Agenda Week 12

 Review Homework  Week 13 Assignment

• Chapter 6: 1, 2, 3, 4, 13 • Read Chapter 10:
“Reliability”
• Chapter 7 - 2, 5, 11 • Homework
 Probability • Chapter 8: 5, 9,10,
 Control charts for 20, 26, 33, 34
attributes • Chapter 9: 9, 23
Probability
Chapter Eight

Probability
Probability theorems
 Probability is expressed as a number
between 0 and 1
 Sum of the probabilities of the events of a
situation equals 1
 If P(A) is the probability that an event will
occur, then the probability the event will
not occur is
• 1.0 - P(A)

Probability
Probability theorems
 For mutually exclusive events, the
probability that either event A or event B
will occur is the the sum of their
respective probabilities.
 When events A and B are not mutually
exclusive events, the probability that
either event A or event B will occur is
• P(A or B or both) = P(A) + P(B) - P(both)

Probability
Probability theorems
 If A and B are dependent events, the
probability that both A and B will occur is
• P(A and B) = P(A) x P(B|A)
 If A and B are independent events, then
the probability that both A and B will
occur is
• P(A and B) = P(A) x P(B)

Probability
Permutations and
combinations
 A permutation is the number of
arrangements that n objects can have
when r of them are used.
 When the order in which the items are
used is not important, the number of
possibilities can be calculated by using
the formula for a combination.

Probability
Discrete probability
distributions
 Hypergeometric - random samples from
small lot sizes.
• Population must be finite
• samples must be taken randomly without
replacement
 Binomial - categorizes “success” and
“failure” trials
 Poisson - quantifies the count of discrete
events.
Probability
Continuous probability
distributions
 Normal
 Uniform
 Exponential
 Chi Square
 F
 student t

Probability
Fundamental concepts
 Probability = occurrences/trials
 0<P<1
 The sum of the simple probabilities for all
possible outcomes must equal 1
 Complementary rule - P(A) + P(A’) = 1

Probability
Addition rule
 P(A + B) = P(A) + P(B) - P(A and B)
• If mutually exclusive; just P(A) + P(B)

P(AandB)

P(A) P(B)

Probability
Addition rule example
 P(A + B) = P(A) + P(B) - P(A and B)
 Roll one die
• Probability of even and divisible by 1.5?
• Sample space {1,2,3,4,5,6}
• Event A - Even {2,4,6}
• Event B - Divisible by 1.5 {3,6}
• Event A and B ?
 Solution?
Probability
Conditional probability rule
 P(A|B) = P(A and B) / P(B)
 A die is thrown and the result is known to
be an even number. What is the
probability that this number is divisible by
1.5?
• P(/1.5|Even)=P(/1.5 and even)/P(even)
• 1/6 / 3/6 = 1/3

Probability
Compound or joint probability
 The probability of the simultaneous
occurrence of two or more events is
called the compound probability or,
synonymously, the joint probability.
 Mutually exclusive events cannot be
independent unless one of them is zero.

Probability
Multiplication for independent
events
 P(A and B) = P(A) x P(B)

• P(ace and heart) = P(ace) x P(heart)

• 1/13 x 1/4 = 1/52

Probability
Computing conditional
probabilities
 P(A|B) = P(A and B)/P(B)
 P(Own and Less than 2 years)?

Number of credit applicants by category

On present job 2 On present job

years or less more than 2 years

Own Home 20 40

Rent Home 80 60

Total 100 100

Probability
Computing conditional
probabilities
 P(A|B) = P(A and B)/P(B)

P(AandB)

P(A) P(B)

Probability
Joint probability
table

On present job On present job Marginal

2 years or less more than 2 probability
years

Own Home .10 .20 .30

Rent Home .40 .30 .70

Marginal probability .50 .50 1.00

Probability
Conditional probability
Satisfied Not Satisfied Totals

New 300 100 400

Used 450 150 600

Total 750 250 1000

S=satisfied N= bought new car

P(N|S) = ?

Probability
Just for fun
 60 business students  How many read none?
from a large university  How many read only
are surveyed with the Fortune?
following results:  How many read BW, the
• 19 read Business Week
WSJ, but not Fortune?
• 18 read WSJ
• 50 read Fortune
• 13 read BW and WSJ
 Hint: Try a Venn
• 11 read WSJ and Fortune diagram.
• 13 read BW and Fortune
• 9 read all three

Probability
Probability Distributions

Probability
Learning objectives
 Know the difference between discrete
and continuous random variables.
 Provide examples of discrete and
continuous probability distributions.
 Calculate expected values and
variances.
 Use the normal distribution table.

Probability
Random variables
 A random variable is a numerical quantity
whose value is determined by chance.
• “A random variable assigns a number to
every possible outcome or event in an
experiment”.
• For non-numerical outcomes such as a coin
flip you must assign a random variable that
associates each outcome with a unique real
number.

Probability
Random variable types
 Discrete random variable - assumes a
limited set of values; non-continuous,
generally countable
• number of Mark McGwire homeruns in a
season
• number of auto parts passing assembly-line
inspection
• GRE exam scores

Probability
Random variable types
 Continuous random variable - random
variable with an infinite set of values.

