Term 1: Business Statistics

Session 2: Probability Distribution

Rohit Gupta
Operations & SCM Area
Office: Faculty wing 5, Room No. 23
Email: [email protected]
[email protected]
Types of Random Variables

• Random Variables are of two types:

 Discrete Random Variable
 Continuous Random Variable
• Discrete Random Variable takes only a countable (finite or countably
infinite) number of values.
• no. of accounts opened,
• no. of cars sold,
• Friday night attendance at a cinema,
• no. of defective bulbs in a box, etc.
• Discrete random variables usually count the items. is
• Range set of X is the collection of all possible values of X
• Range set of a discrete random variable is countable.
 Continuous Random Variable takes on any values within an interval.
 weight of fertilizer packed in a bag,
 amount of sugar in an orange,
 time required to run a mile,
 price of a stock, etc.
 Continuous random variable is usually a measurement.
 It can take an uncountably infinite number of values.
 Range set of a continuous random variable is an interval.
 It can be of types (-∞, ∞), (-∞, 0), (0, ∞) or (a, b).
More Examples

Random Variable Values Type

Flip a coin three times;
Range Set is Finite
X = the total number of heads. {0, 1, 2, 3} Discrete Random Variable
Select a mutual fund;
Range Set is Countably Infinite
X = the number of companies in the {2, 3, 4, ...} Discrete Random Variable
fund portfolio.
Measure the length of an object; Range Set is Uncountable
Any positive
X = its length in centimeters. Continuous Random Variable
number
Throw two dice over and over until
Range Set is Countably Infinite
you roll a double six; { 1, 2, 3, 4, ...} Discrete Random Variable
X = the number of throws.
Take a true-false test with 100
{0, 1, 2, 3, 4, Range Set is Finite
questions; X = no. of questions
..., 100} Discrete Random Variable
answered correctly.
Select a group of 50 people at
Any positive Range Set is Uncountable
random;
X = exact average height (in m) of the number Continuous Random Variable
group.
Probability Distribution of a Discrete Random Variable

 Probability distribution provides the probabilities of occurrence of different possible

outcomes in an experiment.
 Probability distribution of a discrete random variable is also called Probability Mass
Function (pmf).
 It is a mutually exclusive listing of all possible values of the discrete random variable along
with corresponding probabilities.

All possible values of random variable X

Corresponding probabilities

 p1, p2, p3,…. are non-negative.

 Together they sum up to 1.
 Example:
 X is the number of heads appeared in two coins tossing experiment.
 X is a discrete random variable having the probability distribution as:

Probability mass function of X is

1 / 4, if x  0

p( x)  2 / 4, if x  1
1 / 4, if x  2

0.6

0.5
Probabilities

0.4

0.3

0.2

0.1

0
x=0 x=1 x=2
 Example:
 In throwing a die, X is the values appeared
 X is a discrete random variable having the probability distribution

probabilit y mass function of X is

p( x)  1 / 6, if x  1,2,3,4,5,6.

0.2
Probabilities

0.15

0.1

0.05

x=1 x=2 x=3 x=4 x=5 x=6

Recall the example where X is the random variable
denoting the gain and is given by

In tabular format, the probability distribution of X is

given by

Probability mass function of X is written as

3 / 4 if x  100
p ( x)  
1 / 4 if x   200
 Sometimes, the pmf can be expressed as a mathematical function.
 Example:
 X denotes the number of tosses needed to get the first tail.
 X is a discrete random variable.
• So the random variable X has the probability distribution

probabilit y mass function of X is

 1/ 2 if x  1
1 / 2 2 if x  2

p ( x)  
 1 / 2 3
if x  3
  

• Probability mass function p(x) can also be written as

• Also,
1
 x
 2 3
1 1 1 1
 p ( x )              2  1
x 1  2  2 2 2 1
x 1
1
2
Example:
Consider the previous example again.
The discrete random variable has the pmf

The probability of getting a tail in less than 3 tosses is

given by
P(X < 3) = P(X=1) + P(X=2)
= p(1) + p(2)
= (1/2) + (1/2)2
=1/2 + 1/4
= 3/4
Expectation of a Discrete Random Variable

 X is a discrete random variable having the pmf p(x)

 Expectation or Expected value or mean of X is given by

 Recall the first example where X is the random variable denoting

the gain
 pmf of X is 3 / 4 if x  100
p ( x)  
1 / 4 if x   200
 Expected gain of the person is
 E(X) = (100)(3/4) + (-200)(1/4) = 25 Rupees
 Expectation of a random variable can be interpreted as “some sort
of average” of all the values that the random variable takes.

