MBA 604

Introduction Probaility and Statistics
Lecture Notes
Muhammad El-Taha
Department of Mathematics and Statistics
University of Southern Maine
96 Falmouth Street
Portland, ME 04104-9300
MBA 604, Spring 2003
MBA 604
Introduction to Probability and Statistics
Course Content.
Topic 1: Data Analysis
Topic 2: Probability
Topic 3: Random Variables and Discrete Distributions
Topic 4: Continuous Probability Distributions
Topic 5: Sampling Distributions
Topic 6: Point and Interval Estimation
Topic 7: Large Sample Estimation
Topic 8: Large-Sample Tests of Hypothesis
Topic 9: Inferences From Small Sample
Topic 10: The Analysis of Variance
Topic 11: Simple Linear Regression and Correlation
Topic 12: Multiple Linear Regression
1
Contents
1 Data Analysis 5
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Graphical Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3 Numerical methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 Percentiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5 Sample Mean and Variance
For Grouped Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6 z-score . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 Probability 22
1 Sample Space and Events . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2 Probability of an event . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3 Laws of Probability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4 Counting Sample Points . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5 Random Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6 Modeling Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3 Discrete Random Variables 35
1 Random Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2 Expected Value and Variance . . . . . . . . . . . . . . . . . . . . . . . . 37
3 Discrete Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4 Markov Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4 Continuous Distributions 48
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2 The Normal Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3 Uniform: U[a,b] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4 Exponential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2
5 Sampling Distributions 56
1 The Central Limit Theorem (CLT) . . . . . . . . . . . . . . . . . . . . . 56
2 Sampling Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6 Large Sample Estimation 61
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
2 Point Estimators and Their Properties . . . . . . . . . . . . . . . . . . . 62
3 Single Quantitative Population . . . . . . . . . . . . . . . . . . . . . . . 62
4 Single Binomial Population . . . . . . . . . . . . . . . . . . . . . . . . . 64
5 Two Quantitative Populations . . . . . . . . . . . . . . . . . . . . . . . . 66
6 Two Binomial Populations . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7 Large-Sample Tests of Hypothesis 70
1 Elements of a Statistical Test . . . . . . . . . . . . . . . . . . . . . . . . 70
2 A Large-Sample Statistical Test . . . . . . . . . . . . . . . . . . . . . . . 71
3 Testing a Population Mean . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4 Testing a Population Proportion . . . . . . . . . . . . . . . . . . . . . . . 73
5 Comparing Two Population Means . . . . . . . . . . . . . . . . . . . . . 74
6 Comparing Two Population Proportions . . . . . . . . . . . . . . . . . . 75
7 Reporting Results of Statistical Tests: P-Value . . . . . . . . . . . . . . . 77
8 Small-Sample Tests of Hypothesis 79
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2 Student’s t Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
3 Small-Sample Inferences About a Population Mean . . . . . . . . . . . . 80
4 Small-Sample Inferences About the Difference Between Two Means: In-
dependent Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5 Small-Sample Inferences About the Difference Between Two Means: Paired
Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
6 Inferences About a Population Variance . . . . . . . . . . . . . . . . . . 86
7 Comparing Two Population Variances . . . . . . . . . . . . . . . . . . . . 87
9 Analysis of Variance 89
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
2 One Way ANOVA: Completely Randomized Experimental Design . . . . 90
3 The Randomized Block Design . . . . . . . . . . . . . . . . . . . . . . . . 93
3
10 Simple Linear Regression and Correlation 98
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
2 A Simple Linear Probabilistic Model . . . . . . . . . . . . . . . . . . . . 99
3 Least Squares Prediction Equation . . . . . . . . . . . . . . . . . . . . . 100
4 Inferences Concerning the Slope . . . . . . . . . . . . . . . . . . . . . . . 103
5 Estimating E(y|x) For a Given x . . . . . . . . . . . . . . . . . . . . . . 105
6 Predicting y for a Given x . . . . . . . . . . . . . . . . . . . . . . . . . . 105
7 Coefficient of Correlation . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
8 Analysis of Variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
9 Computer Printouts for Regression Analysis . . . . . . . . . . . . . . . . 107
11 Multiple Linear Regression 111
1 Introduction: Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
2 A Multiple Linear Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
3 Least Squares Prediction Equation . . . . . . . . . . . . . . . . . . . . . 112
4
Chapter 1
Data Analysis
Chapter Content.
Introduction
Statistical Problems
Descriptive Statistics
Graphical Methods
Frequency Distributions (Histograms)
Other Methods
Numerical methods
Measures of Central Tendency
Measures of Variability
Empirical Rule
Percentiles
1 Introduction
Statistical Problems
1. A market analyst wants to know the effectiveness of a new diet.
2. A pharmaceutical Co. wants to know if a new drug is superior to already existing
drugs, or possible side effects.
3. How fuel efficient a certain car model is?
4. Is there any relationship between your GPA and employment opportunities.
5. If you answer all questions on a (T,F) (or multiple choice) examination completely
randomly, what are your chances of passing?
6. What is the effect of package designs on sales.
5
7. How to interpret polls. How many individuals you need to sample for your infer-
ences to be acceptable? What is meant by the margin of error?
8. What is the effect of market strategy on market share?
9. How to pick the stocks to invest in?
I. Definitions
Probability: A game of chance
Statistics: Branch of science that deals with data analysis
Course objective: To make decisions in the prescence of uncertainty
Terminology
Data: Any recorded event (e.g. times to assemble a product)
Information: Any aquired data ( e.g. A collection of numbers (data))
Knowledge: Useful data
Population: set of all measurements of interest
(e.g. all registered voters, all freshman students at the university)
Sample: A subset of measurements selected from the population of interest
Variable: A property of an individual population unit (e.g. major, height, weight of
freshman students)
Descriptive Statistics: deals with procedures used to summarize the information con-
tained in a set of measurements.
Inferential Statistics: deals with procedures used to make inferences (predictions)
about a population parameter from information contained in a sample.
Elements of a statistical problem:
(i) A clear definition of the population and variable of interest.
(ii) a design of the experiment or sampling procedure.
(iii) Collection and analysis of data (gathering and summarizing data).
(iv) Procedure for making predictions about the population based on sample infor-
mation.
(v) A measure of “goodness” or reliability for the procedure.
Objective. (better statement)
To make inferences (predictions, decisions) about certain characteristics of a popula-
tion based on information contained in a sample.
Types of data: qualitative vs quantitative OR discrete vs continuous
Descriptive statistics
Graphical vs numerical methods
6
2 Graphical Methods
Frequency and relative frequency distributions (Histograms):
Example
Weight Loss Data
20.5 19.5 15.6 24.1 9.9
15.4 12.7 5.4 17.0 28.6
16.9 7.8 23.3 11.8 18.4
13.4 14.3 19.2 9.2 16.8
8.8 22.1 20.8 12.6 15.9
Objective: Provide a useful summary of the available information.
Method: Construct a statistical graph called a “histogram” (or frequency distribution)
Weight Loss Data
class bound- tally class rel.
aries freq, f freq, f/n
1 5.0-9.0- 3 3/25 (.12)
2 9.0-13.0- 5 5/25 (.20)
3 13.0-17.0- 7 7/25 (.28)
4 17.0-21.0- 6 6/25 (.24)
5 21.0-25.0- 3 3/25 (.12)
6 25.0-29.0 1 1/25 (.04)
Totals 25 1.00
Let
k = # of classes
max = largest measurement
min = smallest measurement
n = sample size
w = class width
Rule of thumb:
-The number of classes chosen is usually between 5 and 20. (Most of the time between
7 and 13.)
-The more data one has the larger is the number of classes.
7
Formulas:
k = 1 + 3.3log
10
(n);
w =
max −min
k
.
Note: w =
28.6−5.4
6
= 3.87. But we used
w =
29−5
6
= 4.0 (why?)
Graphs: Graph the frequency and relative frequency distributions.
Exercise. Repeat the above example using 12 and 4 classes respectively. Comment on
the usefulness of each including k = 6.
Steps in Constructing a Frequency Distribution (Histogram)
1. Determine the number of classes
2. Determine the class width
3. Locate class boundaries
4. Proceed as above
Possible shapes of frequency distributions
1. Normal distribution (Bell shape)
2. Exponential
3. Uniform
4. Binomial, Poisson (discrete variables)
Important
-The normal distribution is the most popular, most useful, easiest to handle
- It occurs naturally in practical applications
- It lends itself easily to more in depth analysis
Other Graphical Methods
-Statistical Table: Comparing different populations
- Bar Charts
- Line Charts
- Pie-Charts
- Cheating with Charts
8
3 Numerical methods
Measures of Central Measures of Dispersion
Tendency (Variability)
1. Sample mean 1. Range
2. Sample median 2. Mean Absolute Deviation (MAD)
3. Sample mode 3. Sample Variance
4. Sample Standard Deviation
I. Measures of Central Tendency
Given a sample of measurements (x
1
, x
2
, · · · , x
n
) where
n = sample size
x
i
= value of the i
th
observation in the sample
1. Sample Mean (arithmetic average)
x =
x
1
+x
2
+···+xn
n
or x =
¸
x
n
Example 1: Given a sample of 5 test grades
(90, 95, 80, 60, 75)
then
¸
x = 90 + 95 + 80 + 60 + 75 = 400
x =
¸
x
n
=
400
5
= 80.
Example 2: Let x = age of a randomly selected student sample:
(20, 18, 22, 29, 21, 19)
¸
x = 20 + 18 + 22 + 29 + 21 + 19 = 129
x =
¸
x
n
=
129
6
= 21.5
2. Sample Median
The median of a sample (data set) is the middle number when the measurements are
arranged in ascending order.
Note:
If n is odd, the median is the middle number
9
If n is even, the median is the average of the middle two numbers.
Example 1: Sample (9, 2, 7, 11, 14), n = 5
Step 1: arrange in ascending order
2, 7, 9, 11, 14
Step 2: med = 9.
Example 2: Sample (9, 2, 7, 11, 6, 14), n = 6
Step 1: 2, 6, 7, 9, 11, 14
Step 2: med =
7+9
2
= 8.
Remarks:
(i) x is sensitive to extreme values
(ii) the median is insensitive to extreme values (because median is a measure of
location or position).
3. Mode
The mode is the value of x (observation) that occurs with the greatest frequency.
Example: Sample: (9, 2, 7, 11, 14, 7, 2, 7), mode = 7
10
Effect of x, median and mode on relative frequency distribution.
11
II. Measures of Variability
Given: a sample of size n
sample: (x
1
, x
2
, · · · , x
n
)
1. Range:
Range = largest measurement - smallest measurement
or Range = max - min
Example 1: Sample (90, 85, 65, 75, 70, 95)
Range = max - min = 95-65 = 30
2. Mean Absolute Difference (MAD) (not in textbook)
MAD =
¸
|x −x|
n
Example 2: Same sample
x =
¸
x
n
= 80
x x −x |x −x|
90 10 10
85 5 5
65 -15 15
75 -5 5
70 -10 10
95 15 15
Totals 480 0 60
MAD =
¸
|x −x|
n
=
60
6
= 10.
Remarks:
(i) MAD is a good measure of variability
(ii) It is difficult for mathematical manipulations
3. Sample Variance, s
2
s
2
=
¸
(x −x)
2
n −1
4. Sample Standard Deviation, s
12
s =

