scatterplot of Listing vs IncomePC

Marginal Plot of Listing vs IncomePC

Empirical CDF of Listing

Probability Plot of Listing

Scatterplot of Listing vs IncomePC

Pepper and Onion

Pie Chart of Percent vs Type

Mushroom and Onion

Part 1 Probability and Distribution Theory

A box of light bulbs states Average life is 1500

Outcome = length of time until failure (lifetime) of a

= {lifetime | lifetime > 0}

Scatterplot of Listing vs IncomePC

Marginal Plot of Listing vs IncomePC

Empirical CDF of Listing

Probability Plot of Listing

Scatterplot of Listing vs IncomePC

Pepper and Onion

Pie Chart of Percent vs Type

Mushroom and Onion

Part 1 Probability and Distribution Theory

Events are defined as

Any subset including is a disjoint union of

= (Air, Train) (Bus, Car)

Scatterplot of Listing vs IncomePC

Marginal Plot of Listing vs IncomePC

Empirical CDF of Listing

Probability Plot of Listing

Scatterplot of Listing vs IncomePC

Pepper and Onion

Pie Chart of Percent vs Type

Mushroom and Onion

Part 1 Probability and Distribution Theory

Scatterplot of Listing vs IncomePC

Scatterplot of Listing vs IncomePC