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Random Variables
Expected Value
And Normal Distributions
Random Variable
Random variable
Outcomes of an experiment expressed
numerically
e.g.: Toss a dice twice; Count the number
of times the number 4 appears (0, 1 or 2
times)
Discrete Random Variable
E X X jP X j
j
Summary Measures
continued
0 2.5 1 .5 2 .25 1
Summary Measures
(continued
)
Variance
Weight average squared deviation about
the mean
E X X j P X j
2 2 2
Summary Measures
(continued
)
Example of variance:
Toss two coins, count number of tails,
compute variance
X j P X j
2 2
Investment
P(XiYi) Economic condition Dow Jones fund X Growth Stock Y
.2 Recession -$100 -$200
.5 Stable Economy + 100 + 50
.3 Expanding Economy + 250 + 350
37,900 Y 194.68
Important Discrete
Probability Distributions
Discrete Probability
Distributions
Mean: µ = np
Variance: σ = npq
2
p
k .01 .05 .10 .20 .30
0 .904 .599 .349 .107 .028
1 .996 .914 .736 .376 .149
XiP Xi 0 1 2 3 4 5
i 1
.6
P(X) λ =6
Standard deviation .4
.2
and variance 0 X
2 0 2 4 6 8 10
Poisson Probability
Distribution Function
X
e
P X
X!
P X : probability of X "successes" given
X : number of "successes" per unit
: expected (average) number of "successes"
e : 2.71828 (base of natural logs)
e.g.: Find the probability of four e 3.6 3.64
P X .1912
customers arriving in three 4!
minutes when the mean is 3.6.
Continuous Random Variables
Continuous Probability Distributions
f X
2
e
2 2
f X : density of random variable X
3.14159; e 2.71828
: population mean
: population standard deviation
X : value of random variable X
The Normal Distribution
Probability
associated with a
particular z value, in
Value of z a this case z=.13,
combination of p(0<z<.13) = .0517
column and
row Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
.0 .0000 .0040 .0080 .0120 .0160 .0199 .0239 .0279 .0319 .0359
.1 .0398 .0438 .0478 .0517 .0557 .0596 .0636 .0675 .0714 .0753
.2 .0793 .0832 .0871 .0910 .0948 .0987 .1026 .1064 .1103 .1141
.3 .1179 .1217 .1255 .1293 .1331 .1368 .1406 .1443 .1480 .1517
Many Normal Distributions
There are an infinite number of normal
distributions
Probability is
the area
under the P c X d ?
curve!
f(X)
X
c d
Which Table to Use?
P(-1.33 < z < 1.33) = P(-1.33 < z < 0) +P(0 < z < 1.33)=
A2 + A1 = .4082 + .4082 = .8164
The Normal Distribution
6.2 X 0.12 Z
5 Z 0
Shaded Area Exaggerated
Example:
P 2.9 X 7.1 .1664
X 2.9 5 X 7.1 5
Z .21 Z .21
10 10
Normal Standardized
Distribution Normal
10 Distribution
.0832 Z 1
.0832
Normal Standardized
Distribution Normal
10 Distribution
Z 1
.3821
8 X 0.30 Z
5 Z 0
Shaded Area
Example:
P X 8 .3821 (continued
)
Cumulative Standardized
Normal Distribution Table Z 0 Z 1
(Portion)
Z .00 .01 .02 .6179
0.0 .5000 .5040 .5080 Shaded
Area
0.1 .5398 .5438 .5478 Exaggerate
d
0.2 .5793 .5832 .5871 0
Z = 0.30
0.3 .6179 .6217 .6255
Finding Z Values for Known
Probabilities
Cumulative Standardized
What is Z Given Normal Distribution Table
Probability = (Portion)
0.1217 ?
Z 0 Z 1 Z .00 .01 0.2
X
5 ? Z 0
0.30 Z
X Z 5 .30 10 8
The Normal Distribution
Rectangular U-Shaped
90 90
X 60 X 60
30 Z 30 Z
-2 -1 0 1 2 -2 -1 0 1 2
Example
e.g.: Customers arrive at the check out
line of a supermarket at the rate of 30
per hour. What is the probability that
the arrival time between consecutive
customers to be greater than 5
minutes?
30 X 5 / 60 hours
P arrival time >X 1 P arrival time X
1 1 e
30 5 / 60
.0821
Descriptive Methods for Assessing
Normality
•Evaluate the shape from a histogram or
stem-and-leaf display
•Compute intervals about mean x ± s, x ± 2s, x ± 3s
and corresponding percentages
•Compute IQR and divide by standard
deviation. Result is roughly 1.3 if normal
•Use statistical package to evaluate a
normal probability plot for the data
Approximating a Binomial Distribution with a
Normal Distribution
Steps
Determine n and p for the binomial distribution
Calculate the interval µ ± 3σ = np ± 3 npq
Express binomial probability in the form P(x<a) or
P(x<b)–P(x<a)
Calculate z value for each a, applying continuity
correction
Sketch normal distribution, locate a’s and use table
to solve
Approximating a Binomial Distribution with a
Normal Distribution