s
2
or s =

¸
(x−x)
2
n−1
Example: Same sample as before (x = 80)
x x −x (x −x)
2
90 10 100
85 5 25
65 -15 225
75 -5 25
70 -10 100
95 15 225
Totals 480 0 700
Therefore
x =
¸
x
n
=
480
6
= 80
s
2
=
¸
(x −x)
2
n −1
=
700
5
= 140
s =

s
2
=

140 = 11.83
Shortcut Formula for Calculating s
2
and s
s
2
=
¸
x
2

(
¸
x)
2
n
n −1
s =

¸
x
2

(
¸
x)
2
n
n −1
(or s =

s
2
).
Example: Same sample
13
x x
2
90 8100
85 7225
65 4225
75 5625
70 4900
95 9025
Totals 480 39,100
s
2
=
¸
x
2

(
¸
x)
2
n
n −1
=
39, 100 −
(480)
2
6
5
=
39, 100 −38, 400
5
=
700
5
= 140
s =

s
2
=

140 = 11.83.
Numerical methods(Summary)
Data: {x
1
, x
2
, · · · , x
n
}
(i) Measures of central tendency
Sample mean: x =
¸
x
i
n
Sample median: the middle number when the measurements are arranged in ascending
order
Sample mode: most frequently occurring value
(ii) Measures of variability
Range: r = max −min
Sample Variance: s
2
=
¸
(x
i
−x)
2
n−1
Sample standard deviation: s=

s
2
Exercise: Find all the measures of central tendency and measures of variability for the
weight loss example.
Graphical Interpretation of the Variance:
Finite Populations
Let N = population size.
Data: {x
1
, x
2
, · · · , x
N
}
Population mean: µ =
¸
x
i
N
Population variance:
σ
2
=
¸
(x
i
−µ)
2
N
14
Population standard deviation: σ =

