Probability Distributions

• Expected Value
• The expected value, or mean, of a random variable is a measure of its central
location.
E(x) =  = xf(x)
• The expected value is a weighted average of the values the random variable
may assume.
• The weights are the probabilities
• Variance and Standard Deviation
• The variance summarizes the variability in the values of a random variable

Var(x) =  2 = (x - )2f(x)

• The variance is a weighted average of the squared deviations of a random
variable from its mean.
• The standard deviation,  , is defined as the positive square root of the
variance
 E(x) =  = x f(x)
= (3*0.25)+(6*0.5)+(9*0.25)
=6

Var(x) =  2 = (x - )2f(x)

= 4.5

Combining Probabilities and Monetary Values aids in identifying expected loss and expected gain
• E(XY)= E(X) E(Y) if X and Y are independent
• Cov(XY)= E(XY)- E(X)E(Y)
• Var(X) = E(X2)- [E(X)]2
• Var(a+bx)=b2var(X)
• Var(X+Y)= var(X)+2cov(X,Y)+var(Y)
• Cov(X,X)= var(X) (covariance between uncorrelated variables is 0)
• cov(aU + bV, cY + dZ) = ac cov(U, Y ) + bc cov(V, Y ) + ad cov(U,Z) + bd cov(V,Z)
❑Elements/case: Entities on which data are collected
❑Variables: Object upon which the data are collected
❑E.g.: data collected on sales, profit, the number of customers served by
a bank
❑Observations: measurements of an element
• Probability: Numerical measure of the
likelihood/chances/odds that an event will occur
• Random experiment: Gauging customer's overall
satisfaction using Net promoter score
• Sample space: Most preferred, preferred, …, less preferred,
not preferred
• Sample point: Experimental outcome (Observations!)
• Event: Collection of sample space (subset/entire of the
sample space)
• Each event is associated with a probability
• Events can be combined to get new events
 Random Variable
numerical description of the outcome of an experiment

Discrete random variable Continuous random variable

variable whose value is obtained by counting variable whose value is obtained by measuring

number of people giving the NPS height of students in class

number of red marbles in a jar weight of students in class
number of heads when flipping three coins time it takes to wait in a queue
students’ grade level distance travelled between classes
• It would be very tedious if, every time we have a different frequency
distribution every time
• We had to determine the probability distributions from scratch.
• What if the sample space is skewed?
• Luckily, there are enough similarities between certain types, or families, of
experiments, to make it possible to develop formulas representing their general
characteristics.
• Empirical Probability Distribution
• Describes how outcomes are expected to vary.
• Empirical discrete distribution and empirical continuous distribution
• A sample space S can be
• Finite (E.g.: Binomial Distribution)
• Countably infinite (E.g.: Poisson Distribution)
• Uncountably infinite (E.g.: Normal Distribution)
• Finite Sample Space: A retailer carries 3 styles of dresses: Lounge wear,
Formals and Sports wear. Each style has 20 cuts, 8 sizes and 5 different
colors. A stock keeping unit (SKU) for the retailer is based on the dress
style, cut, size and color
• The number of SKUs for this retailer is 3 × 20 × 8 × 5
• Countably infinite Sample Space Number of calls you make to a call
center until you get connected to a service executive
• S = { 1, 2, 3, 4, .... }
• Uncountably infinite Sample Space Waiting time in a queue
• S = { 0,1 min, 2.5 min, 3.2 mins, 4, .... }
 Example: discrete-uniform,
binomial, Poisson,
Discrete Probability
hypergeometric distributions,
Distributions
multinomial Distribution,
negative binomial distribution.

Probability
Distributions

Example: continuous-uniform,
Continuous Probability normal probability
Distribution distribution, exponential
probability distribution
DISCRETE PROBABILITY DISTRIBUTIONS
x = an outcome
f (x) = the probability of x
Binomial Probability Distribution
• Four Properties of a Binomial Experiment
• The experiment consists of a sequence of ‘n’ identical trials.
• Only two outcomes are possible on each trial: success and failure
• The probability of a success, denoted by p, does not change from trial to trial
• where p = probability of success and q = probability of failure, q = 1− p
• The trials are independent

n! • Expected Value : E(x) =  = np

f (x) = p x (1 − p )( n − x )
x !(n − x )! • Variance : Var(x) =  2 = np(1 − p)
• x = the number of successes • Standard Deviation =square root of  2
• p = the probability of a success on one trial
• n = the number of trials
• f(x) = the probability of x successes in n trials
• n! = n(n – 1)(n – 2) ….. (2)(1)
• What if the trials are non-identical?
• Hyper Geometric distribution
• What if there are more than two outcomes in a sequence of ‘n’
identical trials?
• Multinomial Distribution
• What if I have no fixed number of trials?
• Negative Binomial distribution
• The number of heads/tails in a sequence of coin flips
• Vote counts for two different candidates in an election
• The number of male/female employees in a company
• The number of accounts that are in compliance or not in compliance with
an accounting procedure
• The number of successful sales calls
• The number of defective products in a production run
• In the past 20 years, on average, 30% of all checks written to the Life
Insurance Limited (LIL) have bounced. This month, the LIL received 6
checks.
a. What are the trials here? Are they identical? How many trials are there?
Are they independent?
b. What are the outcomes?
c. Is the sample space finite?
d. What is the probability of a check getting a bounced?
e. What is the probability of exactly 2 of the received checks to bounce?
a. What are the possible ways in which you can observe 2 checks to bounce out of 6?
b. For one of the ways of selection, what is the probability associated with the trial?
c. What is the
f. What is the probability of exactly 5 of the received checks to bounce?
• Finite Sample Space: A retailer carries 3 styles of dresses: Lounge wear,
Formals and Sports wear. Each style has 20 cuts, 8 sizes and 5 different
colors. A stock keeping unit (SKU) for the retailer is based on the dress
style, cut, size and color
• The number of SKUs for this retailer is 3 × 20 × 8 × 5
• Countably infinite Sample Space Number of calls you make to a call
center until you get connected to a service executive
• S = { 1, 2, 3, 4, .... }
• Uncountably infinite Sample Space Waiting time in a queue
• S = { 0,1 min, 2.5 min, 3.2 mins, 4, .... }
Poisson Probability Distribution
• A Poisson distributed random variable is often useful in estimating the
number of occurrences over a specified interval of time or space
• Properties of a Poisson Experiment
• The probability of an occurrence is the same for any two intervals of equal length
• The occurrence or nonoccurrence in any interval is independent of the occurrence or
nonoccurrence in any other interval

