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Module 4

The document discusses probability distributions using the example of a coffee shop's daily sales, highlighting the likelihood of selling different quantities of coffee. It explains the difference between frequency and probability distributions, the conditions for a valid probability distribution, and the types of random variables. Additionally, it covers the concept of expected value and its practical applications in decision-making under uncertainty.

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5 views

Module 4

The document discusses probability distributions using the example of a coffee shop's daily sales, highlighting the likelihood of selling different quantities of coffee. It explains the difference between frequency and probability distributions, the conditions for a valid probability distribution, and the types of random variables. Additionally, it covers the concept of expected value and its practical applications in decision-making under uncertainty.

Uploaded by

sanketakolkar14
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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Probability distribution

Scenario
You are the owner of a quaint coffee shop in a bustling town. Curious about
your business patterns, you decide to analyze your daily sales over a month.
Every day for 30 days, you meticulously record the number of cups of coffee
sold. As the month concludes, you examine your data and notice some
intriguing patterns emerging. On two days, you sold only 5 cups, while there
were five days when you sold 10 cups. More commonly, you find that on eight
days you sold 15 cups, and even more frequently, there were ten days when 20
cups flew off your shelves. The higher numbers were less frequent but still
significant, with four days seeing sales of 25 cups, and one exceptional day
where you sold a whopping 30 cups.

Based on the above information, how would you anticipate your most likely
sales figures, allowing you to optimize your inventory management?
Contd..
Insights

This probability distribution gives you insights into your daily sales patterns.
For example, you're most likely to sell 20 cups on any given day (33.3%
chance), while selling 30 cups is the least likely outcome (3.3% chance).
Illustration of Probability Distribution
Probability Distribution
• Probability distributions are related to frequency distributions.
• Moreover, we can relate probability distribution to theoretical
frequency distribution.
• A theoretical frequency distribution is a probability distribution that
describes how outcomes are expected to vary.
• Because these distributions deal with expectations, they are useful
models in making inferences and decisions under conditions of
uncertainty
Examples of Probability Distributions

Experiment using a fair coin


POSSIBLE OUTCOMES FROM TWO TOSSES OF A FAIR COIN PROBABILITY DISTRIBUTION OF THE
POSSIBLE NUMBER OF TAILS FROM TWO
TOSSES OF A FAIR COIN
Examples of Probability Distributions (Contd..)

PROBABILITY DISTRIBUTION OF THE NUMBER OF TAILS IN TWO TOSSES OF A FAIR COIN


Practice Question

• A political candidate for local office is considering the votes she can
get in a coming election. Assume that votes can take only four possible
values. If the candidate’s assessment is like this:

Then the graph of probability distribution will be?


Solution

PROBABILITY DISTRIBUTION OF THE NUMBER OF VOTES


Frequency Distribution Vs. Probability Distribution

• Frequency distribution is a listing of the observed frequencies of all the


outcomes of an experiment that actually occurred when the experiment
was done.

Whereas,

• A probability distribution is a listing of the probabilities of all the


possible outcomes that could result if the experiment were done.
Condition of Probability Distribution

[X, p(X)] is said to constitute a probability distribution if:

1. X is a random variable

• A random variable is a function that assigns a numerical value to each outcome of


a random experiment. It can be discrete (taking on specific values) or continuous
(any value within a range).
• Random variables allow us to quantify and analyze the uncertainty in probabilistic
events mathematically.

2. p(x) > = 0
3. Σp(x) = 1.
Types of Probability Distribution

Types: discrete or continuous.


• In a discrete probability distribution, the variable under consideration is restricted
to take only a limited number of values, which can be listed.
Example: recall “number of votes graph” There, votes could take on only four
possible values (1,000, 2,000, 3,000, or 4,000).
Similarly, the probability that you were born in a given month is also discrete
because there are only 12 possible values (the 12 months of the year).
• In a continuous probability distribution, on the other hand, the variable under
consideration is allowed to take on any value within a given range, so we cannot
list all the possible values.
Example: Customer arrival at the store
Practice Question

• Based on the following graph of a probability distribution, construct


the corresponding table.
Practice Question (Contd..)

