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Joint Probability Distribution

Joint probability is the probability of two events occurring together. It is represented as P(A and B). A joint probability distribution shows the probabilities of two or more random variables together, such as F(x,y) = P(X=x, Y=y). Marginal distributions look at probabilities of each variable individually by summing probabilities of the other variable. Conditional probability is the probability of one event given that another event has occurred, written as P(B|A).

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309 views25 pages

Joint Probability Distribution

Joint probability is the probability of two events occurring together. It is represented as P(A and B). A joint probability distribution shows the probabilities of two or more random variables together, such as F(x,y) = P(X=x, Y=y). Marginal distributions look at probabilities of each variable individually by summing probabilities of the other variable. Conditional probability is the probability of one event given that another event has occurred, written as P(B|A).

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JOINT PROBABILITY

DISTRIBUTION
1. TWO OR RANDOM VARIABLES
2. LINEAR FUNCTIONS OF RANDOM VARIABLES
3. GENERAL FUNCTIONS OF RANDOM VARIABLES

DAPAT | DOROIN | ENCALLADO | GAMIL


JOINT PROBABILITY
Joint Probability is the probability of two events
happening together. The two events are usually
designated as A and B. In probability it is written as
p(A and B)
Or
P(A∩B)
Joint probability is also called the intersection of two
(or more) events.
JOINT PROBABILITY DISTRIBUTION

shows a probability distribution for two or more


random variables. Instead of events being represented
as A and B., the norm is to use X and Y.
F(x,y) = P(X=x , Y=y)
the whole point of the joint distribution is to
look for a relationship between two variables.
Example 1: the following table shows some
probabilities for X and Y happening at the same time.

You can use the table to find probabilities for example:


1. WHAT IS THE PROBABILITY FOR Y=2 AND X=3?

You can use the table to find probabilities for example:


ANSWER: look at the table for the intersection of Y=2
and X=3.

The answer is : 1/6


Example 2: Consider the roll of a fair die and let A = 1 IF the number is even
(i.e. 2, 4, or 6) and A = 0 otherwise. Furthermore, let B = 1 if the number is
prime (i.e. 2, 3, or 5) and B = 0 otherwise.

Then, the joint distribution of A and B expressed as a probability mass function, is


P ( A = 0 , B = 0 ) = P { 1 } = 1/6 P ( A = 1 , B = 0 ) = P { 4 , 6 } = 2/6
P ( A = 0 , B = 1 ) = P { 3 , 5 } = 2/6 P ( A = 1 , B = 1 ) = P { 2 } = 1/6
MARGINAL PROBABILITY DISTRIBUTION

Is where you are only interested in one of the


random variables. In other words either X or Y.
If you look at the probability table above, the sum
probabilities of one variable are listed in the bottom row and
the other sum probabilities are listed in the right column. So this
table shows two marginal distributions.
Example 2:

Time studied in minutes


0-20 21-40 41-60 >60 total
80-100 0% 2% 8% 10% 20%
60-79 0% 10% 15% 5% 30%

% correct 40-59 1% 2% 16% 16% 35%


20-39 5% 1% 4% 0% 10%
0-19 1% 0% 0% 4% 5%
total 7% 15% 43% 35% 100%
CONDITIONAL PROBABILITY
DISTRIBUTION

 When one event occurs, it may impact the probability of an event from a
different experiment.

 Conditional Probability: the probability that a second event (B) will occur
given that we know that the first event (A) has already occurred
 Note: A and B come from two different experiments
 Notation: P(B|A) vertical bar “|” means “given”
Example 1
College students were asked if they have cheated on an exam.
Results were broken down by gender.
Cheated on College Exam?

YES NO Total
Male .32 .22 .54

Female .28 .18 .46


Total .60 .40 1.00

Question: Given that a person has cheated, what is the


probability he is male?
LINEAR
FUNCTION OF
A RANDOM
VARIABLE
Definition
It often happens that a random variable
is the driver behind some cost function.

• The random occurrence of defects results in cost


of returned items.
• The random variation of stock prices determines
the performance of a portfolio.
• The random arrival of patients affects the length
of the waiting line in a doctor’s office.
Rules for linear functions of random variables:
(1a)  aXb  a X   b Expected Value of a Linear Function

(1b)  aXb  a  X  Standard Deviation of a Linear Function

(2)   aX b , cY  d    X ,Y Correlation of Linear Functions


Rules for adding random variables:
(3a)   aXbY   a X   b Y  Expected Value of a Sum
(3b)  aX bY  a 2 2 + b 2 2 + 2 ab Cov Standard Deviation of a Sum
X Y X ,Y

 aXbY  a 2 2 + b 2 2 Special Case of (3b), when X and


X Y Y are independent.
CovX ,Y
(4a)  X ,Y  Population Correlation Coefficient
 X Y
(4b) CovX ,Y =  X ,Y  X  Y Population Covariance
Example 1: Mean and Standard Deviation of
Sales Commission
You pay your sales personnel a commission of
75% of the amount they sell over $2000. X =
Sales has mean $5000 and standard deviation
$1000. What are the mean and standard
deviation of pay?
Solution:
(X - 2000) represents the basis for the commission, and "Pay" is 75% of that, so
Pay = (0.75)(X - 2000) = 0.75 X - 1500
(1a) μPay = E[ 0.75 X - 1500 ] = 0.75 μX - 1500 = 0.75(5000) - 1500 = $2250
(1b) Pay =  [ 0.75 X - 1500 ] = 0.75 X = 0.75(1000) = $750
• Example 2: The Portfolio Effect.
You are considering purchase of stock in
two different companies, X and Y.
Return after one year for stock X is a
random variable with X = $112, X = 10.
Return for stock Y (a different company) has
the same and .
Assuming that X and Y are independent,
which portfolio has less variability, 2 shares
of X or one each of X and Y?
Solution:
The returns from 2 shares of X will be exactly twice the returns from one share,
or 2X. The returns from one each of X and Y is the sum of the two returns, X+Y.
Use (1a) & (1b) for 2X Use (3a) & (3b) (with a=1 & b=1) for X + Y
aXb  aX   b   aX bY   a X   bY 
 2 X 0 = 2(112) = 224  1X 1Y  = 112 + 112 = 224

 aX  b  a X  aXbY  a 2 X2 + b 2 Y2 + 2ab CovX, Y


 2 X  0 = 2(10) = 20  X Y  10 2 + 10 2 + 0 = 14.14
Suggested Problems:
1. In what interval will the return of a portfolio consisting of 2
units of stock X and 3 units of stock Y occur 2/3 of the time,
according to the empirical rule? (Use X and Y from example 2.)

2. Repeat problem 1 if the correlation between X and Y is -0.4.

3. Based on problems 1 and 2, in what sense is negative


correlation among stocks a good idea for portfolio selection?

4. The selling price of a product is $30, but it costs the seller $20.
The forecast of the number of units that will be sold in the upcoming
month is 5000, with standard deviation 100. The seller has a fixed
cost of $8,000 per month. In what interval will net profits lie for the
upcoming month, with 95% probability, according to the empirical
rule?
GENERAL
FUNCTION OF
RANDOM
VARIABLE
Definition
In probability and statistics,
a random variable is described
informally as a variable whose
values depend on outcomes of
a random phenomenon.
• The formal mathematical treatment of
random variables is a topic in
probability theory. In that context, a
random variable is understood as a
measurable function defined on a
probability space whose outcomes are
typically real numbers.

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