Statistics: For Management & Economics 10e

Statistics for Management & Economics 10e
IdentifyComputeInterpret
GERALD KELLER WILFRID LAURIER UNIVERSITY
2015CengageLearning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeorinpart,exceptforuseaspermittedina
licensedistributedwithacertainproductorserviceorotherwiseonapasswordprotectedwebsiteforclassroomuse.
Chapter 7
Random Variables and

Discrete Probability
Distributions
Random Variables
Arandomvariableisafunctionorrulethatassignsa
numbertoeachoutcomeofanexperiment.
Alternatively,thevalueofarandomvariableisanumerical
event.
Insteadoftalkingaboutthecoinflippingeventas
{heads,tails}thinkofitas
thenumberofheadswhenflippingacoin
{1,0} (numericalevents)
licensedistributedwithacertainproductorserviceorotherwiseonapasswordprotectedwebsiteforclassroomuse. 7.3
Two Types of Random Variables
DiscreteRandomVariable
onethattakesonacountablenumberofvalues
E.g.valuesontherollofdice:2,3,4,,12
ContinuousRandomVariable
onewhosevaluesarenotdiscrete,notcountable
E.g.time(30.1minutes?30.10000001minutes?)
Analogy:
IntegersareDiscrete,whileRealNumbersareContinuous
Probability Distributions
Aprobabilitydistributionisatable,formula,orgraphthat
describesthevaluesofarandomvariableandtheprobability
associatedwiththesevalues.
Sinceweredescribingarandomvariable(whichcanbe
discreteorcontinuous)wehavetwotypesofprobability
distributions:
DiscreteProbabilityDistribution,(thischapter)and
ContinuousProbabilityDistribution(Chapter8)
Probability Notation
Anuppercaseletterwillrepresentthenameoftherandom
variable,usuallyX.
Itslowercasecounterpartwillrepresentthevalueofthe
randomvariable.
TheprobabilitythattherandomvariableXwillequalxis:
P(X = x)
ormoresimply
P(x)
Discrete Probability Distributions
Theprobabilitiesofthevaluesofadiscreterandomvariable
maybederivedbymeansofprobabilitytoolssuchastree
diagramsorbyapplyingoneofthedefinitionsofprobability,
solongasthesetwoconditionsapply:
7.7
Example 7.1
TheStatisticalAbstractoftheUnitedStatesispublished
annually.Itcontainsawidevarietyofinformationbasedon
thecensusaswellasothersources.Theobjectiveisto
provideinformationaboutavarietyofdifferentaspectsof
thelivesofthecountrysresidents.Oneofthequestionsasks
householdstoreportthenumberofpersonslivinginthe
household.Thefollowingtablesummarizesthedata.
Developtheprobabilitydistributionoftherandomvariable
definedasthenumberofpersonsperhousehold.
Example 7.1
NumberofPersons NumberofHouseholds(millions)
1 31.1
2 38.6
3 18.8
4 16.2
5 7.2
6 2.7
7ormore 1.4
Total116.0
Example 7.1
Probabilitydistributionscanbeestimatedfromrelativefrequencies.
x P(x)
131.1/116.0=.268
2 38.6/116.0=.333
3 18.8/116.0=.162
4 16.2/116.0=.140
5 7.2/116.0=.062
6 2.7/116.0=.023
7ormore 1.4/116.0=.012
Total 1.000
Example 7.1
E.g.whatistheprobabilitythereare4ormorepersonsin
anygivenhousehold?
x P(x)
1.268
2 .333
3 .162
4 .140
5 .062
6 .023
7ormore .012
P(X4)=P(4)+P(5)+P(6)+P7ormore)
=.140+.062+.023+.012=.237
Population/Probability Distribution
Thediscreteprobabilitydistributionrepresentsapopulation
Example7.1thepopulationofnumberofTVsperhousehold