0.000 Baseball player’s batting average 1.000

Can occur anywhere on a continuous number scale

Probability
Random variables and
probability distributions
 The relationship between a random
variable’s values and their probabilities is
summarized by its probability distribution.

Probability
Probability distribution
 Whether continuous or discrete, the
probability distribution provides a
probability for each possible value of a
random variable, and follows these rules:
• The events are mutually exclusive
• The individual probability values are
between 0 and 1.
• The total value of the probability values sum
to 1
Probability
Probability distribution for
rates of return
 Possible rate of  Probability
return • .05
• 10% • .15
• 11% • .20
• 12% • .35
• 13% • .10
• 14% • .10
• 15% • .03
• 16% • .02
• 17%  Total = 1.0
Probability
Describing distributions
 Measures of  Measures of
central tendency variability
• expected value • variance
• (weighted • standard deviation
average)

Probability
Expected value of a discrete
random variable
 For discrete random variables, the
expected value is the sum of all the
possible outcomes times the probability
that they occur.

E(X) =  {xi * P(xi)}

Probability
Example: A fair die
 Roll 1 die: x P(x) x*P(x) E(x)=?
1 1/6 1/6
2 1/6 2/6
3 1/6 3/6
Can you sketch
the distribution? 4 1/6 4/6
5 1/6 5/6
6 1/6 6/6

Probability
Fair die illustrates a discrete “uniform
distribution”
 The random variable, x, has n possible
outcomes and each outcome is equally
likely. Thus, x is distributed uniform.

Probability
Probability distribution

P(x)

1/6

x
1 2 3 4 5 6

Probability
Example: An unfair die
 Roll 1 die: x P(x) x*P(x) E(x)=?
1 1/12 1/12
2 2/12 4/12
3 2/12 6/12
Can you sketch
the distribution? 4 2/12 8/12
5 2/12 10/12
6 3/12 18/12

Probability
Expected value of a bet
 Suppose I offer you the following wager:
You roll 1 die. If the result is even, I pay
you $2.00. Otherwise you pay me
$1.00.
 E(your winnings)=.5 ($2.00) + .5 (-1.00)
= 1.00 - .50 = $0.50

Probability
Expected Value of a Bet
 Suppose I offer you the following wager:
You roll 1 die. If the result is 5 or 6 I pay
you $3.00. Otherwise you pay me $2.00.
 What is your expected value?

Probability
Variance of a discrete random
variable
The variance of a random variable is a
measure of dispersion calculated by
squaring the differences between the
expected value and each random
variable and multiplying by its associated
probability.

{(xi-E(x)) * P(xi)} 2

Probability
Example: A fair die
 Roll 1 die: [x- E(X)] 2 P(x) *P(x)
1 - 21/6 6.25 1/6 1.04
2 - 21/6 2.25 1/6 .375
3 - 21/6 .25 1/6 .04
4 - 21/6 .25 1/6 .04
5 - 21/6 2.25 1/6 .375
6 - 21/6 6.25 1/6 1.04
2.91
Probability
Probability distributions for
continuous random variables
 A continuous mathematical function
describes the probability distribution.
 It’s called the probability density function
and designated ƒ(x)
 Some well know continuous probability
density functions:
• Normal Beta
• Exponential Student t

Probability
Continuous probability density
function - Uniform
If a random variable, x, is distributed
uniform over the interval [a,b], then its
pdf is given by
1
f (x ) 
1 b a
b-a

a b

Probability
Uniform

What is the probability of x?

1
b-a

a x b
Probability
Uniform

Area under the rectangle = base*height

= (b-a)* 1 = 1
1 b-a
b-a

a b
Probability
Uniform
P(c<x<b) = Area of brown rectangle
1 * (b-c) Ht x Width)
= b-a
1
b-a

a c b
Probability
 Uniform
P(2<x<5) = Brown rectangle

1 * (5-2) =(1/4) *3 =3/4

1 =1/4 = 5-1
5-1

1 2 5
Probability
Uniform distribution
If a random variable, x, is distributed
uniform over the interval [a,b], then its pdf
is given by 1
f (x ) 
b a

And, the mean and variance are

(a+b) ( b-a )2
E(x) = ------- Var(x)=---------
2 12

Probability
Uniform

Mean? Variance?

3 8
Probability
Calculate uniform mean,
variance
So, if a = 3 and b = 8
1
f (x ) 
5
And, the mean and variance are
(a+b) ( b-a )2 25
E(x) = ------ = 5.5 V(x)=--------- = ----- = 2.08
2 12 12

Probability
Continuous pdf - Normal
If x is a normally distributed variable, then
 ( x   )2
1
f (x )  e 2 2

2 2

is the pdf for x. The expected value is  and

the variance is 2.

Probability
One standard deviation

 

68.3%
Probability
Two standard deviations

2 2

95.5%
Probability
Three standard deviations

3 3

99.73%
Probability
Continuous PDF - Standard
Normal
If z is distributed standard normal,
then and 
 z2
1
f (z )  e 2
2
 ( x   )2
1
f (x )  e 2 2

2 2

Probability