σ
2
, i.e.
σ =

¸
(x
i
−µ)
2
N
Population parameters vs sample statistics.
Sample statistics: x, s
2
, s.
Population parameters: µ, σ
2
, σ.
Practical Significance of the standard deviation
Chebyshev’s Inequality. (Regardless of the shape of frequency distribution)
Given a number k ≥ 1, and a set of measurements x
1
, x
2
, . . . , x
n
, at least (1 −
1
k
2
) of
the measurements lie within k standard deviations of their sample mean.
Restated. At least (1 −
1
k
2
) observations lie in the interval (x −ks, x + ks).
Example. A set of grades has x = 75, s = 6. Then
(i) (k = 1): at least 0% of all grades lie in [69, 81]
(ii) (k = 2): at least 75% of all grades lie in [63, 87]
(iii) (k = 3): at least 88% of all grades lie in [57, 93]
(iv) (k = 4): at least ?% of all grades lie in [?, ?]
(v) (k = 5): at least ?% of all grades lie in [?, ?]
Suppose that you are told that the frequency distribution is bell shaped. Can you
improve the estimates in Chebyshev’s Inequality.
Empirical rule. Given a set of measurements x
1
, x
2
, . . . , x
n
, that is bell shaped. Then
(i) approximately 68% of the measurements lie within one standard deviations of their
sample mean, i.e. (x −s, x + s)
(ii) approximately 95% of the measurements lie within two standard deviations of
their sample mean, i.e. (x −2s, x + 2s)
(iii) at least (almost all) 99% of the measurements lie within three standard deviations
of their sample mean, i.e. (x −3s, x + 3s)
Example A data set has x = 75, s = 6. The frequency distribution is known to be
normal (bell shaped). Then
(i) (69, 81) contains approximately 68% of the observations
(ii) (63, 87) contains approximately 95% of the observations
(iii) (57, 93) contains at least 99% (almost all) of the observations
Comments.
(i) Empirical rule works better if sample size is large
(ii) In your calculations always keep 6 significant digits
15
(iii) Approximation: s
range
4
(iv) Coefficient of variation (c.v.) =
s
x
4 Percentiles
Using percentiles is useful if data is badly skewed.
Let x
1
, x
2
, . . . , x
n
be a set of measurements arranged in increasing order.
Definition. Let 0 < p < 100. The p
th
percentile is a number x such that p% of all
measurements fall below the p
th
percentile and (100 −p)% fall above it.
Example. Data: 2, 5, 8, 10, 11, 14, 17, 20.
(i) Find the 30th percentile.
Solution.
(S1) position = .3(n + 1) = .3(9) = 2.7
(S2) 30th percentile = 5 +.7(8 −5) = 5 + 2.1 = 7.1
Special Cases.
1. Lower Quartile (25th percentile)
Example.
(S1) position = .25(n + 1) = .25(9) = 2.25
(S2) Q
1
= 5 + .25(8 −5) = 5 + .75 = 5.75
2. Median (50th percentile)
Example.
(S1) position = .5(n + 1) = .5(9) = 4.5
(S2) median: Q
2
= 10 +.5(11 −10) = 10.5
3. Upper Quartile (75th percentile)
Example.
(S1) position = .75(n + 1) = .75(9) = 6.75
(S2) Q
3
= 14 + .75(17 −14) = 16.25
Interquartiles.
IQ = Q
3
−Q
1
Exercise. Find the interquartile (IQ) in the above example.
16
5 Sample Mean and Variance
For Grouped Data
Example: (weight loss data)
Weight Loss Data
class boundaries mid-pt. freq. xf x
2
f
x f
1 5.0-9.0- 7 3 21 147
2 9.0-13.0- 11 5 55 605
3 13.0-17.0- 15 7 105 1,575
4 17.0-21.0- 19 6 114 2,166
5 21.0-25.0- 23 3 69 1,587
6 25.0-29.0 27 1 27 729
Totals 25 391 6,809
Let k = number of classes.
Formulas.
x
g
=
¸
xf
n
s
2
g
=
¸
x
2
f −(
¸
xf)
2
/n
n −1
where the summation is over the number of classes k.
Exercise: Use the grouped data formulas to calculate the sample mean, sample variance
and sample standard deviation of the grouped data in the weight loss example. Compare
with the raw data results.
6 z-score
1. The sample z-score for a measurement x is
z =
x −x
s
2. The population z-score for a measurement x is
17
z =
x −µ
σ
Example. A set of grades has x = 75, s = 6. Suppose your score is 85. What is your
relative standing, (i.e. how many standard deviations, s, above (below) the mean your
score is)?
Answer.
z =
x −x
s
=
85 −75
6
= 1.66
standard deviations above average.
Review Exercises: Data Analysis
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. (Fluoride Problem) The regulation board of health in a particular state specify
that the fluoride level must not exceed 1.5 ppm (parts per million). The 25 measurements
below represent the fluoride level for a sample of 25 days. Although fluoride levels are
measured more than once per day, these data represent the early morning readings for
the 25 days sampled.
.75 .86 .84 .85 .97
.94 .89 .84 .83 .89
.88 .78 .77 .76 .82
.71 .92 1.05 .94 .83
.81 .85 .97 .93 .79
(i) Show that x = .8588, s
2
= .0065, s = .0803.
(ii) Find the range, R.
(iii) Using k = 7 classes, find the width, w, of each class interval.
(iv) Locate class boundaries
(v) Construct the frequency and relative frequency distributions for the data.
18
class frequency relative frequency
.70-.75-
.75-.80-
.80-.85-
.85-.90-
.90-.95-
.95-1.00-
1.00-1.05
Totals
(vi) Graph the frequency and relative frequency distributions and state your conclu-
sions. (Vertical axis must be clearly labeled)
2. Given the following data set (weight loss per week)
(9, 2, 5, 8, 4, 5)
(i) Find the sample mean.
(ii) Find the sample median.
(iii) Find the sample mode.
(iv) Find the sample range.
(v) Find the mean absolute difference.
(vi) Find the sample variance using the defining formula.
(vii) Find the sample variance using the short-cut formula.
(viii) Find the sample standard deviation.
(ix) Find the first and third quartiles, Q
1
and Q
3
.
(x) Repeat (i)-(ix) for the data set (21, 24, 15, 16, 24).
Answers: x = 5.5, med =5, mode =5 range = 7, MAD=2, s
s
, 6.7, s = 2.588, Q−3 =
8.25.
3. Grades for 50 students from a previous MAT test are summarized below.
class frequency, f xf x
2
f
40 -50- 4
50 -60- 6
60-70- 10
70-80- 15
80-90- 10
90-100 5
Totals
19
(i) Complete all entries in the table.
(ii) Graph the frequency distribution. (Vertical axis must be clearly labeled)
(iii) Find the sample mean for the grouped data
(iv) Find the sample variance and standard deviation for the grouped data.
Answers: Σxf = 3610, Σx
2
f = 270, 250, x = 72.2, s
2
= 196, s = 14.
4. Refer to the raw data in the fluoride problem.
(i) Find the sample mean and standard deviation for the raw data.
(ii) Find the sample mean and standard deviation for the grouped data.
(iii) Compare the answers in (i) and (ii).
Answers: Σxf = 21.475, Σx
2
f = 18.58, x
g
=, s
g
= .0745.
5. Suppose that the mean of a population is 30. Assume the standard deviation is
known to be 4 and that the frequency distribution is known to be bell-shaped.
(i) Approximately what percentage of measurements fall in the interval (22, 34)