Sincewehavepopulations,wecandescribethemby
computingvariousparameters.
E.g.thepopulationmeanandpopulationvariance.
Population Mean (Expected Value)
Thepopulationmeanistheweightedaverageofallofits
values.Theweightsaretheprobabilities.
ThisparameterisalsocalledtheexpectedvalueofXandis
representedbyE(X).
7.13
Population Variance
Thepopulationvarianceiscalculatedsimilarly.Itisthe
weightedaverageofthesquareddeviationsfromthemean.
Asbefore,thereisashortcutformulation
Thestandarddeviationisthesameasbefore:
7.14
Example 7.3
Findthemean,variance,andstandarddeviationforthepopulationof
thenumberofpersonsperhousehold(fromExample7.1).Assume
thatthecategory7ormoreisactually7.
E( X ) 1 P(1) 2 P( 2) ... 7 P(7)
=1(.268)+2(.333)+3(.162)+4(.140)+5(.062)+6(.023)+7(.012)
=2.513
Example 7.3
Findthemean,variance,andstandarddeviationforthepopulationof
thenumberofpersonsperhousehold(fromExample7.1)
=(12.513)2(.268)+(22.513)2(.333)++(72.513)2(.012)
=1.958
Thestandarddeviationis
= 1.958 1.399
Binomial Distribution
Thebinomialdistributionistheprobabilitydistributionthat
resultsfromdoingabinomialexperiment.Binomial
experimentshavethefollowingproperties:
Fixednumberoftrials,representedasn.
Eachtrialhastwopossibleoutcomes,asuccessanda
failure.
P(success)=p(andthus:P(failure)=1p),foralltrials.
Thetrialsareindependent,whichmeansthattheoutcomeof
onetrialdoesnotaffecttheoutcomesofanyothertrials.
Success and Failure
arejustlabelsforabinomialexperiment,thereisnovalue
judgmentimplied.
Forexampleacoinflipwillresultineitherheadsortails.If
wedefineheadsassuccessthennecessarilytailsis
consideredafailure(inasmuchasweattemptingtohavethe
coinlandsheadsup).
Otherbinomialexperimentnotions:
Anelectioncandidatewinsorloses
Anemployeeismaleorfemale
Binomial Random Variable
Therandomvariableofabinomialexperimentisdefinedasthenumber
ofsuccessesinthentrials,andiscalledthebinomialrandomvariable.
E.g.flipafaircoin10times
1)Fixednumberoftrialsn=10
2)Eachtrialhastwopossibleoutcomes{heads(success),tails(failure)}
3)P(success)=0.50;P(failure)=10.50=0.50
4)Thetrialsareindependent(i.e.theoutcomeofheadsonthefirstflipwill
havenoimpactonsubsequentcoinflips).
Henceflippingacointentimesisabinomialexperimentsinceall
conditionsweremet.
Binomial Random Variable
Thebinomialrandomvariablecountsthenumberof
successesinntrialsofthebinomialexperiment.Itcantake
onvaluesfrom0,1,2,,n.Thus,itsadiscreterandom
variable.
Tocalculatetheprobabilityassociatedwitheachvaluewe
usecombintorics:
forx=0,1,2,,n
Pat Statsdud
PatStatsdudisa(notgood)studenttakingastatisticscourse.
Patsexamstrategyistorelyonluckforthenextquiz.The
quizconsistsof10multiplechoicequestions.Eachquestion
hasfivepossibleanswers,onlyoneofwhichiscorrect.Pat
planstoguesstheanswertoeachquestion.
WhatistheprobabilitythatPatgetsnoanswerscorrect?
WhatistheprobabilitythatPatgetstwoanswerscorrect?
Pat Statsdud
PatStatsdudisa(notgood)studenttakingastatisticscourse
whoseexamstrategyistorelyonluckforthenextquiz.The
quizconsistsof10multiplechoicequestions.Eachquestion
hasfivepossibleanswers,onlyoneofwhichiscorrect.Pat
planstoguesstheanswertoeachquestion.
Algebraicallythen:n=10,andP(success)=1/5=.20
Pat Statsdud
Isthisabinomialexperiment?Checktheconditions:
Thereisafixedfinitenumberoftrials(n=10).
Ananswercanbeeithercorrectorincorrect.
Theprobabilityofacorrectanswer(P(success)=.20)does
notchangefromquestiontoquestion.
Eachanswerisindependentoftheothers.
Pat Statsdud
n=10,andP(success)=.20
I.e.#success,x,=0;hencewewanttoknowP(x=0)
Pathasaboutan11%chanceofgettingnoanswerscorrect
usingtheguessingstrategy.
Pat Statsdud
n=10,andP(success)=.20
I.e.#success,x,=2;hencewewanttoknowP(x=2)
Pathasabouta30%chanceofgettingexactlytwoanswers
correctusingtheguessingstrategy.
Cumulative Probability
Thusfar,wehavebeenusingthebinomialprobability
distributiontofindprobabilitiesforindividualvaluesofx.
Toanswerthequestion:
FindtheprobabilitythatPatfailsthequiz
requiresacumulativeprobability,thatis,P(Xx)
Ifagradeonthequizislessthan50%(i.e.5questions
outof10),thatsconsideredafailedquiz.
Thus,wewanttoknowwhatis:P(X4)toanswer
Pat Statsdud
P(X4)=P(0)+P(1)+P(2)+P(3)+P(4)
WealreadyknowP(0)=.1074andP(2)=.3020.Usingthe
binomialformulatocalculatetheothers:
P(1)=.2684,P(3)=.2013,andP(4)=.0881
WehaveP(X4)=.1074+.2684++.0881=.9672
Thus,itsabout97%probablethatPatwillfailthetest
usingtheluckstrategyandguessingatanswers
Binomial Table
Calculatingbinomialprobabilitiesbyhandistediousand
errorprone.Thereisaneasierway.RefertoTable1in
AppendixB.ForthePatStatsdudexample,n=10,sothefirst
importantstepistogetthecorrecttable!
Binomial Table
Theprobabilitieslistedinthetablesarecumulative,
i.e.P(Xk)kistherowindex;thecolumnsofthetable
areorganizedbyP(success)=p
Binomial Table
i.e.whatisP(X=0),givenP(success)=.20andn=10?
P(X=0)=P(X0)=.1074
Binomial Table
i.e.whatisP(X=2),givenP(success)=.20andn=10?
P(X=2)=P(X2)P(X1)=.6778.3758=.3020
remember, the table shows cumulative probabilities
WhatistheprobabilitythatPatfailsthequiz?
i.e.whatisP(X4),givenP(success)=.20andn=10?
P(X4)=.9672
Binomial Table
Thebinomialtablegivescumulativeprobabilitiesfor
P(Xk),butasweveseeninthelastexample,
P(X=k)=P(Xk)P(X[k1])
Likewise,forprobabilitiesgivenasP(Xk),wehave:
P(Xk)=1P(X[k1])
Asyoumightexpect,statisticianshavedevelopedgeneral
formulasforthemean,variance,andstandarddeviationofa
binomialrandomvariable.Theyare:

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Statistics for Management & Economics 10e

Random Variables and

E( X ) 1 P(1) 2 P( 2) ... 7 P(7)

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