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03/18/2014

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Probability and Sampling Distributions

Probability Theory
Introduction to Inference
Inference for Distributions
Inference for Proportions

CHAPTER 4

CHAPTER 5 CHAPTER 6 CHAPTER 7 CHAPTER 8

Probability
and Inference
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Probability
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Prelude
Of audits and probabilities
A
\ufb01rm reimburses its employees for business-related expenses like meals

with clients. To obtain a reimbursement an employee must \ufb01le an
expense voucher with receipts for expenses of \$25 or more. A look at the
vouchers shows suspiciously many expenses in the \$24.00 to \$24.99 range.
Are employees padding their vouchers by claiming amounts just a bit too
small to require a receipt?

A bank allows individual of\ufb01cers to decide if credit card balances up
to \$5000 should be written off as uncollectible. Write-offs above \$5000
must be approved by a supervisor. An auditor \ufb01nds more write-offs than
expected in the \$4500\u2013\$4999 range. An investigation \ufb01nds that some bank
of\ufb01cers have been writing off credit debts of friends who ran up credit card
bills to just below the \$5000 limit.

In both scenarios, the auditor must have a legitimate way to establish
a cutoff for how many is \u201ctoo many.\u201d How many \$24 expense vouchers
should the \ufb01rm expect? How many credit card balance write-offs in
the \$4500 range should the bank expect? Only if questions like these
are answered can a company recognize when something suspicious
is taking place. We can use a

to specify how often
different values occur when we sample from a large collection of
data. One particularly striking probability model describes the
distribution of \ufb01rst digits in large collections of numbers
such as claimed expenses and credit card account
write-offs. This is
, the topic of
our \ufb01rst case in this chapter.
probability model
Benford\u2019s Law
4
Probability
and Sampling
Distributions

4.1 Randomness
4.2 Probability Models
4.3 Random Variables

4.4 The Sampling Distribution
of a Sample Mean
Probability
and Sampling
Distributions
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