Probability Distributions

G N Patel
 Random Variable

Random Variable
Outcomes of an experiment expressed numerically
e.g. Toss a die twice; count the number of times
the number 4 appears (0, 1 or 2 times)

e.g. Toss a fair coin twice; count the number of

times the tail appears (0, 1 or 2 times)
Count the number of customer arrival at a retail
outlet between a time interval.
 Discrete Random Variable

Discrete Random Variable

Obtained by Counting (0, 1, 2, 3, etc.)
Usually a finite number of different values
e.g. Toss a coin 5 times; count the number of tails
(0, 1, 2, 3, 4, or 5 times)
 Toss of a Fair Coin

First Toss Second Toss Number of Probability

Possible Tails on Two of Possible
Outcomes Tosses Outcomes
from Two T T 2 0.5x0.5=0.25
Tosses from
a Fair Coin T H 1 0.5x0.5=0.25
H T 1 0.5x0.5=0.25
H H 0 0.5x0.5=0.25
Sum 1.00
 Probability Distribution
A 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.
 Probability Distribution of Possible
Number of Tails
Event: Toss 2 Coins. Count # Tails.

Probability Distribution
Values Probability

0 1/4 = .25
T
1 2/4 = .50
T 2 1/4 = .25

T T
 Probability Distribution of Possible
Number of Tails
Event: Toss 3 Coins. Count # Tails.

Probability Distribution
Values Probability
 Probability Distribution of Possible
sum
Event: Roll 2 die Sum from two die

Probability Distribution
Sum Probability
 Discrete Probability Distribution

List of All Possible Pairs

= Value of random variable
= Probability associated with value
Mutually Exclusive (Nothing in Common)
Collective Exhaustive (Nothing Left Out)
 Summary Measures

Expected value (The Mean)

Weighted average of the probability distribution

e.g. Toss 3 coins, count the number of tails, compute

expected value
 Summary Measures

Expected value (The Mean)

Weighted average of the probability distribution

e.g. Toss 3 coins, count the number of tails, compute

expected value
 Summary Measures
(continued)

Variance
Weighted average squared deviation about the mean

E X X j P X j
2 2 2

e.g. Toss 2 coins, count number of tails, compute
variance
 Summary Measures
(continued)

Variance
Weighted average squared deviation about the mean

2 E X X j P X j
2 2

e.g. Toss 2 coins, count number of tails, compute variance

X j P X j
2 2

0 1 .25 1 1 .5 2 1 .25 .5
2 2 2
 Probability Distribution

Construct a probability distribution based on

following frequency distribution
Calculate the expected value of the outcome.
Calculate the variance

outcome 2 4 6 8 10 12 15
frequency 24 22 16 12 7 3 1
 Application:Example-1
Bob Walter, who frequently invests in the stock market, carefully
studies any potential investment. He is currently examining the
possibility of investing in the Trinity Power Company. Through
studying past performance, Walter has broken the potential results
of the investment into five possible outcomes with accompanying
probabilities. The outcomes of annual rates of return on a single
share of stock that currently costs $150. Find the expected value of
the return for investing in a single share of Trinity Power. If Walter
purchases stock whenever the expected rate of return exceeds 10
percent, will he purchase the stock according to these data.

ROI ($) 0.00 10.00 15.00 25.00 50.00

Probability 0.20 0.25 0.30 0.15 0.10
 Application:Example-2

Mr. X, supervisor of traffic signals must decide whether to

install a traffic light at a reportedly dangerous intersection. He
collected the following data on accidents at the intersection.
Number of accidents

Year J F M A M J J A S O N D
2013 10 8 10 6 9 12 2 10 10 0 7 10
2104 12 9 7 8 4 3 7 14 8 8 8 4

The policy to install a traffic light at an intersection at which

the monthly expected number of accidents is higher than 7.
According to this criteria, should Mr. X recommend that a
traffic light be installed at this intersection
Consider a case of fruit and vegetable wholesaler who sells strawberries. This product
has very limited useful life. If not sold on the day of delivery, it is worthless. One case
of strawberries costs $20, and the wholesaler receives $50 for it. The wholesaler can
not specify the number of cases customers will call for on any day, but her analysis of
past records has produced the following information. Develop a conditional loss table
considering obsolescence losses and opportunity losses. Find the optimal stock action
based on expected loss.