(ii) Approximately what percentage of measurements fall in the interval (µ, µ + 2σ)
(iii) Find the interval around the mean that contains 68% of measurements
(iv)Find the interval around the mean that contains 95% of measurements
6. Refer to the data in the fluoride problem. Suppose that the relative frequency
distribution is bell-shaped. Using the empirical rule
(i) find the interval around the mean that contains 99.6% of measurements.
(ii) find the percentage of measurements fall in the interval (µ + 2σ, ∞)
7. (4 pts.) Answer by True of False . (Circle your choice).
T F (i) The median is insensitive to extreme values.
T F (ii) The mean is insensitive to extreme values.
T F (iii) For a positively skewed frequency distribution, the mean is larger than the
median.
T F (iv) The variance is equal to the square of the standard deviation.
T F (v) Numerical descriptive measures computed from sample measurements are
called parameters.
T F (vi) The number of students attending a Mathematics lecture on any given day
is a discrete variable.
20
T F (vii) The median is a better measure of central tendency than the mean when a
distribution is badly skewed.
T F (viii) Although we may have a large mass of data, statistical techniques allow us
to adequately describe and summarize the data with an average.
T F (ix) A sample is a subset of the population.
T F (x) A statistic is a number that describes a population characteristic.
T F (xi) A parameter is a number that describes a sample characteristic.
T F (xii) A population is a subset of the sample.
T F (xiii) A population is the complete collection of items under study.
21
Chapter 2
Probability
Contents.
Sample Space and Events
Probability of an Event
Equally Likely Outcomes
Conditional Probability and Independence
Laws of Probability
Counting Sample Points
Random Sampling
1 Sample Space and Events
Definitions
Random experiment: involves obtaining observations of some kind
Examples Toss of a coin, throw a die, polling, inspecting an assembly line, counting
arrivals at emergency room, etc.
Population: Set of all possible observations. Conceptually, a population could be gen-
erated by repeating an experiment indefinitely.
Outcome of an experiment:
Elementary event (simple event): one possible outcome of an experiment
Event (Compound event): One or more possible outcomes of a random experiment
Sample space: the set of all sample points (simple events) for an experiment is called
a sample space; or set of all possible outcomes for an experiment
Notation.
Sample space : S
22
Sample point: E
1
, E
2
, . . . etc.
Event: A, B, C, D, E etc. (any capital letter).
Venn diagram:
Example.
S = {E
1
, E
2
, . . . , E
6
}.
That is S = {1, 2, 3, 4, 5, 6}. We may think of S as representation of possible outcomes
of a throw of a die.
More definitions
Union, Intersection and Complementation
Given A and B two events in a sample space S.
1. The union of A and B, A ∪ B, is the event containing all sample points in either
A or B or both. Sometimes we use AorB for union.
2. The intersection of A and B, A∩B, is the event containing all sample points that
are both in A and B. Sometimes we use AB or AandB for intersection.
3. The complement of A, A
c
, is the event containing all sample points that are not in
A. Sometimes we use notA or A for complement.
Mutually Exclusive Events (Disjoint Events) Two events are said to be mutually
exclusive (or disjoint) if their intersection is empty. (i.e. A∩ B = φ).
Example Suppose S = {E
1
, E
2
, . . . , E
6
}. Let
A = {E
1
, E
3
, E
5
};
B = {E
1
, E
2
, E
3
}. Then
(i)A ∪ B = {E
1
, E
2
, E
3
, E
5
}.
(ii) AB = {E
1
, E
3
}.
(iii) A
c
= {E
2
, E
4
, E
6
}; B
c
= {E
4
, E
5
, E
6
};
(iv) A and B are not mutually exclusive (why?)
(v) Give two events in S that are mutually exclusive.
2 Probability of an event
Relative Frequency Definition If an experiment is repeated a large number, n, of
times and the event A is observed n
A
times, the probability of A is
P(A)
n
A
n
Interpretation
n = # of trials of an experiment
23
n
A
= frequency of the event A
n
A
n
= relative frequency of A
P(A)
n
A
n
if n is large enough.
(In fact, P(A) = lim
n→∞
n
A
n
.)
Conceptual Definition of Probability
Consider a random experiment whose sample space is S with sample points E
1
, E
2
, . . . ,.
For each event E
i
of the sample space S define a number P(E) that satisfies the following
three conditions:
(i) 0 ≤ P(E
i
) ≤ 1 for all i
(ii) P(S) = 1
(iii) (Additive property)
¸
S
P(E
i
) = 1,
where the summation is over all sample points in S.
We refer to P(E
i
) as the probability of the E
i
.
Definition The probability of any event A is equal to the sum of the probabilities of the
sample points in A.
Example. Let S = {E
1
, . . . , E
10
}. It is known that P(E
i
) = 1/20, i = 1, . . . , 6 and
P(E
i
) = 1/5, i = 7, 8, 9 and P(E
10
) = 2/20. In tabular form, we have
E
i
E
1
E
2
E
3
E
4
E
5
E
6
E
7
E
8
E
9
E
10
p(E
i
) 1/20 1/20 1/20 1/20 1/20 1/20 1/5 1/5 1/5 1/10
Question: Calculate P(A) where A = {E
i
, i ≥ 6}.
A:
P(A) = P(E
6
) + P(E
7
) + P(E
8
) + P(E
9
) + P(E
10
)
= 1/20 + 1/5 + 1/5 + 1/5 + 1/10 = 0.75
Steps in calculating probabilities of events
1. Define the experiment
2. List all simple events
3. Assign probabilities to simple events
4. Determine the simple events that constitute an event
5. Add up the simple events’ probabilities to obtain the probability of the event
24
Example Calculate the probability of observing one H in a toss of two fair coins.
Solution.
S = {HH, HT, TH, TT}
A = {HT, TH}
P(A) = 0.5
Interpretations of Probability
(i) In real world applications one observes (measures) relative frequencies, one cannot
measure probabilities. However, one can estimate probabilities.
(ii) At the conceptual level we assign probabilities to events. The assignment, how-
ever, should make sense. (e.g. P(H)=.5, P(T)=.5 in a toss of a fair coin).
(iii) In some cases probabilities can be a measure of belief (subjective probability).
This measure of belief should however satisfy the axioms.
(iv) Typically, we would like to assign probabilities to simple events directly; then use
the laws of probability to calculate the probabilities of compound events.
Equally Likely Outcomes
The equally likely probability P defined on a finite sample space S = {E
1
, . . . , E
N
},
assigns the same probability P(E
i
) = 1/N for all E
i
.
In this case, for any event A
P(A) =
N
A
N
=
sample points in A
sample points in S
=
#(A)
#(S)
where N is the number of the sample points in S and N
