Lesson 8: Interpreting the Mean and the Variance of a Discrete Random Variable

Interpreting the Mean and Variance of a Probability Distributions

Decision-making is an important skill that each individual should acquire. It is a must that you should be wise when
making decisions. In real life, we always encounter situations where we have to choose the best option to arrive with
the right decision. Thinking critically and logically will help you to decide on things wisely. Considering that you
might become a CEO of a company, a professional, a father or a mother, surely this lesson will help you to decide on
future financial situations. Interpreting the mean and variance of probability distributions will give you the idea on
how to weigh things, for you to choose the right option.
Do This: An Unfair Die
Suppose an unfair die is rolled and let X be the random variable representing the number of dots that would appear
with a probability distribution below.
Questions: 1. What will be the average number of dots that
would appear?
2. How does the assumed value of the outcome vary from the
average number of dots that would appear?
3. Will you join in a game of chance using an unfair die?

Recall that in your previous lesson, you learn how to calculate the mean, variance, and standard deviation of a
discrete random variable. So, with those skills, you will be able to answer the questions in the previous activity.
First, let us find the mean of the probability distribution using the formula

Therefore, the mean of the probability distribution is 3.7. Since the mean is equal to 3.7, we can say that the
average number of dots that would appear is a number near to 3.7 which is 4. If we will repeat the experiment over
and over, there is a higher possibility the 4 dots will always appear since the average number of dots that would
appear is 4. To determine the variability of the assumed values from the mean, use the formulas for finding variance
and standard deviation.
But first, construct a table like the one below:

Therefore, the variance of the random variable X (the number of dots appeared) is equal to 1.81 while the
standard deviation is equal to 1.35. Take note that, small variance or standard deviation means that the assumed
values or data points tend to be very close to the mean, while higher variance or standard deviation means that the
assumed values or data points are spread out from the mean. Specifically, the variance and standard deviation
measures or describes how far a set of data (assumed values of random variables) is spread out. Since the value of
the standard deviation is 1.35, we can say that the assumed values of each outcome are somewhat close to the mean
for about 1.35 units from the mean.
 Knowing this information, you may now decide whether you will join a game using an unfair die. Make
sure you will think more critically and logically before you make a decision and remember being fair and just is a
virtue.
Bear in mind that the mean of a discrete random variable is just the average value of a random variable
over repeated trials of experiment and in the next lesson it will be discussed further and its application to the real-life
situation.
To understand more the concept of the variance and standard deviation, the following are examples that
will give you a deeper idea about the concept of variance and standard deviation. The first data in the following
examples is somewhat expected to have a higher variance and standard deviation or variability compare to the other
data.

ACTIVITIES
A. Read each situation carefully to solve each problem. Write your answer on a separate sheet of
paper.
The number of cellular phones sold per day at the E-Cell Retail Store with the corresponding
probabilities is shown in the table below. Compute the mean, variance, and standard
deviation and interpret the result.

The mean is equal to ____________ therefore, it means that the average number of cellular phones of sold
per day is ________________.
To find the variance complete the table below:

Therefore, the variance of a probability distribution is equal to ___________, while the standard deviation is equal
to _________________.

B. Beth’s Bread and Pastry Shop determines the number of cupcakes sold per day with its
corresponding probabilities. Find the mean, variance, and standard deviation of the
probability distribution below. If Beth, the owner of the shop is claiming that the average
number of cupcakes sold in a day is 150 pieces, do you think it is a believable claim?

C. Analyze the following pairs of data and identify which of the following will most likely yield to a
higher variance and higher standard deviation. Put a check mark on the appropriate box.
 D. Complete the following statements by writing the correct word or words.
1. The mean of a discrete random variable is interpreted as the __________________ value of a
random variable over repeated trials of an experiment.
2. The variance and standard deviation of a discrete random variable measured or described the
____________________ of the assumed values of the random variable to the mean.
3. A small variance or standard deviation means that the assumed values or data points tend to be
___________________to the mean.
4. A higher variance or standard deviation means that the assumed values or data points are
__________________ from the mean

Lesson 9: Solving Problems Involving Mean and Variance of Probability Distributions

Are you interested in buying lotto tickets? How about making a bet in a roulette wheel or taking a chance in
raffle tickets? Do you want to know how much gain will you have if you will win in games of chance or how much
money will be wasted if you lost on a bet? Are you planning to invest money in a life insurance company?
For you to begin let us recall first the previous lessons which are very important for you to
succeed. From your last module, you learned that the expected value or mean value of a discrete
random variable, denoted by x, is computed by first multiplying each possible x value by the probability
of observing that value and then adding the resulting quantities.
 ACTIVITIES
A. In the following activities, read each situation carefully to solve each problem. Write your
answer on a separate sheet of paper.
 the first, second, or third prize) plus the product of net loss and the probability of losing.
𝐄(𝐱) = _______________
Interpretation:_________________________________________________________________________
______
B.

C.

b. Find the expectation if you play a bet and interpret the result.
𝐄(𝐱) = _______________
Interpretation:__________________________________________________________
c. How much the organizer will earn if 100 games will be played such that each number has a bet of
₱5.00? ____________________________ (Hint: Compute for the net gain of the organizer per game and
multiply it by 100)
D. Colored Wheel
A roulette wheel is divided into eight colors blue, red, yellow, green, orange, violet, black, and white.
Each time roulette is spun, you can have a bet of ₱10.00. If the outcome is either black, blue, or violet you
will lose the bet. But if the outcome is red or yellow, your money will be doubled (you will win additional
₱10.00 plus your bet), and if it is green or orange you will win nothing and your bet will be given to you.
But if the result is white, your money will be tripled (you will win an additional)
₱20.00 plus your bet. If X denotes the net gain of a player what is the expected value of a ₱10.00 bet?
E. Insurance Investment Problem
A life insurance company will sell a ₱250,000.00 one-year term life insurance policy for
members of armed forces of the Philippines for a premium of ₱500.00. Let X denote the net gain from the
insurance company. Based on the collected data of the company, a member of the armed forces police has
a 99.96% chance of surviving within one year. Let X the net gain of an insurance company from a single
policyholder.
a. Complete the table below showing the probability distribution of X.

b. Find the expectation if you play a bet and interpret the result.
𝐄(𝐱) = _______________
Interpretation:
______________________________________________________________________
F.Body Parts Insurance
An insurance company will sell a ₱500,000.00 one-year term leg insurance policy for ramp
models for a premium of ₱1,000.00. Find the expected value to the company of a single policy if a
model has a 99.97% chance of being uninjured in one year?
G. Complete the following statements by writing the correct word or words and formulas.
1. The mean of a discrete random variable X is also called the _________________.
2. The expected value is the _______________ value of a random variable over numerous trials of an
experiment.
3. The formula to find the mean or expected value of a discrete random variable is
___________________.
4. The _________________ and __________________ of a discrete random variable X indicate the
variability of X over a large number of experiments or trials.
B. In your own words, write the different steps on how you can solve real-life problems involving mean
or expected value.