Sales During Daily sales Number of

100 Days Days Sold
10 15
11 20
12 40
13 25
Consider a case of fruit and vegetable wholesaler who sells strawberries. This product
has very limited useful life. If not sold on the day of delivery, it is worthless. One case
of strawberries costs $20, and the wholesaler receives $50 for it. The wholesaler can
not specify the number of cases customers will call for on any day, but her analysis of
past records has produced the following information. Develop a conditional loss table
considering obsolescence losses and opportunity losses. Find the optimal stock action
based on expected loss.

Sales During Daily sales Number of Probability of

100 Days Days Sold each Number
Being Sold
10 15 0.15
11 20 0.20
12 40 0.40
13 25 0.25
 Conditional Loss Table

Possible Stock Options

Possible
Requests of 10 11 12 13
Strawberries
10 $0 $20 $40 $60
11 30 0 20 40
12 60 30 0 20
13 90 60 30 0
 Calculations of Expected Loss for
Stocking 10 cases

Possibility
of this
Possible Conditional many Expected
Requests Loss requests Loss
10 $0 X 0.15 = $0.00
11 30 X 0.20 = 6.00
12 60 X 0.40 = 24.00
13 90 X 0.25 = 22.50
Sum 1.00 $52.50
 Calculations of Expected Loss for
Stocking 11 cases

Possibility
of This
Possible Conditional Many Expected
Requests Loss Requests Loss
10 $20 X 0.15 = $3.00
11 0 X 0.20 = 0.00
12 30 X 0.40 = 12.00
13 60 X 0.25 = 15.00
Sum 1.00 $30.00
 Calculations of Expected Loss for
Stocking 12 cases

Possibility
of This
Possible Conditional Many Expected
Requests Loss Requests Loss
10 $40 X 0.15 = $6.00
11 20 X 0.20 = 4.00
12 0 X 0.40 = 0.00
13 30 X 0.25 = 7.50
Sum 1.00 $17.50
 Calculations of Expected Loss for
Stocking 13 cases

Possibility
of This
Possible Conditional Many Expected
Requests Loss Requests Loss
10 $60 X 0.15 = $9.00
11 40 X 0.20 = 8.00
12 20 X 0.40 = 8.00
13 0 X 0.25 = 0.00
Sum 1.00 $25.00
Important Discrete Probability
Distributions

Discrete Probability
Distributions

Binomial
 Binomial Probability Distribution

n Identical Trials
e.g. 15 tosses of a coin
2 Mutually Exclusive Outcomes on Each
Trial
e.g. Head or tail in each toss of a coin; defective
or not defective light bulb
Trials are Independent
The outcome of one trial does not affect the
outcome of the other
 Binomial Probability Distribution
(continued)

Constant Probability for Each Trial

e.g. Probability of getting a tail is the same each
time we toss the coin
Bernoulli Process:
1. Each trial has only two possible outcomes (heads or
tails, yes or no, success or failure, true or false)
2. The probability of the outcome of any trial remain
fixed over time.
3. The trials are statistically independent:

p= probability of success
q= probability of failure = 1-p
r= number of success desired
n= number of trials undertaken
Probability of r success in n trial = r
n r nr
c p q
The binomial distribution describes discrete data,
resulting from an experiment known as
Bernoulli Process.

1. The tossing of a fair coin a fixed number of times is a

Bernoulli process and the outcome of such tosses can be
represented by binomial probability distribution.