x −
 e • x = the number of occurrences in an interval

f ( x) = • f(x) = the probability of x occurrences in an interval

x! •  = mean number of occurrences in an interval

• A property of the Poisson distribution is that the mean and variance are equal.
• Poisson distribution approximates the binomial distribution when n (# trials) is large
and p (change of success) is small
• The hourly number of customers arriving at a bank
• The daily number of accidents on a particular stretch of highway
• The number of cases of a disease in different towns
• The number of mutations in set sized regions of a chromosome
• The number of dolphin pod sightings along a flight path through a region
• The number of particles emitted by a radioactive source in a given time
• The number of births per hour during a given day

Hour No. of Kms No. of

(as Intervals) customers (as Intervals) accidents
1 pm-2 pm 3 1-9 3
2 pm-3 pm 4 10-19 10
3 pm-4 pm 5 20-29 15
CONTINUOUS PROBABILITY DISTRIBUTIONS
• Finite Sample Space: A retailer carries 3 styles of dresses: Lounge wear,
Formals and Sports wear. Each style has 20 cuts, 8 sizes and 5 different
colors. A stock keeping unit (SKU) for the retailer is based on the dress
style, cut, size and color
• The number of SKUs for this retailer is 3 × 20 × 8 × 5
• Countably infinite Sample Space Number of calls you make to a call
center until you get connected to a service executive
• S = { 1, 2, 3, 4, .... }
• Uncountably infinite Sample Space Waiting time in a queue
• S = { 0,1 min, 2.5 min, 3.2 mins, 4, .... }
• Discrete random variable ‘x’ can assume a particular value
• Continuous random variable ‘x’ assumes a value in an interval
• Probability density function
• Probability - Area covered by f (x) corresponding to a given interval
• Area under a single point is zero
• Probability of any value of a continuous random variable is zero.
 f (x)
Normal f (x) Exponential

x x
x1 x2 x1 xx12 x2

• A continuous random variable can assume any value in an interval on the real line
or in a collection of intervals.
• It is not possible to talk about the probability of the random variable assuming a
particular value.
• Probability of the random variable assumes a value within a given interval
• The probability of the random variable assuming a value within some given
interval from x1 to x2 is defined to be the area under the graph of the probability
density function between x1 and x2.
Exponential Probability Distribution
• The exponential probability distribution is useful in describing the
time it takes to complete a task.
• The exponential random variables can be used to describe:
• Time between vehicle arrivals at a toll booth
• Time required to complete a questionnaire
• Distance between major defects in a highway
• In waiting line applications, the exponential distribution is often used for
service times
• A property of the exponential distribution is that the mean and
standard deviation are equal. 1 − x /
f ( x) = e for x > 0

Normal Probability Distribution
• Most important distribution for describing a continuous random
variable
• widely used in statistical inference Standard Deviation 

• Characteristics
• Symmetric; its skewness measure is zero. .5 .5
• Defined by its mean  and its standard deviation 
• Mean can be any numerical value: negative, zero, or positive. Mean 
• Standard deviation determines the width of the curve: larger values result in wider, flatter
curves.
• Probabilities for the normal random variable are given by areas under the curve.
• The total area under the curve is 1 (.5 to the left of the mean and .5 to the right).
• Tails of the normal distribution approach but never touch the horizontal axis
Standard Normal Probability Distribution
• Normal distribution with a mean of 0 and a standard deviation of 1 is
said to have a standard normal probability distribution.
• letter z is used to designate the standard normal random variable
x−
z= =1

• z as a measure of the number of standard deviations x is from 

z
0
Empirical Rule
99.72%
95.44%
68.26%


x
 – 3  – 1  + 1  + 3
 – 2  + 2
Page number: 286
Practice Problems
• Beginners’ Level
• Page 285 - Problem No 9 to 16
• Intermediate Level
• Problem no. 19, 21, 22, 23, 24, 25
• Page 296: Problem no. 40, 42, 43, 45, 46, 47
• Slightly Advanced
• Problem no. 20, 41,44, 48
• Step 1: Convert the required ‘x’ into its corresponding ‘z’ value
• Step 2: Use table to find the value for z
• Step 3: Understand if the question is for greater than or less than z
• Step 4: Find the area appropriately