 So, expected value of a random variable is the center of its

distribution.

 If a and b are constants; and X and Y are random variables, then we

have
E(a) = a,
E(aX) = aE(X),
E(ax + bY) = aE(X) + bE(Y).
Example: Suppose X is a discrete random variable having following probability distribution

x 2 -1 0 1
p(x) 0.4 k 0.2 0.3

 Find E(X).
 Ans: 1.2

Example: Table below shows the p.m.f of a random variable X.

x -3 -1 0 1 2 3 5 8
p(x) .1 .2 0.15 0.2 0.1 0.15 0.05 0.05

Find:
1. p(X>0)
2. p(X is even)
3. E(X)
Variance of a Discrete Random Variable

 The idea of center is not enough to summarize a probability distribution.

 We need some idea of variability also.

 Variance of a random variable X is defined as

Var ( X )   X2  E   X  E ( X ) 
2

 
 E X 2  E ( X )
2

 It is the expected squared deviation of possible values of X from its mean.

 E ( X 2 )   x 2 p( x) and E ( X )   x p( x),
x x

• where p(x) is the pmf of X.

• Note that Variance is always non-negative.

• Standard Deviation of X = σx = √[Var (X)]

• If a and b are constants, X and Y are random variables, then we have

 Var(a) = 0,
 Var(aX) = a2Var(X),
 Var(aX + bY) = a2Var(X) + b2Var(Y) + 2ab σXY
 σXY is the covariance between X and Y.
Example: Suppose X is a discrete random variable having following probability
distribution

x -2 -1 0 1
p(x) 0.4 k 0.2 0.3

 Find Var(X).
 Ans: 1.64

Example: Table below shows the p.m.f of a random variable X.

x -3 -1 0 1 2 3 5 8
p(x) .1 .2 0.15 0.2 0.1 0.15 0.05 0.05

 Find Var(X).
Probability Distribution of a Continuous Random Variable

 X is continuous random variable.

 Range set Rx of X is an interval on the real line.
 X can take infinite number of values and they are always uncountable.
 We can not assign a probability to each possible value.
 pmf is defined only for points x1, x2, …
 Point probability p(x) becomes meaningless in this case.
 The probability distribution of a continuous random variable
is given by probability density function (pdf)
 pdf is defined as

1  h h
f ( x)  lim h0 P x   X  x  
h  2 2

 Provided

f ( x)  0, for all x and  f(x) dx  1.

RX
 Consider a continuous random variable X.
 pdf of X is f(x) with range set Rx
 Probability that X takes the values on an interval (a,b) or (a,b] or [a,b) or [a,b]
is given by

P ( a  X  b)  P ( a  X  b)
 P ( a  X  b)
 P ( a  X  b)
b
  f ( x)dx
a
Example:
 Let X is a random variable with pdf

 Show that f (x) is a valid pdf.

 Find P(X > 1/2) and P(0 < X < 1/2).
 Ans: 0.875; 0.125
Expectation of a Continuous Random Variable

• If X is a continuous random variable.

• The probability density function of X is f(x).
• The range space of X is RX.
• Then the Expectation of X is given by

E( X )   xf ( x)dx
RX
Example:
• If X is a continuous random variable with pdf

• Find E(X).
 Ans: 3/4

Example:
• If X is a continuous random variable with pdf
• f(x) = k, 0 < X < 2,
• Find k
• Ans: 1/2
• Find E(X)
• Ans: 1
 Variance of a Continuous Random Variable

 X is a continuous random variable.

Var ( X )   X2  E   X  E ( X ) 
2

 
 E X 2  E ( X )
2

 where
 f(x) is pdf of X,
 RX is the range space of X.

E( X 2 )   f ( x)dx and E( X )   xf ( x)dx

2
x
RX RX
Example:
 If X is a continuous random variable with pdf

 Find Var(X).
 Ans: 0.0375

Example:
 If X is a continuous random variable with pdf
 f(x) = 1/2, 0 < X < 2,
 Find Var(X)
 Ans: 1/3