Random Variables

Random Variables
 What you’ll learn
– What is a Random Variable?
– Discrete vs Continuous
– How to construct a valid probability
distribution
– Using the information in a probability
distribution to answer probability questions
 Random Variable
 A Random Variable is a variable whose
value is numerical outcome of a random
phenomenon.
 A Random phenomenon has outcomes
that we cannot predict, but in the long
run has a regular distribution.
 Random Variables are either classified
as Discrete or Continuous
 Discrete vs Continuous
 Discrete RV: a discrete rv is a variable whose
outcomes have a “countable” number of
outcomes.
 In other words, the outcomes can only take on
a finite number of possibilities
 Examples:
– Dice: If you roll a six-sided die, the possibilities
are 1,2,3,4,5, or 6.
– Number of A’s, B’s, C’s, D’s and F’s in a classroom
 Continuous Random Variable
 Continuous:
– A continuous variable is a variable that
takes on all values within a specified
interval
 For Example:
– Height: only the precision of the measurement instrument
dictates the number of decimal places
– Weight: again instrument precision
– Time: another continuous random variable
Discrete Probability Distributions
 A discrete random variable has a
countable number of outcomes.
 The probability distribution for a
discrete rv lists each of these outcomes
and the probability for each outcome
 Discrete RV Probability
Distribution
 Requirements for a VALID probability
distribution
– Each individual probability must be a number
between 0 and 1
– The sum of all the probabilities must equal 1
Discrete Probability Distribution
Example
 Consider for a moment a large statistics
class.
 Over the years we know that the
distribution of grades has been 15%
each of A’s and D’s, 30% each of B’s and
C’s and 10% F’s.
 Consider choosing a student at random
from this class.
 Creating a Probability Dist n

 We can find the probability of the

chosen student’s grade by creating the
distribution.
 Consider the student’s grade on a 4-
point scale. A=4, B=3, ect.

Grade 0 1 2 3 4
Probability 0.10 0.15 0.30 0.30 .015
Grade 0 1 2 3 4
Probability 0.10 0.15 0.30 0.30 0.15
Grade 0 1 2 3 4
Probability 0.10 0.15 0.30 0.30 0.15
Grade 0 1 2 3 4
Probability 0.10 0.15 0.30 0.30 0.15

 Find the probability that the student

got a C or better.

 P(x≥ 2) = P(x=2) + P(x=3) + P(x=4)

= .30 + .30 + .15 = .75 = 75%

To find this probability we find each

individual probability and find the sum.
Grade 0 1 2 3 4
Probability 0.10 0.15 0.30 0.30 0.15

 Find the probability that the student

got less than a B

 P(x< 3) = P(x=2) + P(x=1) + P(x=0)

= .30 + .15 + .10 = .55 = 55%

Notice that since we want strictly less

than 3, we only find the sum from 2
down.
 Inequality Signs
 Let’s recall what signs to use when we are
looking for inequalities:
– Less than <
– At Most ≤
– Greater than >
– At least ≥
 Remember if the equal sign is included, we
include the probability at the endpoint.
 If a strict inequality, we do not include the
probability at the end point.
 Finding the Mean and Standard
Deviation
 Consider:
 As the head of inventory for Knowway computer company, you
were thrilled that you had managed to ship 2 computers to your
biggest client the day the order arrived. You are horrified,
though, to find out that someone restocked refurbished
computers in with the new computers in your storeroom. The
shipped computers were selected randomly from the 15
computers in stock, but 4 of those were actually refurbished.
 If your client gets 2 new computers, things are fine. If the
client gets a refurbished computer, it will be sent back at your
expense--$100—and you can replace it. However, if both
computers are refurbished, the client will cancel the order this
month and you’ll lose $1000. What’s the expected value and the
standard deviation of your loss?
 Mean and Standard Deviation
 The first thing we need to do is find the
probability distribution for the situation.
 Let’s define our random variable as the
amount of loss that occurs for the
company.
 The values that X can take are
0 100 1000
(2N) (1N/1R ) (2R)
 We will use a tree diagram to represent the stages in the event. In order to
keep the “tree” manageable, we will define each stage as simply as we can.
i.e.—”success” or “not a success”

The second stage is to choose the second

computer. Again there are two different
possibilities
The first
stage has two
possible  11  10 
outcomes 10 New P(New &New) =   
 15  14  = .5238
14

New
   11 4
P(New & Refurb) = 15  14  = .2095
4
11 Refurb
15 14

Choose a
computer
 4  11 
11
New P(Refurb & New) = 15  14  = .2095
14
4
15
Refurb
3
P(Refurb & Refurb) =  14  14  = .0571
14 Refurb 4 3
  
 Mean and Standard Deviation
 Now use these probabilities to create
the probability distribution.
Amount of 0 100 1000
Loss
Probability .5238 .4190 .0571

*Note: the probability of losing 100 happens on 2 branches of the tree

We want to know on average, how much of a

loss the company would have if this
happened month after month.
Mean and Standard Deviation
 Now use these probabilities to create
the probability distribution.
Amount of 0 100 1000
Loss
Probability .5238 .4190 .0571

 To find the mean (expected value) of

this distribution we can use the
following:
– Μ(x) = E(x) = ∑X· P(X)
 The value of the variable times its
probability for each, then find the sum.
 Mean and Standard Deviation
 So for our distribution
Amount of 0 100 1000
Loss
Probability .5238 .4190 .0571

– Μ(x) = E(x) = ∑X· P(X)

 M(x) = E(x) = 0(.5238) + 100(.4190) +
1000(.0571) = 99.00
 So the average loss for Knowway
Computers is $99.00
Mean and Standard Deviation
 We can find the standard deviation in
much the same way we find the
standard deviation for a sample
Amount of 0 100 1000
Loss
Probability .5238 .4190 .0571

 First, let’s find the variance

– σ2= ∑(x-μ)2 ·P(x)
 (0 – 99)2 (.5238) + (100-99)2(.4190) +
(1000-99)2(.0571) = 51488.0199 Dollars2
Mean and Standard Deviation
 So, the variance is 51488.0199 dollars2

 But we need the standard deviation

which will bring our units back to dollars

 Remember that standard deviation is

the square root of the variance so….

 σ = √51488.0199 = $266.91
 Mean and Standard Deviation
 We can use our calculators to find both
the mean and standard deviation of a
probability distribution.
 Enter the values of the RV in one list
 Enter the probabilities for each value into
a second list
 Use Stat/Calc/1-var statistic (Xlist,
Problist)
 The mean will be under x-bar
 The standard deviation will be sigma