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Continuous Probability

This document discusses continuous probability distributions, including the normal and exponential distributions. It provides information on: - Continuous vs discrete variables and how probabilities are calculated differently for continuous variables. - Describing continuous distributions using probability density functions (PDFs) and cumulative distribution functions (CDFs), including how they are defined and interpreted. - Key characteristics of the normal distribution, including the standard normal distribution and how it can be used to find probabilities. - Key characteristics of the exponential distribution and examples of how to calculate probabilities using this distribution.

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sarah
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71 views

Continuous Probability

This document discusses continuous probability distributions, including the normal and exponential distributions. It provides information on: - Continuous vs discrete variables and how probabilities are calculated differently for continuous variables. - Describing continuous distributions using probability density functions (PDFs) and cumulative distribution functions (CDFs), including how they are defined and interpreted. - Key characteristics of the normal distribution, including the standard normal distribution and how it can be used to find probabilities. - Key characteristics of the exponential distribution and examples of how to calculate probabilities using this distribution.

Uploaded by

sarah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Continuous Probability

Distributions

Normal Distribution
Exponential Distribution
Continuous Variables
Events as Intervals
• Discrete Variable – each value of X has its own probability P(x).
• Continuous Variable – events are intervals and probabilities
are areas underneath smooth curves. A single point has no
probability.
Describing a Continuous Distribution

PDFs and CDFs


• Probability Density Function (PDF) –
• For a continuous
random variable,
the PDF is an
equation that shows
the height of the
curve f(x) at each
possible value of X
over the range of X.
Describing a Continuous Distribution
PDFs and CDFs
Continuous PDF’s:
• Denoted f(x)
• Must be nonnegative
• Total area under
curve = 1
• Mean, variance and
shape depend on
the PDF parameters
• Reveals the shape
of the distribution Normal PDF
Describing a Continuous Distribution

PDFs and CDFs


Continuous CDF’s:
• Denoted F(x)
• Shows P(X < x), the
cumulative proportion
of scores
• Useful for finding
probabilities
Describing a Continuous Distribution
Probabilities as Areas
Continuous probability functions are smooth curves.
• Unlike discrete
distributions, the
area at any
single point = 0.
• The entire area under
any PDF must be 1.
• Mean is the balance
point of the distribution.
Describing a Continuous Distribution

Expected Value and Variance


Normal Distribution

Characteristics of the Normal Distribution


• Normal or Gaussian distribution was named for German
mathematician Karl Gauss (1777 – 1855).
• Defined by two parameters, μ and σ
• Denoted N(μ, σ)
• Domain is – < X < + 
• Almost all area under the normal curve is included in the
range N(μ – 3σ) < X < N(μ + 3σ)
Normal Distribution
Characteristics of the Normal Distribution
Normal Distribution
Characteristics of the Normal Distribution
• Normal PDF f(x) reaches a maximum at μ and has
points of inflection at μ+ σ

Bell-shaped curve
Normal Distribution
Characteristics of the Normal Distribution
Normal CDF

Figure 7.9
Normal Distribution
Characteristics of the Normal Distribution
All normal distributions have the same shape but differ in
the axis scales.

μ = 42.70mm μ = 70
σ = 0.01mm σ = 10

Diameters of golf balls CPA Exam Scores


Normal Distribution

What is Normal?
A normal random variable should:
• Be measured on a continuous scale.
• Possess clear central tendency.
• Have only one peak (unimodal).
• Exhibit tapering tails.
• Be symmetric about the mean (equal tails).
Standard Normal Distribution
Characteristics of the Standard Normal
• Since for every value of μ and σ, there is a different normal
distribution, we transform a normal random variable to a
standard normal distribution with μ = 0 and σ = 1 using the
formula:
x–μ
Z =
σ
• Denoted N(0,1)
Standard Normal Distribution

Characteristics of the Standard Normal


Standard Normal Distribution

Characteristics of the Standard Normal


• Standard normal PDF f(x) reaches a maximum at 0 and has
points of inflection at +1.

• Shape is unaffected by
the transformation.
It is still a bell-shaped
curve.
Standard Normal Distribution
Characteristics of the Standard Normal
Standard normal CDF

Figure 7.11
Standard Normal Distribution

Characteristics of the Standard Normal

• A common scale from -3 to +3 is used.


• Entire area under the curve is unity.
• The probability of an event P(z1 < Z < z2) is a
definite integral of f(z).
• However, standard normal tables or Excel functions
can be used to find the desired probabilities.
Standard Normal Distribution

Normal Areas from Tables


• Normal Probability Tables provides the area under
the curve from 0 to z.
• For example, find P(0 < Z < 1.96)

Figure 7.12
Standard Normal Distribution

Table 7.4
Standard Normal Distribution

• Now find P(-1.96 < Z < 1.96).