A
is the number of the sample
points in A.
Example. Toss a fair coin 3 times.
(i) List all the sample points in the sample space
Solution: S = {HHH, · · · TTT} (Complete this)
(ii) Find the probability of observing exactly two heads, at most one head.
3 Laws of Probability
Conditional Probability
The conditional probability of the event A given that event B has occurred is denoted
by P(A|B). Then
P(A|B) =
P(A∩ B)
P(B)
25
provided P(B) > 0. Similarly,
P(B|A) =
P(A∩ B)
P(A)
Independent Events
Definitions. (i) Two events A and B are said to be independent if
P(A∩ B) = P(A)P(B).
(ii) Two events A and B that are not independent are said to be dependent.
Remarks. (i) If A and B are independent, then
P(A|B) = P(A) and P(B|A) = P(B).
(ii) If A is independent of B then B is independent of A.
Probability Laws
Complementation law:
P(A) = 1 −P(A
c
)
Additive law:
P(A∪ B) = P(A) + P(B) −P(A∩ B)
Moreover, if A and B are mutually exclusive, then P(AB) = 0 and
P(A∪ B) = P(A) + P(B)
Multiplicative law (Product rule)
P(A∩ B) = P(A|B)P(B)
= P(B|A)P(A)
Moreover, if A and B are independent
P(AB) = P(A)P(B)
Example Let S = {E
1
, E
2
, . . . , E
6
}; A = {E
1
, E
3
, E
5
}; B = {E
1
, E
2
, E
3
}; C = {E
2
, E
4
, E
6
};D =
{E
6
}. Suppose that all elementary events are equally likely.
(i) What does it mean that all elementary events are equally likely?
(ii) Use the complementation rule to find P(A
c
).
(iii) Find P(A|B) and P(B|A)
(iv) Find P(D) and P(D|C)
26
(v) Are A and B independent? Are C and D independent?
(vi) Find P(A∩ B) and P(A∪ B).
Law of total probability Let the B, B
c
be complementary events and let A denote an
arbitrary event. Then
P(A) = P(A∩ B) + P(A∩ B
c
) ,
or
P(A) = P(A|B)P(B) + P(A|B
c
)P(B
c
).
Bayes’ Law
Let the B, B
c
be complementary events and let A denote an arbitrary event. Then
P(B|A) =
P(AB)
P(A)
=
P(A|B)P(B)
P(A|B)P(B) + P(A|B
c
)P(B
c
)
.
Remarks.
(i) The events of interest here are B, B
c
, P(B) and P(B
c
) are called prior probabilities,
and
(ii) P(B|A) and P(B
c
|A) are called posterior (revised) probabilities.
(ii) Bayes’ Law is important in several fields of applications.
Example 1. A laboratory blood test is 95 percent effective in detecting a certain disease
when it is, in fact, present. However, the test also yields a “false positive” results for
1 percent of healthy persons tested. (That is, if a healthy person is tested, then, with
probability 0.01, the test result will imply he or she has the disease.) If 0.5 percent of
the population actually has the disease, what is the probability a person has the disease
given that the test result is positive?
Solution Let D be the event that the tested person has the disease and E the event
that the test result is positive. The desired probability P(D|E) is obtained by
P(D|E) =
P(D ∩ E)
P(E)
=
P(E|D)P(D)
P(E|D)P(D) + P(E|D
c
)P(D
c
)
=
(.95)(.005)
(.95)(.005) + (.01)(.995)
=
95
294
.323.
27
Thus only 32 percent of those persons whose test results are positive actually have the
disease.
Probabilities in Tabulated Form
4 Counting Sample Points
Is it always necessary to list all sample points in S?
Coin Tosses
Coins sample-points Coins sample-points
1 2 2 4
3 8 4 16
5 32 6 64
10 1024 20 1,048,576
30 10
9
40 10
12
50 10
15
64 10
19
Note that 2
30
10
9
= one billion, 2
40
10
12
= one thousand billion, 2
50
10
15
=
one trillion.
RECALL: P(A) =
n
A
n
, so for some applications we need to find n, n
A
where n and
n
A
are the number of points in S and A respectively.
Basic principle of counting: mn rule
Suppose that two experiments are to be performed. Then if experiment 1 can result
in any one of m possible outcomes and if, for each outcome of experiment 1, there are n
possible outcomes of experiment 2, then together there are mn possible outcomes of the
two experiments.
Examples.
(i) Toss two coins: mn = 2 ×2 = 4
(ii) Throw two dice: mn = 6 ×6 = 36
(iii) A small community consists of 10 men, each of whom has 3 sons. If one man
and one of his sons are to be chosen as father and son of the year, how many different
choices are possible?
Solution: Let the choice of the man as the outcome of the first experiment and the
subsequent choice of one of his sons as the outcome of the second experiment, we see,
from the basic principle, that there are 10 ×3 = 30 possible choices.
Generalized basic principle of counting
28
If r experiments that are to be performed are such that the first one may result in
any of n
1
possible outcomes, and if for each of these n
1
possible outcomes there are n
2
possible outcomes of the second experiment, and if for each of the possible outcomes of
the first two experiments there are n
3
possible outcomes of the third experiment, and if,
. . ., then there are a total of n
1
· n
2
· · · n
r
possible outcomes of the r experiments.
Examples
(i) There are 5 routes available between A and B; 4 between B and C; and 7 between
C and D. What is the total number of available routes between A and D?
Solution: The total number of available routes is mnt = 5.4.7 = 140.
(ii) A college planning committee consists of 3 freshmen, 4 sophomores, 5 juniors,
and 2 seniors. A subcommittee of 4, consisting of 1 individual from each class, is to be
chosen. How many different subcommittees are possible?
Solution: It follows from the generalized principle of counting that there are 3·4·5·2 =
120 possible subcommittees.
(iii) How many different 7−place license plates are possible if the first 3 places are to
be occupied by letters and the final 4 by numbers?
Solution: It follows from the generalized principle of counting that there are 26 · 26 ·
26 · 10 · 10 · 10 · 10 = 175, 760, 000 possible license plates.
(iv) In (iii), how many license plates would be possible if repetition among letters or
numbers were prohibited?
Solution: In this case there would be 26 · 25 · 24 · 10 · 9 · 8 · 7 = 78, 624, 000 possible
license plates.
Permutations: (Ordered arrangements)
The number of ways of ordering n distinct objects taken r at a time (order is impor-
tant) is given by
n!
(n −r)!
= n(n −1)(n −2) · · · (n −r + 1)
Examples
(i) In how many ways can you arrange the letters a, b and c. List all arrangements.
Answer: There are 3! = 6 arrangements or permutations.
(ii) A box contains 10 balls. Balls are selected without replacement one at a time. In
how many different ways can you select 3 balls?
Solution: Note that n = 10, r = 3. Number of different ways is
10 · 9 · 8 =
10!
7!
= 720,
29
(which is equal to
n!
(n−r)!
).
Combinations
For r ≤ n, we define

