PROBABILITY DISTRIBUTIONS

DISCRETE AND CONTINUOUS

DISTRIBUTIONS

 A numerical or graphical depiction of frequency counts or probabilities for

various values of a variable that can occur
 Describes the ‘shape’ of a batch of the probability of happening of each outcome
 Distributions are important because:
 Most of the analyses done in business statistics are based on the characteristics of a
particular distribution
 Serve as a basis for standardized comparison of empirical distributions
 To estimate confidence intervals for inferential statistics
 ‘Fit’ between observed distributions and certain theoretical distributions is an assumption of
many statistical procedures
RANDOM VARIABLE

 A variable that contains the outcomes of a chance experiment.

 An uncertain quantity whose value depends on chance.
 In effect, a random variable associates a numerical value with each
possible experimental outcome.
 Discrete or continuous
 The probability distribution for a random variable describes how
probabilities are distributed over the values of the random variable.
DISCRETE RANDOM VARIABLES

 If the set of all possible values is at most a finite or a countably infinite number of
possible values
 Produce values that are nonnegative whole numbers
 Discrete distributions, constructed from discrete random variables
CONTINUOUS RANDOM VARIABLES

 Takes on values at every point over a given interval

 Generated from experiments in which things are “measured” not “counted”
 Continuous distributions, based on continuous random variables
DISCRETE AND CONTINUOUS RANDOM VARIABLES

 Binomial distribution  Uniform distribution

 Poisson distribution  Normal distribution
 Hypergeometric distribution  Exponential distribution
STATE WHETHER THE RANDOM VARIABLE IS DISCRETE OR
CONTINUOUS
PROBABILITY FUNCTION

 For a discrete random variable x, the probability distribution is defined by a

probability function, denoted by f(x).
 The probability function provides the probability for each value of the random
variable.
SALES OF AUTOMOBILES AT DICARLO MOTORS OVER THE
PAST 300 DAYS OF OPERATION

PROBABILITY DISTRIBUTION FOR THE NUMBER OF AUTOMOBILES SOLD DURING A DAY AT DICARLO
MOTORS
DISCRETE UNIFORM PROBABILITY DISTRIBUTION
WHY DO WE NEED PROBABILITY DISTRIBUTIONS?

A primary advantage of defining a random variable and its probability distribution is

that once the probability distribution is known, it is relatively easy to determine the
probability of a variety of events that may be of interest to a decision maker
MEAN OR EXPECTED VALUE

 A measure of the central location for the random variable

 The long-run average of occurrences
 The expected value is a weighted average of the values the random variable
where the weights are the probabilities
 The expected value does not have to be a value the random variable can assume.
VARIANCE AND STANDARD DEVIATION

 A measure of variability, or dispersion

 Weighted average of the squared deviations of a random variable from its mean
 The weights are the probabilities

 The standard deviation, σ, is defined as the positive square root of the variance
 The standard deviation is measured in the same units as the random variable and
therefore is often preferred in describing the variability of a random variable
MEAN, VARIANCE, AND STANDARD DEVIATION
BINOMIAL PROBABILITY DISTRIBUTION

 Consider the experiment of tossing a coin five times and on each toss observing whether
the coin lands with a head or a tail on its upward face
 In a binomial distribution experiment, any one trial can have only two possible, mutually
exclusive outcomes (right-handed/left-handed, defective/good, male/female, etc.).
 MARTIN CLOTHING STORE PROBLEM
Let us consider the purchase decisions of the next three customers who enter the Martin
Clothing Store. On the basis of past experience, the store manager estimates the probability
that any one customer will make a purchase is .30. What is the probability that two of the next
three customers will make a purchase?
BINOMIAL PROBABILITY FUNCTION
SOLVE

Consider the purchase decisions of the next ten customers who enter the Martin
Clothing Store. On the basis of past experience, the store manager estimates the
probability that any one customer will make a purchase is .30. What is the
probability that four of the next ten customers will make a purchase?
USING TABLES OF BINOMIAL PROBABILITIES
BINOMDIST has four
arguments:
• x (the number of
successes)
• n(the number of trials)
• p (the probability of
success)
• Cumulative (True/False)
EXPECTED VALUE AND VARIANCE FOR THE BINOMIAL DISTRIBUTION

Suppose that for the next month the Martin Clothing Store forecasts 1000 customers will
enter the store. What is the expected number of customers who will make a purchase?
What is the variance and standard deviation for the number of customers who will make
a purchase?
PRACTICE PROBLEM

