MGT 205- Introduction to

Statistics

Lecture 4
Random Variables and Probability Distributions
Part I: Discrete Random Variables

İstanbul Şehir University

Gökçen Arkalı Olcay
Fall 2016-2017

Fall 2016-2017 MGT 205 1

 Content
1. Two Types of Random Variables
2. Probability Distributions for Discrete
Random Variables
3. The Binomial Distribution
4. Poisson and Hypergeometric Distributions

Fall 2016-2017 MGT 205 2

 Learning Objectives
1. Develop the notion of a random variable
2. Learn that numerical data are observed values of
either discrete or continuous random variables
3. Study important types of random variables and
their probability models: the binomial and poisson
distributions

Fall 2016-2017 MGT 205 3

 Random Variable

A random variable represents a possible

numerical value from an uncertain event.
• Total number of heads observed when two coins
are tossed:
• 2, 1, 0 −according to the random outcome of the
experiment HH, HT, TH, TT
• The correct number of answers on a 40-question
test:
• 1, 2, ..., 40

Fall 2016-2017 MGT 205 4

 Two Types of Random Variables

Fall 2016-2017 MGT 205 5

 Types of Random Variables

Random variables that can assume a countable number

(finite or infinite) of values are called discrete.
• Discrete random variables produce outcomes that come from a
counting process (e.g. number of classes you are taking).
Random variables that can assume values
corresponding to any of the points contained in one or
more intervals (i.e., values that are infinite and
uncountable) are called continuous.
• Continuous random variables produce outcomes that come from a
measurement (e.g. your annual salary, or your weight).

Fall 2016-2017 MGT 205 6

 Types of Random Variables

Random
Variables

Discrete Continuous
Random Variable Random Variable

Fall 2016-2017 MGT 205 7

 Discrete Random Variables
• Can only assume a countable number of values

Examples:
• Roll a die twice: Let X be the number of times 4
occurs
– (then X could be 0, 1, or 2 times)

• Toss a coin 5 times: Let X be the number of heads

– (then X = 0, 1, 2, 3, 4, or 5)

Fall 2016-2017 MGT 205 8

 Discrete Random Variable: More
Examples

Experiment Random Possible

Variable Values
Make 100 Sales Calls # Sales 0, 1, 2, ..., 100

Inspect 70 Radios # Defective 0, 1, 2, ..., 70

Answer 33 Questions # Correct 0, 1, 2, ..., 33

Count Cars at Toll # Cars 0, 1, 2, ..., ∞

Between 11:00 & 1:00 Arriving
Fall 2016-2017 MGT 205 9
 Continuous Random Variable
Examples
• Can assume any value on a continuum (uncountable number of
values)

Experiment Random Possible

Variable Values
Weigh 100 People Weight 45.1, 78, ...
Measure Part Life Hours 900, 875.9, ...
Amount spent on food $ amount 54.12, 42, ...
Measure Time Inter-Arrival 0, 1.3, 2.78, ...
Between Arrivals Time

Fall 2016-2017 MGT 205 10

 Probability Distributions for
Discrete Random Variables

Fall 2016-2017 MGT 205 11

 Discrete Probability Distribution

The probability distribution of a discrete random

variable is a graph, table, or formula that specifies the
probability associated with each possible value the
random variable can assume.

Fall 2016-2017 MGT 205 12

 Requirements for the Probability
Distribution of a Discrete Random
Variable x

1. p(x) ≥ 0 for all values of x

2.  p(x) = 1

where the summation of p(x) is over all possible

values of x.

Fall 2016-2017 MGT 205 13

 Discrete Probability Distribution
Example
Experiment: Toss 2 coins. Count number of
tails (x = # of tails)
Probability Distribution
Values, x Probabilities, p(x)
0 1/4 = .25
1 2/4 = .50
2 1/4 = .25

Fall 2016-2017 © 1984-1994 T/Maker Co. MGT 205 14

 Visualizing Discrete Probability
Distributions
Listing Table
{ (0, .25), (1, .50), (2, .25) } f(x) p(x)
# Tails Count
0 1 .25
1 2 .50
Graph
2 1 .25
p(x)
.50
.25 Formula
.00 x n!
p (x ) = px(1 – p)n – x
0 1 2 x!(n – x)!

Fall 2016-2017 MGT 205 15

 Discrete Random Variables
Expected Value (Measuring Center)
Expected value or mean of a discrete random
variable (weighted average of all possible
values) is
𝝁=𝑬 𝑿 = 𝒙𝒑(𝒙)

Example: Toss 2 coins, x p(x)

0 0.25
x = # of heads,
1 0.50
compute expected value of x: 2 0.25

E(x) = ((0)(0.25) + (1)(0.50) +

(2)(0.25)) = 1.0
Fall 2016-2017 MGT 205 16
 Example 1− Finding an Expected Value

Suppose you work for an insurance company, and you

sell a $10,000 one-year term insurance policy at an
annual premium of $290. Actuarial tables show that
the probability of death during the next year for a
person of your customer’s age, sex, health, etc., is
0.001. What is the expected gain (amount of money
made by the company) for a policy of this type?