n
r

=
n!
(n −r)!r!
and say that

n
r

represents the number of possible combinations of n objects taken r at
a time (with no regard to order).
Examples
(i) A committee of 3 is to be formed from a group of 20 people. How many different
committees are possible?
Solution: There are

20
3

=
20!
3!17!
=
20.19.18
3.2.1
= 1140 possible committees.
(ii) From a group of 5 men and 7 women, how many different committees consisting
of 2 men and 3 women can be formed?
Solution:

5
2

7
3

= 350 possible committees.
5 Random Sampling
Definition. A sample of size n is said to be a random sample if the n elements are selected
in such a way that every possible combination of n elements has an equal probability of
being selected.
In this case the sampling process is called simple random sampling.
Remarks. (i) If n is large, we say the random sample provides an honest representation
of the population.
(ii) For finite populations the number of possible samples of size n is

N
n

. For instance
the number of possible samples when N = 28 and n = 4 is

28
4

= 20, 475.
(iii) Tables of random numbers may be used to select random samples.
6 Modeling Uncertainty
The purpose of modeling uncertainty (randomness) is to discover the laws of change.
1. Concept of Probability. Even though probability (chance) involves the notion of
change, the laws governing the change may themselves remain fixed as time passes.
Example. Consider a chance experiment: Toss of a coin.
30
Probabilistic Law. In a fair coin tossing experiment the percentage of (H)eads is very
close to 0.5. In the model (abstraction): P(H) = 0.5 exactly.
Why Probabilistic Reasoning?
Example. Toss 5 coins repeatedly and write down the number of heads observed in each
trial. Now, what percentage of trials produce 2 Heads?
answer. Use the Binomial law to show that
P(2Heads) =