What is the first big change that American drivers made due to higher gas prices? According to an Access
America survey, 30% said that it was cutting recreational driving. However, 27% said that it was
consolidating or reducing errands. If these figures are true for all American drivers, and if 20 such drivers
are randomly sampled and asked what is the first big change they made due to higher gas prices,
a. What is the probability that exactly 8 said that it was consolidating or reducing errands?
b. What is the probability that none of them said that it was cutting recreational driving?
c. What is the probability that more than 7 said that it was cutting recreational driving?
POISSON PROBABILITY DISTRIBUTION
 Useful in estimating the number of occurrences (random) over a specified interval of time
or space
 Often used to model random arrivals in waiting line situations
 the number of arrivals at a car wash in one hour
 the number of repairs needed in 10 miles of highway
 the number of leaks in 100 miles of pipeline
 the number of serious accidents at a chemical plant
COMPARE BINOMIAL WITH POISSON DISTRIBUTION

Binomial distribution Poisson distribution

 Describes a distribution of two possible  Focuses only on the number of discrete
outcomes designated as successes and occurrences over some interval or
failures from a given number of trials continuum
 Does not have a given number of trials (n)
 To determine how many U.S.-made cars
are in a random sample of 20 cars  The number of cars randomly arriving at
an automobile repair facility during a 10-
minute interval.
POISSON PROBABILITY DISTRIBUTION
EXAMPLE: BANK CUSTOMERS
Suppose bank customers arrive randomly on weekday afternoons at an average of 3.2
customers every 4 minutes. What is the probability of exactly 5 customers arriving in a 4-
minute interval on a weekday afternoon?
EXAMPLE: DRIVE-UP TELLER WINDOW

Suppose the average number of car arrivals at the drive-up teller window of a bank during a
15-minute period on weekday mornings is 10.
 What is the probability of exactly five arrivals in 15 minutes?

 What is the probability of one arrival in a 3-minute period?

THE RELATION BETWEEN BINOMIAL AND POISSON
DISTRIBUTION
 Binomial problems with large sample sizes and small values of p, which then generate
rare events, are potential candidates for use of the Poisson distribution.
 As a rule of thumb, if n > 20 and n.p <= 7, the approximation is close enough to use the
Poisson distribution for binomial problems.
 The Poisson Distribution with Mean = np close approximates the binomial distribution if n
is large and p is small

EXAMPLE:
Suppose the probability of a bank making a mistake in processing a deposit is .0003. If 10,000
deposits (n) are audited, what is the probability that more than 6 mistakes were made in
processing deposits?
HYPERGEOMETRIC PROBABILITY DISTRIBUTION

 Trials are not independent; and the probability of success changes from trial to trial.
 Used when sampling is done without replacement, information about population
makeup must be known in order to redetermine the probability of a success in each
successive trial as the probability changes
 It is discrete distribution
 Each outcome consists of either a success or a failure
 Sampling is done without replacement
 The population, N, is finite and known
 The number of successes in the population, A, is known
HYPERGEOMETRIC PROBABILITY DISTRIBUTION
HYPERGEOMETRIC PROBABILITY DISTRIBUTION FORMULAE
BINOMIAL DISTRIBUTION AS AN APPROXIMATION OF HYPERGEOMETRIC
DISTRIBUTION

Hypergeometric distribution should be used instead of the binomial distribution when

the following conditions are present:

1. Sampling is being done without replacement.

2. n >= 5% N.

Even though the binomial distribution theoretically applies only when sampling is done
with replacement and p stays constant, recall that, if the population is large enough in
comparison with the sample size, the impact of sampling without replacement on p is
minimal. Thus the binomial distribution can be used in some situations when sampling
is done without replacement. Because of the tables available, using the binomial
distribution instead of the hypergeometric distribution whenever possible is preferable.
As a rule of thumb, if the sample size is less than 5% of the population, use
of the binomial distribution rather than the hypergeometric distribution is
acceptable
The when sampling
hypergeometric is done
distribution without
yields replacement.
the exact probability, and the binomial
distribution yields a good approximation of the probability in these situations
EXAMPLE
Suppose 18 major computer companies operate in the United States and that 12 are located
in California’s Silicon Valley. If three computer companies are selected randomly from the
entire list, what is the probability that one or more of the selected companies are located in
the Silicon Valley?
What is the probability of randomly obtaining a score between 300
and 600 on the GMAT exam?
CONTINUOUS DISTRIBUTIONS
CONTINUOUS DISTRIBUTIONS

 Constructed from continuous random variables in which values are taken on for
every point over a given interval
 Usually generated from experiments in which things are “measured” as opposed
to “counted.”
 Probabilities of outcomes occurring between particular points are determined by
calculating the area under the curve between those points
 Area under the graph of f(x), probability density function, gives the
probability that the continuous random variable x assumes a value in that
interval.
 The entire area under the whole curve is equal to 1.
DISCRETE VS CONTINUOUS