2. The success or failure in a test may also be described by

Bernoulli Process.
 Concept based question:

Ex: What is the probability of getting 2 heads if a fair

coin is tossed 3 times
n=3 p=0.5
r=2 q=0.5
 Concept based question:

Ex: What is the probability of getting 2 heads if a fair

coin is tossed 3 times
n=3 p=0.5
r=2 q=0.5
Probability of 2 success in 3 trial

1. When p is small, the distribution is skewed to right

2. When p=0.5, the distribution is symmetrical
3. When p >0.5, the distribution is skewed to the left.
Ex. A Survey found that 65% of all financial consumer
were very satisfied with their primary financial
institutions. If this figure still holds true today,
suppose 40 financial consumers sampled randomly.
What is the probability that exactly 23 of the 40 are
very satisfied with their primary financial institution ?
Ex. A Survey found that 65% of all financial consumer
were very satisfied with their primary financial
institutions. If this figure still holds true today,
suppose 40 financial consumers sampled randomly.
What is the probability that exactly 23 of the 40 are
very satisfied with their primary financial institution ?

p = 0.65 q= 1-p=0.35, n= 40, r=23

c 0.65 .35 .0784

40 23 17

23
For Binomial Distribution

np
npq
 Binomial Probability Distribution
Function

n!
P X p X 1 p
n X

X ! n X !
P X : probability of X successes given n and p
X : number of "successes" in sample X 0,1, , n
p : the probability of each "success"
n : sample size
Tails in 2 Tosses of Coin
X P(X)
0 1/4 = .25
1 2/4 = .50
2 1/4 = .25
 Binomial Distribution
Characteristics
Mean
E X np
E.g. np 5 .1 .5

Variance and P(X) n = 5 p = 0.1

.6
Standard Deviation .4
2 np 1 p .2
0 X

np 1 p
0 1 2 3 4 5

e.g.
np 1 p 5 .11 .1 .6708
 Binomial Distribution:
Demonstration Problem
n 20
p . 06
q . 94
P( X 2 ) P( X 0 ) P( X 1) P( X 2 )
. 2901. 3703. 2246 . 8850

P( X 0)
20!
0!(20 0)!
.06 .94 0 20 0
(1)(1)(.2901) .2901

P( X 1)
20!
1!(20 1)!
.06 .94
1 201
(20)(.06)(.3086) .3703

P ( X 2)
20!
2!(20 2)!
.06 .94 2 20 2
(190)(.0036)(.3283) .2246

G N Patel
 n = 20 PROBABILITY
X 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Binomial 0
1
0.122
0.270
0.012
0.058
0.001
0.007
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
2 0.285 0.137 0.028 0.003 0.000 0.000 0.000 0.000 0.000
Table 3
4
0.190
0.090
0.205
0.218
0.072
0.130
0.012
0.035
0.001
0.005
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
5 0.032 0.175 0.179 0.075 0.015 0.001 0.000 0.000 0.000
6 0.009 0.109 0.192 0.124 0.037 0.005 0.000 0.000 0.000
7 0.002 0.055 0.164 0.166 0.074 0.015 0.001 0.000 0.000
8 0.000 0.022 0.114 0.180 0.120 0.035 0.004 0.000 0.000
9 0.000 0.007 0.065 0.160 0.160 0.071 0.012 0.000 0.000
10 0.000 0.002 0.031 0.117 0.176 0.117 0.031 0.002 0.000
11 0.000 0.000 0.012 0.071 0.160 0.160 0.065 0.007 0.000
12 0.000 0.000 0.004 0.035 0.120 0.180 0.114 0.022 0.000
13 0.000 0.000 0.001 0.015 0.074 0.166 0.164 0.055 0.002
14 0.000 0.000 0.000 0.005 0.037 0.124 0.192 0.109 0.009
15 0.000 0.000 0.000 0.001 0.015 0.075 0.179 0.175 0.032
16 0.000 0.000 0.000 0.000 0.005 0.035 0.130 0.218 0.090
17 0.000 0.000 0.000 0.000 0.001 0.012 0.072 0.205 0.190
18 0.000 0.000 0.000 0.000 0.000 0.003 0.028 0.137 0.285
19 0.000 0.000 0.000 0.000 0.000 0.000 0.007 0.058 0.270
20 0.000 0.000 0.000 0.000 0.000 0.000 0.001 0.012 0.122

G N Patel