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STAT Lecture 6 Neww Expectation

The document discusses mathematical expectations and probabilities. It provides examples of calculating expected values and profits for situations with multiple outcomes and assigned probabilities. These include examples involving coin tosses, dice games, manufacturing defects, mining operations, and borehole drilling site selection.

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22 views21 pages

STAT Lecture 6 Neww Expectation

The document discusses mathematical expectations and probabilities. It provides examples of calculating expected values and profits for situations with multiple outcomes and assigned probabilities. These include examples involving coin tosses, dice games, manufacturing defects, mining operations, and borehole drilling site selection.

Uploaded by

jmapogo09
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 7

 So far we have discussed probabilities


 If we say a 30 year old Motswana can expect to live for 32
more years
 That doesn’t imply that every Motswana will die at age 62.
 In reality, some could die at 30, 40, 50, 62 while some could
make to100 years.
 The 32 years is only an average otherwise known as
EXPECTATIONS in Statistics.
 The mathematical expectation of a player who stands to win
P33.35 if a fair coin results in a Tail is obtainable as:

 P(T) * P33.35 = 0.5 * 33.35 =16.68


 Consider a habitual gambler plays the dice. He throws a fair
six-faced die. At each game, he bets P5.00. He wins his
opponent’s P5 if he throws a 6, otherwise, he loses his P5.
 What is his expected profit at each game?
 What is his expected profit if he plays this game 2 times? 3
times? n times?
1 5
 For one game, P(win) = and P(lose) =
6 6
 Here is a table of the possibilities
Win/Lose 5.00 -5.00
Probability 𝟏 𝟓
𝟔 𝟔

1 5
 His expected win is  5.00 = pula
6 6
5 25
 His expected loss is  5.00 = pula
6 6
 His expected profit = Expected win – Expected Loss
5 25 −20
 = - =
6 6 6
 Table of possibilities:
Win 0 games 1 game 2 games
 Table of possibilities:
Win 0 games 1 game 2 games
Probability 5 5 25 ? 1 1 1
∗ = ∗ =
6 6 36 36 6 6 36
 Table of possibilities:
Win 0 games 1 game 2 games
Probability 5 5 25 5 1 1 5 10 1 1 1
∗ = ∗ + ∗ = ∗ =
6 6 36 6 6 6 6 36 6 6 36
Winnings 0.00 5.00 10.00
Amount lost -10.00 5.00 0.00
 Table of possibilities:
Win 0 games 1 game 2 games
Probability 5 5 25 5 1 1 5 10 1 1 1
∗ = ∗ + ∗ = ∗ =
6 6 36 6 6 6 6 36 6 6 36
Winnings 0.00 5.00 10.00
Amount lost -10.00 5.00 0.00
Profit -10.00 0.00 10.00
25 10 1
 Expected profit = -10.00* + 0.00* +10.00*
36 36 36
−10∗25+0+10∗1
=
36
−240
=
36
 If, in a random experiment, the probabilities of obtaining the amounts a1,
a2, …, ak are p1, p2, …, pk where p1 + p2 + … + pk = 1, then the
mathematical expectation of the amount obtained is

E = a1p1 + a2p2 + … + akpk . = ෍ 𝑎𝑖 𝑝𝑖


𝑖=1
 Importer pays P12 000.00 for a shipment
 Possible selling prices:
Selling Price 16000 13000 12000 10000
Probability 0.25 0.46 0.19 0.10

 Gross profit = Selling Price - P12000


Gross Profit 4000 1000 0 -2000

 Expected Gross Profit is


 4000  0.25 + 1000  0.46 + 0  0.19 - 2000  0.10
 = 1260.00
 5% of items manufactured in a factory are defective
and must be discarded. 6% are defective but can be
repaired and the rest are good. The profit on a good
item is P15.50, on a repairable item is P6.00 and for a
defective item that must be discarded is a loss of
P35.00

 What is the expected profit on an item?


 Discard Repair Good
 Probability 0.05 0.06 0.89

 Profit -P35.00 P6.00 P15.50


Expectation -P1.75 P0.36 P13.795

 Expected Profit is P12.405
 A hydro-geologist surveyed a farm for borehole water. He settled on two
possible sites with strike probabilities as shown below:

100m 150m 200m


Site 1 0.45 0.30 0.25
Site 2 0.6 0.1 0.3
 The client has funds to drill only one site. Which site should be drilled in
order to minimise the expected strike depth?
100m 150m 200m
Site 1 0.45 0.30 0.25 Expected
Site 2 0.6 0.1 0.3 Depth
Exp. Site 1 45 45 50 140
Exp. Site 2 60 15 60 135
 Company must decide to continue operation or not to
continue. 50-50 chance that mining site is successful.

 Continue (successful ) … … … … P4.5million profit


 Continue (not successful) … … … … P2.7 million loss.
 Do not continue (successful) … … … P1.8 million loss
 Do not continue (not successful) … … P450000 profit

 What decision should be made (to continue or not to


continue), taking into account the expected profit?
Successful Not Successful
Probability p = 0.5 1 – p = 0.5 Expectation
Continue 4 500 000 -2 700 000
Not Continue -1 800 000 450 000
Successful Not Successful
Probability p = 0.3 1 – p = 0.7 Expectation
Continue 4 500 000 -2 700 000
Not Continue -1 800 000 450 000
 This approach is Bayes analysis
 Probabilities are assigned to the alternatives about which alternatives exist

 In decision theory, you are to use either


◦ Minimax –Choose Minimum of the maximum Loss
◦ Maximin – Choose Maximum of the minimum Profit
Successful Not Successful
Probability p = 0.1 1 – p = 0.9 Expectation
Continue 4 500 000 -2 700 000
Not Continue -1 800 000 450 000
Successful Not Successful
Probability p=p 1 – p = 1-p Expectation
Continue 4 500 000 -2 700 000
Not Continue -1 800 000 450 000
Successful Not Successful
Probability p = 0.3333 1 – p = 0.6667 Expectation
Continue 4 500 000 -2 700 000
Not Continue -1 800 000 450 000

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