Fall 2016-2017 MGT 205 17

 Discrete Random Variables
Measuring Dispersion
Variance of a discrete random variable is (weighted
average of squared deviation about mean)
𝝈𝟐 =E (𝑿 − 𝝁)𝟐 = 𝒙 − 𝝁 𝟐 𝒑(𝒙)
Standard deviation of a discrete random variable is
𝝈= 𝝈𝟐
Example: Toss 2 coins, x = # heads, compute standard
deviation
𝝈= 𝟎−𝟏 𝟐 𝟎. 𝟐𝟓 + 𝟏 − 𝟏 𝟐 𝟎. 𝟓 + 𝟐 − 𝟏 𝟐 𝟎. 𝟐𝟓 =0.707

Possible number of heads = 0,1, or 2

Fall 2016-2017 MGT 205 18
 Probability Rules for Discrete
Random Variables
Let x be a discrete random variable with probability
distribution p(x), mean µ, and standard deviation .
Then, depending on the shape of p(x), the following
probability statements can be made:

Chebyshev’s Rule Empirical Rule

Fall 2016-2017 MGT 205 19

Example 2− An Internet Business Venture

Suppose you invest a fixed sum of money in each of five Internet business ventures.
Assume you know that 70% of such ventures are successful, the outcomes of the
ventures are independent of one another, and the probability distribution for the
number, x, of successful ventures out of five is

x 0 1 2 3 4 5
p(x) 0.002 0.029 0.132 0.309 0.360 0.168

a) Find μ/interpret.
b) Find σ/interpret.
c) Graph p(x). Use Chebyshev/Empirical rule to approximate the probability that x
falls in the interval μ ± 2σ. Compare the result with the actual probability.
d) Would you expect to observe fewer than two successful ventures out of five?

Fall 2016-2017 MGT 205 20

 The Binomial Distribution

Fall 2016-2017 MGT 205 21

 Binomial Distribution
A fixed number of observations (trials), n
– e.g., 15 tosses of a coin; ten light bulbs taken from a
warehouse
Each observation is categorized as to whether or not
the “event of interest” (number of “successes”)
occurred
– e.g., number of tails when a coin is tossed 15 times;
number of defective light bulbs out of 10

Fall 2016-2017 MGT 205 22

 Binomial Probability
Characteristics of a Binomial Experiment
1. The experiment consists of n identical trials.
2. There are only two possible outcomes on each trial. We
will denote one outcome by S (for success) and the other
by F (for failure).
3. The probability of S remains the same from trial to trial.
This probability is denoted by p, and the probability of
F is denoted by q. Note that q = 1 – p.
4. The trials are independent.
5. The binomial random variable x is the number of S’s in
n trials.
Fall 2016-2017 MGT 205 23
 Example 3− Deriving the Binomial
Probability Distribution
A computer retailer sells both desktop and laptop personal
computers (PCs) online. Assume that 80% of the PCs that the
retailer sells online are desktops and 20% are laptops.

a) Find the probability that all of the next four online PC purchases are
laptops.
b) Find the probability that three of the next four online PC purchases
are laptops.
c) Let x represent the number of the next four online PC purchases that
are laptops. Explain why x is a binomial random variable.
d) Use the answers to parts a and b to derive a formula for p(x), the
probability distribution of the binomial random variable x.

Fall 2016-2017 MGT 205 24

 Binomial Probability Distribution

æ n ö x n- x n! n- x
p( x) = ç ÷ p q = p (1 - p)
x

è xø x! (n - x)!
p(x) = Probability of x ‘Successes’
p = Probability of a ‘Success’ on a single trial
q = 1–p
n = Number of trials
x = Number of ‘Successes’ in n trials
(x = 0, 1, 2, ..., n)
n – x = Number of failures in n trials

Fall 2016-2017 MGT 205 25

 Binomial Probability Distribution
Example

Experiment: Toss 1 coin 5 times in a row. Note

number of tails. What’s the probability of 3 tails?

© 1984-1994 T/Maker Co.

Fall 2016-2017 MGT 205 26

 Example 4− Applying the Binomial
Probability Distribution
A machine that produces stampings for automobile
engines is malfunctioning and producing 10%
defectives. The defective and non-defective
stampings proceed from the machine in a random
manner. If the next five stampings are tested, find
the probability that three of them are defective.

Fall 2016-2017 MGT 205 27

 Mean, Variance and Standard Deviation
for a Binomial Random Variable

Mean: m = E(x) = np

Variance: s 2
= npq

Standard Deviation: s = npq

Fall 2016-2017 MGT 205 28

 Example 5− Applying the Binomial
Probability Distribution
Refer to Example 4. Find the values of p(0), p(1), p(2),
p(4), and p(5). Graph p(x). Calculate the mean and
standard deviation. Locate μ and the interval μ-2σ to
μ+2σ on the graph. If the experiment were to be
repeated many times, what proportion of the x
observations would fall within the interval μ-2σ to
μ+2σ?

