EXPECTED VALUE OF RANDOM VARIABLES  The Expected Value of a Function of a Random Variable

 Expected Value – one of the most important probabilistic  Let X be a discrete random variable with probability
concepts in statistics. distribution given by
– it is also referred to as the population mean.
– it is denoted by E(x) or simply 𝜇. x x1 x2 ... xn
 it is a weighted average of the F(x) = P(X = x) f(x1) f(x2) ... f(xn)
possible values of x.

 For a discrete random variables x with values x1, x2, x3, The expected value of g(X), a function of the discrete
… and corresponding probabilities P(X = xi), the random variable X, is E( g (X)) = ∑𝑛𝑖=1 𝑔 (xi) f (xi)
expected value of x is completed as
EXAMPLE:
𝜇 = E(x) = ∑(𝑥) • P(X = x) A used car dealer finds that in any day, the probability of
selling no car is 4.0, one car is 0.2, two cars is 0.15, 3 cars is 0.10, 4
EXAMPLE: cars is 0.08, five cars is 0.06, and six cars is 0.01. Let X = number of
In a game of chance, a man is paid ₱ 50 if he gets all heads or cars sold and let Y = g (X) = 500 + 1, 500 X representing the
all tails when 3 coins are tossed and he pays ₱ 30 if either 1 or 2 heads salesman’s daily earning. Find the salesman’s expected daily earnings.
show. What is his expected gain?
Probability Distribution:
Let x = gain, x is a discrete random variable with 2 possible values: x 0 1 2 3 4 5 6
50 and -30.
x = 50 is associated with the event (HHH, TTT), while f(x) 0.4 0.2 0.15 0.10 0.08 0.06 0.01
x = -30 is associated with the event (HHT, HTH, HTT, THH, THT,
TTH)
x 0 1 2 3 4 5 6
g(x) 500 2,000 3,500 5,000 6,500 8,000 9,500
x 50 -30

2 6 E(Y) = E ( g(X))
P(X = x)
8 8 = (500)(0.4) + (2,000)(0.2) + (3, 500)(0.15) + (5, 000)(0.1) +
(6, 500)(0.08) + (8, 000)(0.06) + (9, 500)(0.01)
2 6
E(x) = (50)(8) + (-30)(8) = 200 + 400 + 525 + 500 + 520 + 480 + 95
= 2, 720
= 12.5 + (-22.5)
= -10 The salesman is expected to earn ₱ 2, 720 per day.
  The expected value of a linear function of a random Let x be the number on each ball.
variable is E ( aX + b) = aE ( X ) + b, where a and b are
fixed numbers. Probability distribution:

E (Y) = E ( g(X)) = E (500 + 1,500X) = 500 + 1,500E (X) Number on ball, x 0 2 4 6 8

= 500 + 1, 500 {0 (0.4) + 1(0.2) + 2(0.15) + 3(0.1) + 1 1 1 1 1
4(0.08) + 5(0.06) + 6(0.01)} Probability, P (X = x)
5 5 5 5 5
= 500 + 1,500 (1.48)
= 500 + 2,220 The expected value is:
= 2,720
E (X) = ∑ 𝑥 • P(X = x)
 Variance and Standard Deviation of a Random Variable 1 1 1 1 1
= 0( ) + 2( ) + 4 ( ) + 6( ) + 8( )
5 5 5 5 5
 For a discrete random variable X with values x1, x2,
2 4 6 8
x3, . . . , which occur with probabilities P(X = x), the =0+ + + +
variance of X is calculated as 5 5 5 5
20
𝜎2 = V (X) = E[ (X – 𝜇 )2 ] = ∑( 𝑥 − 𝜇 )2 P(X = x) =
5

The standard deviation of X is SD ( X ) = 𝜎 = 𝜎2 . = 4.0

 Computational formula for the variance of a random The variance is:

variable:
𝜎2 = V (X) = ∑[x2 • P(X = x)] – [ E (X) ]2
𝜎2 = V (X) = E (X2) – [ E (X) ]2
1 1 1 1 1
= ∑[x2 • P(X = x)] – [ E (X) ]2 = [ 02( ) + 2 ( ) + 4 ( ) + 6 ( ) + 8 ( )] – 4
2 2 2 2 2
5 5 5 5 5

EXAMPLES: 4 16 36 64
= (0 + + + + ) – 16
Five balls numbered 0, 2, 4, 6, and 8 are placed in a bag. 5 5 5 5
After the balls are mixed, one ball is picked and its number is
noted, then it is replaced in the bag. If this experiment is repeated = 24 – 16
many times, find the variance and the standard deviation of the
numbers on the balls. =8
The standard deviation is:
SD (X) = 𝜎 = √8 = 2.83

x P (X = x) x • P (X = x) x2 • P (X = x)

0 0.2 0 0

2 0.2 0.4 0.8

4 0.2 0.8 3.2

6 0.2 1.2 7.2

8 0.2 1.6 12.8

∑ 𝑥 • P (X = x) = 4.0 ∑ 𝑥2 • P (X = x) = 24

Var (X) = 𝜎 2 = 24 – 42 = 8