5
2

(0.5)
2
(1 −.5)
3
=
5!
2!3!
(0.5)
2
(.5)
3
= 0.3125
Conclusion. There is no need to carry out this experiment to answer the question.
(Thus saving time and effort).
2. The Interplay Between Probability and Statistics. (Theory versus Application)
(i) Theory is an exact discipline developed from logically defined axioms (conditions).
(ii) Theory is related to physical phenomena only in inexact terms (i.e. approxi-
mately).
(iii) When theory is applied to real problems, it works ( i.e. it makes sense).
Example. A fair die is tossed for a very large number of times. It was observed that
face 6 appeared 1, 500. Estimate how many times the die is tossed.
Answer. 9000 times.
Review Exercises: Probability
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. An experiment consists of tossing 3 fair coins.
(i) List all the elements in the sample space.
(ii) Describe the following events:
A = { observe exactly two heads}
B = { Observe at most one tail}
C = { Observe at least two heads}
D = {Observe exactly one tail}
(iii) Find the probabilities of events A, B, C, D.
31
2. Suppose that S = {1, 2, 3, 4, 5, 6} such that P(1) = .1, P(2) = .1,P(3)=.1, P(4)=.2,
P(5) = .2, P(6) = .3.
(i) Find the probability of the event A = {4, 5, 6}.
(ii) Find the probability of the complement of A.
(iii) Find the probability of the event B = {even}.
(iv) Find the probability of the event C = {odd}.
3. An experiment consists of throwing a fair die.
(i) List all the elements in the sample space.
(ii) Describe the following events:
A = { observe a number larger than 3 }
B = { Observe an even number}
C = { Observe an odd number}
(iii) Find the probabilities of events A, B, C.
(iv) Compare problems 2. and 3.
4. Refer to problem 3. Find
(i) A∪ B
(ii) A∩ B
(iii) B ∩ C
(iv) A
c
(v) C
c
(vi) A ∪ C
(vii) A ∩ C
(viii) Find the probabilities in (i)-(vii).
(ix) Refer to problem 2., and answer questions (i)-(viii).
5. The following probability table gives the intersection probabilities for four events
A, B, C and D:
A B
C .06 0.31
D .55 .08
1.00
(i) Using the definitions, find P(A), P(B), P(C), P(D), P(C|A), P(D|A) and P(C|B).
32
(ii) Find P(B
c
).
(iii) Find P(A∩ B).
(iv) Find P(A∪ B).
(v) Are B and C independent events? Justify your answer.
(vi) Are B and C mutually exclusive events? Justify your answer.
(vii) Are C and D independent events? Justify your answer.
(viii) Are C and D mutually exclusive events? Justify your answer.
6. Use the laws of probability to justify your answers to the following questions:
(i) If P(A ∪ B) = .6, P(A) = .2, and P(B) = .4, are A and B mutually exclusive?
independent?
(ii) If P(A∪ B) = .65, P(A) = .3, and P(B) = .5, are A and B mutually exclusive?
independent?
(iii) If P(A ∪ B) = .7, P(A) = .4, and P(B) = .5, are A and B mutually exclusive?
independent?
7. Suppose that the following two weather forecasts were reported on two local TV
stations for the same period. First report: The chances of rain are today 30%, tomorrow
40%, both today and tomorrow 20%, either today or tomorrow 60%. Second report: The
chances of rain are today 30%, tomorrow 40%, both today and tomorrow 10%, either
today or tomorrow 60%. Which of the two reports, if any, is more believable? Why? No
credit if answer is not justified. (Hint: Let A and B be the events of rain today and rain
tomorrow.)
8. A box contains five balls, a black (b), white (w), red (r), orange (o), and green (g).
Three balls are to be selected at random.
(i) Find the sample space S (Hint: there is 10 sample points).
S = {bwr, · · ·}
(ii) Find the probability of selecting a black ball.
(iii) Find the probability of selecting one black and one red ball.
9. A box contains four black and six white balls.
(i) If a ball is selected at random, what is the probability that it is white? black?
(ii) If two balls are selected without replacement, what is the probability that both
balls are black? both are white? the first is white and the second is black? the first is
black and the second is white? one ball is black?
(iii) Repeat (ii) if the balls are selected with replacement.
33
(Hint: Start by defining the events B
1
and B − 2 as the first ball is black and the
second ball is black respectively, and by defining the events W
1
abd W − 2 as the first
ball is white and the second ball is white respectively. Then use the product rule)
10. Answer by True of False . (Circle your choice).
T F (i) An event is a specific collection of simple events.
T F (ii) The probability of an event can sometimes be negative.
T F (iii) If A and B are mutually exclusive events, then they are also dependent.
T F (iv) The sum of the probabilities of all simple events in the sample space may be
less than 1 depending on circumstances.
T F (v) A random sample of n observations from a population is not likely to provide
a good estimate of a parameter.
T F (vi) A random sample of n observations from a population is one in which every
different subset of size n from the population has an equal probability of being selected.
T F (vii) The probability of an event can sometimes be larger than one.
T F (viii) The probability of an elementary event can never be larger than one half.
T F (ix) Although the probability of an event occurring is .9, the event may not occur
at all in 10 trials.
T F (x) If a random experiment has 5 possible outcomes, then the probability of each
outcome is 1/5.
T F (xi) If two events are independent, the occurrence of one event should not affect
the likelihood of the occurrence of the other event.
34
Chapter 3
Random Variables and Discrete
Distributions
Contents.
Random Variables
Expected Values and Variance
Binomial
Poisson
Hypergeometric
1 Random Variables
The discrete rv arises in situations when the population (or possible outcomes) are
discrete (or qualitative).
Example. Toss a coin 3 times, then
S = {HHH, HHT, HTH, HTT, THH, THT, TTH, TTT}
Let the variable of interest, X, be the number of heads observed then relevant events
would be
{X = 0} = {TTT}
{X = 1} = {HTT, THT, TTH}
{X = 2} = {HHT, HTH, THH}
{X = 3} = {HHH}.
The relevant question is to find the probability of each these events.
Note that X takes integer values even though the sample space consists of H’s and
T’s.
35
The variable X transforms the problem of calculating probabilities from that of set
theory to calculus.
Definition. A random variable (r.v.) is a rule that assigns a numerical value to each
possible outcome of a random experiment.
Interpretation:
-random: the value of the r.v. is unknown until the outcome is observed
- variable: it takes a numerical value
Notation: We use X, Y , etc. to represent r.v.s.
A Discrete r.v. assigns a finite or countably infinite number of possible values
(e.g. toss a coin, throw a die, etc.)
A Continuous r.v. has a continuum of possible values.
(e.g. height, weight, price, etc.)
Discrete Distributions The probability distribution of a discrete r.v., X, assigns a
probability p(x) for each possible x such that
(i) 0 ≤ p(x) ≤ 1, and
(ii)
¸
x
p(x) = 1
where the summation is over all possible values of x.
Discrete distributions in tabulated form
Example.
Which of the following defines a probability distribution?
x 0 1 2
p(x) 0.30 0.50 0.20
x 0 1 2
p(x) 0.60 0.50 -0.10
x -1 1 2
p(x) 0.30 0.40 0.20
Remarks. (i) Discrete distributions arise when the r.v. X is discrete (qualitative data)
36
(ii) Continuous distributions arise when the r.v. X is continuous (quantitative data)
Remarks. (i) In data analysis we described a set of data (sample) by dividing it into
classes and calculating relative frequencies.
(ii) In Probability we described a random experiment (population) in terms of events
and probabilities of events.
(iii) Here, we describe a random experiment (population) by using random variables,
and probability distribution functions.
2 Expected Value and Variance
Definition 2.1 The expected value of a discrete rv X is denoted by µ and is defined to
be
µ =
¸
x
xp(x).
Notation: The expected value of X is also denoted by µ = E[X]; or sometimes µ
X
to
emphasize its dependence on X.
Definition 2.2 If X is a rv with mean µ, then the variance of X is defined by
σ
2
=
¸
x
(x −µ)
2
p(x)
Notation: Sometimes we use σ
2
= V (X) (or σ
2
X
).
Shortcut Formula
σ
2
=
¸
x
2
p(x) −µ
2
Definition 2.3 If X is a rv with mean µ, then the standard deviation of X, denoted by
σ
X
, (or simply σ) is defined by
σ =