• Due to symmetry, P(-1.96 < Z) is the same as P(Z < 1.96).

.9500

• So, P(-1.96 < Z < 1.96) = 0.4750 + 0.4750 = 0.9500 or 95% of


the area under the curve.
Standard Normal Distribution
• Approximately 95% of the area under the curve is between
+ 2s
• Approximately 99.7% of the area under the curve is
between + 3s

Figure 7.15
Standard Normal Distribution

Finding Areas by using Standardized Variables


• Suppose Ashish took an economics exam and scored 86
marks. The class mean was 75 with a standard deviation of
7. What percentile is Ashish in (i.e., find P(X < 86)?
x–μ 86 – 75 = 11/7 = 1.57
zAshish = =
σ 7
• So Ashish’s score is 1.57 standard deviations about the
mean.
Standard Normal Distribution
Finding Areas by using Standardized Variables
• P(X < 86) = P(Z < 1.57) = 0.9418
So, Ashish is approximately in the 94th percentile.

Figure 7.18
Normal Approximation to the Binomial
When is Approximation Needed?
• Binomial probabilities are difficult to calculate when n is
large.
• Use a normal approximation to the binomial.
• As n becomes large, the binomial bars become more
continuous and smooth.
Normal Approximation to the Binomial

When is Approximation Needed?


• Rule of thumb: when np > 5 and n(1-p) > 5, then it is
appropriate to use the normal approximation to the
binomial.
• In this case, the binomial mean and standard deviation will
be equal to the normal μ and σ, respectively.
μ = np
σ = √np(1-p)
Normal Approximation to the Binomial
Example Coin Flips
• If we were to flip a coin n = 32 times and p = 0.50, are the
requirements for a normal approximation to the binomial
met?
• Are np > 5 and n(1-p) > 5?
• np = 32 x 0.50 = 16
n(1-p) = 32 x (1 - 0.50) = 16
• So, a normal approximation can be used.
• When translating a discrete scale into a continuous scale,
care must be taken about individual points.
Normal Approximation to the Poisson
When is Approximation Needed?
• The normal approximation to the Poisson works best when l
is large.
• Set the normal m and s equal to the Poisson mean and
standard deviation.
μ=λ
σ = √λ
Normal Approximation to the Poisson

Example Utility Bills


• On Wednesday between 10A.M. and noon customer billing
inquiries arrive at a mean rate of 42 inquiries per hour at
Consumers Energy. What is the probability of receiving more
than 50 calls?
• λ = 42 which is too big to use the Poisson table.
• Use the normal approximation with
μ = λ = 42 and
σ = λ = 42 = 6.48074
Exponential Distribution

Characteristics of the Exponential Distribution


• If events per unit of time follow a Poisson
distribution, the waiting time until the next event
follows the Exponential distribution.
• Waiting time until the next event is a continuous
variable.
Exponential Distribution
Exponential Distribution

Probability of waiting more than x Probability of waiting less than x


Suppose the waiting time to see the Doctor at the student
health center is distributed exponentially with a mean of 45
minutes. What is the probability that a student will wait more
than an hour to meet the Doctor?

a
−
P( x  a) = e 

60
−
P ( x  60) = e 45

= e −1.33 = 0.2645
Exponential Distribution
Example Customer Waiting Time
• Between 2P.M. and 4P.M. on Wednesday, patient insurance
inquiries arrive at Bajaj insurance at a mean rate of 2.2 calls
per minute.
• What is the probability of waiting more than 30 seconds (i.e.,
0.50 minutes) for the next call?
• Set λ = 2.2 calls/min and x = 0.50 min
• 1/λ = 0.45
• P(X > 0.50) = e–λx = e–2.2(0.5) = 0.332871
or 33.28% chance of waiting more than 30 seconds for the
next call.
Exponential Distribution

Example Customer Waiting Time

P(X > 0.50) P(X < 0.50)


Exponential Distribution

Example:
Suppose that the amount of time one spends in a bank is
exponentially distributed with mean 10 minutes, λ = 1/10.
What is the probability that a customer will spend more than
15 minutes in the bank? What is the probability that a
customer will spend more than 15 minutes in the bank given
that he is still in the bank after 10 minutes?

Solution:
P(X > 15) = e−15λ = e−3/2 = 0.22
P(X > 15|X > 10) = P(X > 5) = e−1/2 = 0.604
Exponential Distribution

Inverse Exponential
• If the mean arrival rate is 2.2 calls per minute, we want the
90th percentile for waiting time (the top 10% of waiting time).
• Find the x-value
that defines the
upper 10%.

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