• Which of the following statements regarding probability distributions are correct?

1. A probability distribution provides information about the long-run or


expected frequency of each outcome of an experiment.
True. A probability distribution provides information about the long-
run or expected frequency of each outcome of an experiment. It
describes the likelihood of each possible outcome occurring in a
random experiment and summarizes how these outcomes are
distributed over many repetitions of the experiment.
Practice Question (Contd..)

• Which of the following statements regarding probability distributions are correct?

2. The graph of a probability distribution has the possible outcomes of an


experiment marked on the horizontal axis.
True. The graph of a probability distribution typically has the possible outcomes of an
experiment marked on the horizontal axis. This axis is often referred to as the x-axis,
and it represents the values or events that can occur in the experiment. The vertical
axis, which is usually labeled as the y-axis, represents the probabilities associated with
each of these outcomes. The graph visually displays the likelihood of each possible
outcome, allowing for a clear understanding of how probabilities are distributed
across the different events or values.
Practice Question (Contd..)

• Which of the following statements regarding probability distributions are correct?

3. A probability distribution lists the probabilities that each outcome is random.


False. A probability distribution does not list the probabilities that each outcome is
random. Instead, it provides information about the likelihood of each possible
outcome of a random experiment.
Practice Question (Contd..)
• Which of the following statements regarding probability distributions are correct?

4. A probability distribution is always constructed from a set of observed


frequencies like a frequency distribution.
False. A probability distribution is not always constructed from a set of observed
frequencies like a frequency distribution.

While probability distributions can be empirically derived from observed data in some
cases, they are also frequently used in theoretical and modeling contexts where the
probabilities are defined based on assumptions and mathematical principles rather
than observed frequencies. Common examples of probability distributions include
the normal distribution, binomial distribution, and Poisson distribution, all of
which are used in various fields to model random phenomena without relying on
observed data.
Practice Question (Contd..)

• Which of the following statements regarding probability distributions are correct?

5. A probability distribution may be based on subjective estimates of the likelihood of


certain outcomes.
True. A probability distribution may indeed be based on subjective estimates of the likelihood
of certain outcomes. This concept is often referred to as a subjective probability distribution.

In some situations, it's challenging to obtain objective data or historical frequencies to


construct a probability distribution. In such cases, individuals or experts may rely on their
own judgment, expertise, or subjective beliefs to estimate the probabilities associated with
various outcomes. These subjective estimates are then used to create a probability distribution
that reflects the best available knowledge or opinions.
Random Variable
• A variable is random if it takes on different values as a result of the outcomes of a
random experiment.
• A random variable can be either discrete or continuous. If a random variable is
allowed to take on only a limited number of values, which can be listed, it is a
discrete random variable.
• On the other hand, if it is allowed to assume any value within a given range, it is a
continuous random variable.
Types of Variable

Variable

Discrete Continuous
Example of Discrete Random Variable
Suppose that a coin is tossed twice, .
Let represent the number of heads that can come up.
With each sample point we can associate a number for e.g., in case of
, while for . It follows that
is a random variable.

 , , ,
Example of
Discrete
Random
Variables

Number of patient screened


by the doctor
Probability dist.
of number of
patient
screened by the
doctor
PROBABILITY DISTRIBUTION FOR
THE DISCRETE RANDOM VARIABLE
“DAILY NUMBER SCREENED”
Expected value of Random Variable

• Expected value is a fundamental idea in the study of probability distributions.


• The concept has been put to considerable practical use by the insurance industry.
• In the last 40 years, it has been widely used by many others who must make decisions
under conditions of uncertainty.
• To obtain the expected value of a discrete random variable, we multiply each value that
the random variable can assume by the probability of occurrence of that value and then
sum these products.
Example:
Expected Value
Insights
• The total in the table tells us that the expected value of the discrete random variable
“number screened” is 108.02 patients.

• What does 108.02 mean?

• It means that over a long period of time, the number of daily screenings should average
about 108.02. Note that an expected value of 108.02 does not mean that tomorrow
exactly 108.02 patients will visit the clinic.

• The clinic director would base her decisions on the expected value of daily screenings
because the expected value is a weighted average of the outcomes she expects in the
future.

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