Fall 2016-2017 MGT 205 29

 Binomial Probability Table (Portion)
n=5 p
k .01 … 0.50 … .99
0 .951 … .031 … .000
1 .999 … .188 … .000
2 1.000 … .500 … .000
3 1.000 … .812 … .001
4 1.000 … .969 … .049
Cumulative Probabilities
p(x ≤ 3) – p(x ≤ 2) = .812 – .500 = .312
Fall 2016-2017 MGT 205 30
 Example 6− Using the Binomial Table

You are a telemarketer selling service

contracts for Macy’s. You have sold 20
in your last 100 calls (p = .20). If you
call 15 people tonight, what is the
probability of
A. No sales?
B. Exactly 2 sales?
C. At most 2 sales?
D. At least 2 sales?

Fall 2016-2017 MGT 205 31

 Other Discrete Distributions:
Poisson and Hypergeometric

Fall 2016-2017 MGT 205 32

 Poisson Distribution
A type of discrete probability distribution that is useful
describing the number of rare events that will occur in a specified
period of time or in a specific area or volume.

1. Number of events that occur in an interval

• events per unit
— Time, Length, Area, Space
2. Examples
• Number of customers arriving in 20 minutes
• Number of strikes per year in the U.S.
• Number of defects per lot (group) of DVD’s

Fall 2016-2017 MGT 205 33

 Characteristics of a Poisson
Random Variable
1. Consists of counting number of times an event
occurs during a given unit of time or in a given
area or volume (any unit of measurement).
2. The probability that an event occurs in a given unit
of time, area, or volume is the same for all units.
3. The number of events that occur in one unit of
time, area, or volume is independent of the
number that occur in any other mutually exclusive
unit.
4. The mean number of events in each unit is
denoted by .
Fall 2016-2017 MGT 205 34
 Poisson Probability Distribution
Function
x –
e
p (x )  (x = 0, 1, 2, 3, . . .)
x!

p(x) = Probability of x given 

 = Mean (expected) number of events in unit
e = 2.71828 . . . (base of natural logarithm)
x = Number of events per unit

Fall 2016-2017 MGT 205 35

 Poisson Probability Distribution
Function

Mean:
m = E(x) = l
Standard Deviation:
s= l

Fall 2016-2017 MGT 205 36

 Finding Poisson Probabilities
Suppose the number, x, of a company’s employees who are
absent on Mondays has (approximately) a Poisson probability
distribution. Furthermore, assume that the average number of
Monday absentees is 2.6.
a)Find the mean and standard deviation of x, the number of
employees absent on Monday.
b)Find the probability that exactly five employees are absent on
a given Monday.
c)Find the probability that fewer than two employees are
absent on a given Monday.
d)Find the probability that more than five employees are
absent on a given Monday.
Fall 2016-2017 MGT 205 37
 Example 6− Finding Poisson
Probabilities
Customers arrive at a
rate of 72 per hour.
What is the probability
of 4 customers arriving
in 3 minutes?
© 1995 Corel Corp.

Fall 2016-2017 MGT 205 38

 Poisson Probability Table
(Portion)
x
l 0 … 3 4 … 9
.02 .980 …
: : : : : : :
3.4 .033 … .558 .744 … .997
3.6 .027 … .515 .706 … .996
3.8 .022 … .473 .668 … .994
: : : : : : :
Cumulative Probabilities
p(x ≤ 4) – p(x ≤ 3) = .706 – .515 = .191
Fall 2016-2017 MGT 205 39
 Example 7− Finding Poisson
Probabilities
You work in Quality Assurance
for an investment firm. A clerk
enters 75 words per minute
with 6 errors per hour. What is
the probability of 0 errors in a
255-word bond transaction?

© 1984-1994 T/Maker Co.

Fall 2016-2017 MGT 205 40

 Characteristics of a
Hypergeometric
Random Variable
1. The experiment consists of randomly drawing n
elements without replacement from a set of N
elements, r of which are S’s (for success) and (N –
r) of which are F’s (for failure).
2. The hypergeometric random variable x is the
number of S’s in the draw of n elements.

Fall 2016-2017 MGT 205 41

 Hypergeometric Probability
Distribution Function
ær ö æ N - rö
çè x÷ø çè n - x ÷ø
p ( x) = x = Maximum [0, n – (N – r)], …,
æ Nö Minimum (r, n)
çè n ÷ø

nr r ( N - r ) n( N - n)
µ= s =
2

N N 2 ( N - 1)

where . . .
Fall 2016-2017 MGT 205 42
 Hypergeometric Probability
Distribution Function

N = Total number of elements

r = Number of S’s in the N elements
n = Number of elements drawn
x = Number of S’s drawn in the n elements

Fall 2016-2017 MGT 205 43

 Example 7− Hypergeometric
Probabilities
Suppose that 4 out of 12 liver transplants done
at a hospital will fail within a year. Consider a
random sample of 3 of these 12 patients. What
is the probability that all 3 patients will result in
a failed transplant?

Fall 2016-2017 MGT 205 44