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MB0024 SET 1
1. Explain the limitations of statistics in your own words.
Ans. Statistics with all its wide application in every sphere of human activity has
its own limitations. Some of them are given below below:-
2) Statistics does not study individuals: Statistics does not give any specific
importance to the individual items, in fact it deals with an aggregate of
objects. Individual items, when they are taken individually do not constitute
any statistical data and do not serve any purpose for any statistical enquiry.
3) Statistical laws are not exact: It is well known that mathematical and
physical sciences are exact. But statistical laws are not exact and statistical
laws are only approximations. Statistical conclusions are not universally
true. They are true only on an average. They are probabilistic statements.
Ans. Proportion of times that an event occurs in the long run when the conditions
are stable, or the observed relative frequency of an event in a very large
number of trials.
For example, suppose that an accounts receivable manager knows from past
data that about 70 of 1000 accounts usually become uncollectible after 120
MB0024 SET 1
days. The manager would estimate the probability of bad debts as 70/1000
= .07 or 7%.
One difficulty with the relative frequency approach is that people often use
it without evaluating a sufficient number of outcomes. If you heard someone
say, “My aunt and uncle got the flu this year, and they are both over 65, so
everyone in that age bracket will probably get the flu,” you would know
that your friend did not base his assumptions on enough evidence. His
observations were insufficient data for establishing a relative frequency of
occurrence probability.
Ans. Individuals and corporate generate several data that resembles certain
theoretical distributions. Since mathematically we have many derived
characteristics of the theoretical distributions, we can make use of them for
a quick analysis of the observed distributions. These theoretical
distributions are divided into two groups:
i) Bernouli Process
ii) Application of Binomial, Poisson and Normal Distribution
MB0024 SET 1
Bernoulli Distributions:
Example, when a fair coin is tossed the outcome is either head or tail. The
variable “X” assumes 1 or 0.
P(a < x < b), a and b are the limits of an interval (a, b) where, a < b
MB0024 SET 1
A probability density function is defined in such a manner that the area
under its curve bounded by x-axis is equal to one when computed 'over the
domain of X for which p(x) is defined. The probability density h t i o n for a
continuous random variable X defined over the entire set of real numbers R
should satisfy the following
conditions.
2) ∫p(x)dx = 1
b
3) P(a<X<b) = ∫p(x)dx
a
a) Lottery Method
b) The use of table of random numbers
MB0024 SET 1
b) The use of table of random numbers: There are several Random
Numbers Tables. They are Tipper’s Random Number Table, Fisher’s and
Yate’s Table, Kendall and Babington Smiths Random Tables, Rand
Corporation random numbers etc.
Ans. In probability theory, the central limit theorem (CLT) states conditions
under which the mean of a sufficiently large number of independent random
variables, each with finite mean and variance, will be approximately
normally distributed (Rice 1995). The central limit theorem also requires
the random variables to be identically distributed, unless certain conditions
are met. Since real-world quantities are often the balanced sum of many
unobserved random events, this theorem provides a partial explanation for
the prevalence of the normal probability distribution. The CLT also justifies
the approximation of large-sample statistics to the normal distribution in
controlled experiments.
The central limit theorem is also known as the second fundamental theorem
of probability. If X1, X2 ………….Xn is a random sample of size “n” from any
population, then the sample mean (X) is normally distributed with mean μ
and variance σ2/ n provided “n” is sufficiently large.
The Central Limit Theorem tells us, quite generally, what happens when we
have the sum of a large number of independent random variables each of
which contributes a small amount to the total.
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MB0024 SET 1