 A fundamental difference separates discrete and continuous random variables in

terms of how probabilities are computed.
 For a discrete random variable, the probability function f(x) provides the probability
that the random variable assumes a particular value.
 With continuous random variables, the counterpart of the probability function is the
probability density function, also denoted by f(x).
 The difference is that the probability density function does not directly provide
probabilities. However, the area under the graph of f(x) corresponding to a given
interval does provide the probability that the continuous random variable x
assumes a value in that interval. So when we compute probabilities for continuous
random variables we are computing the probability that the random variable
assumes any value in an interval.
UNIFORM DISTRIBUTION / RECTANGULAR DISTRIBUTION
 Relatively simple continuous distribution in which the same height, or f(x), is obtained over
a range of values
 Whenever the probability is proportional to the length of the interval, the random variable
is uniformly distributed
DETERMINING PROBABILITIES IN A UNIFORM DISTRIBUTION
 For continuous distributions, probabilities are calculated by determining the area over an
interval of the function.
 With continuous distributions, there is no area under the curve for a single point.
 The following equation is used to determine the probabilities of x for a uniform distribution
between a and b.
SUPPOSE THE AMOUNT OF TIME IT TAKES TO ASSEMBLE A PLASTIC MODULE RANGES FROM 27 TO
39 SECONDS AND THAT ASSEMBLY TIMES ARE UNIFORMLY DISTRIBUTED. DESCRIBE THE
DISTRIBUTION. WHAT IS THE PROBABILITY THAT A GIVEN ASSEMBLY WILL TAKE BETWEEN 30 AND
35 SECONDS? FEWER THAN 30 SECONDS?
NORMAL PROBABILITY DISTRIBUTION

 Most widely known and used of all distributions

 Used in a wide variety of practical applications in which the random variables are
heights and weights of people, test scores, scientific measurements, amounts of
rainfall, and other similar values
 It is also widely used in statistical inference
 When large enough sample sizes are taken, many statistics are normally
distributed regardless of the shape of the underlying distribution from
which they are drawn
THE NORMAL DISTRIBUTION PROPERTIES

 Bell Shaped
 Unimodal
f(X)
 Location is characterized by the mean, μ
 Spread is characterized by the standard deviation, σ
 Symmetrical about its mean
σ

 Asymptotic to the horizontal axis μ

 Area under the curve = 1
 Area to right and left of mean is 0.5
 The random variable has an infinite theoretical range: -∞ to +∞
 Mean = Median = Mode
NORMAL CURVES FOR THREE DIFFERENT COMBINATIONS OF MEANS
AND STANDARD DEVIATIONS
PROBABILITY DENSITY FUNCTION OF THE NORMAL
DISTRIBUTION
PERCENTAGE OF VALUES IN COMMONLY USED INTERVALS

 68.3% of the values of a normal random

variable are within plus or minus one
standard deviation of its mean.

 95.4% of the values of a normal random

variable are within plus or minus two standard
deviations of its mean.

 99.7% of the values of a normal random

variable are within plus or minus three
standard deviations of its mean.
STANDARDIZED NORMAL DISTRIBUTION

 The mechanism by which all normal distributions can be converted into a single distribution: the z
distribution

 A z score is the number of standard deviations that a value, x, is above or below the mean
 This formula allows conversion of the distance of any x value from its mean into standard deviation units.
 A standard z score table can be used to find probabilities for any normal curve problem that has been
converted to z scores.
 The z distribution is a normal distribution with a mean of 0 and a standard deviation of 1.
 Any value of x at the mean of a normal curve is zero standard deviations from the mean. Any value of x
that is one standard deviation above the mean has a z value of 1.
STANDARDIZED NORMAL DISTRIBUTION
z
Distribution
SOLVING NORMAL CURVE PROBLEMS
The Graduate Management Aptitude Test (GMAT), produced by the Educational Testing
Service in Princeton, New Jersey, is widely used by graduate schools of business in the United
States as an entrance requirement. Assuming that the scores are normally distributed,
probabilities of achieving scores over various ranges of the GMAT can be determined. In a
recent year, the mean GMAT score was 494 and the standard deviation was about 100. What
is the probability that a randomly selected score from this administration of the GMAT is
between 600 and the mean?

GMAT score of 600 is 1.06 standard deviations more than the mean
What is the probability of obtaining a score greater than 700 on a GMAT test
that has a mean of 494 and a standard deviation of 100? Assume GMAT
scores are normally distributed.
For the same GMAT examination, what is the probability of randomly
drawing a score that is 550 or less?
What is the probability of randomly obtaining a score between 300
and 600 on the GMAT exam?
What is the probability of getting a score between 350 and 450 on the
same GMAT exam?
EXPONENTIAL DISTRIBUTION
 It describes a probability distribution of the times between random occurrences
 It is a family of distributions
 It is skewed to the right
 The x values range from zero to infinity
 Its apex is always at x = 0
 The curve steadily decreases as x gets larger
 The mean and standard deviation are equal
SCHIPS LOADING DOCK PROBLEM
Suppose that x represents the loading time for a truck at the Schips loading dock and follows
a exponential distribution. The mean, or average, loading time is 15 minutes.

Poisson distribution can be used to analyze the arrivals to

the queue.

Exponential distribution can be used to analyze the