V (X) =

¸
(x −µ)
2
p(x)
Shortcut Formula
σ =

¸
x
2
p(x) −µ
2
37
3 Discrete Distributions
Binomial.
The binomial experiment (distribution) arises in following situation:
(i) the underlying experiment consists of n independent and identical trials;
(ii) each trial results in one of two possible outcomes, a success or a failure;
(iii) the probability of a success in a single trial is equal to p and remains the same
throughout the experiment; and
(iv) the experimenter is interested in the rv X that counts the number of successes
observed in n trials.
A r.v. X is said to have a binomial distribution with parameters n and p if
p(x) =

n
x

p
x
q
n−x
(x = 0, 1, . . . , n)
where q = 1 −p.
Mean: µ = np
Variance: σ
2
= npq, σ =

npq
Example: Bernoulli.
A rv X is said to have a Bernoulli distribution with parameter p if
Formula: p(x) = p
x
(1 −p)
1−x
x = 0, 1.
Tabulated form:
x 0 1
p(x) 1-p p
Mean: µ = p
Variance: σ
2
= pq, σ =

pq
Binomial Tables.
Cumulative probabilities are given in the table.
Example. Suppose X has a binomial distribution with n = 10, p = .4. Find
(i) P(X ≤ 4) = .633
(ii) P(X < 6) = P(X ≤ 5) = .834
(iii) P(X > 4) = 1 −P(X ≤ 4) = 1 −.633 = .367
(iv) P(X = 5) = P(X ≤ 5) −P(X ≤ 4) = .834 −.633 = .201
Exercise: Answer the same question with p = 0.7
38
Poisson.
The Poisson random variable arises when counting the number of events that occur
in an interval of time when the events are occurring at a constant rate; examples include
number of arrivals at an emergency room, number of items demanded from an inventory;
number of items in a batch of a random size.
A rv X is said to have a Poisson distribution with parameter λ > 0 if
p(x) = e
−λ
λ
x
/x!, x = 0, 1, . . . .
Graph.
Mean: µ = λ
Variance: σ
2
= λ, σ =

λ
Note: e 2.71828
Example. Suppose the number of typographical errors on a single page of your book
has a Poisson distribution with parameter λ = 1/2. Calculate the probability that there
is at least one error on this page.
Solution. Letting X denote the number of errors on a single page, we have
P(X ≥ 1) = 1 −P(X = 0) = 1 −e
−0.5
0.395
Rule of Thumb. The Poisson distribution provides good approximations to binomial
probabilities when n is large and µ = np is small, preferably with np ≤ 7.
Example. Suppose that the probability that an item produced by a certain machine
will be defective is 0.1. Find the probability that a sample of of 10 items will contain at
most 1 defective item.
Solution. Using the binomial distribution, the desired probability is
P(X ≤ 1) = p(0) + p(1) =

10
0

(0.1)
0
(0.9)
10
+

10
1

(0.1)
1
(0.9)
9
= 0.7361
Using Poisson approximation, we have λ = np = 1
e
−1
+ e
−1
0.7358
which is close to the exact answer.
Hypergeometric.
The hypergeometric distribution arises when one selects a random sample of size n,
without replacement, from a finite population of size N divided into two classes consisting
39
of D elements of the first kind and N − D of the second kind. Such a scheme is called
sampling without replacement from a finite dichotomous population.
Formula:
f(x) =

D
x

N−D
n−x

N
n

,
where max(0, n −N + D) ≤ x ≤ min(n, D). We define F(x) = 0, elsewhere.
Mean: E[X] = n(
D
N
)
Variance: V (X) = (
N−n
N−1
)(n)(
D
N
(1 −
D
N
))
The
N−n
N−1
is called the finite population correction factor.
Example. (Sampling without replacement)
Suppose an urn contains D = 10 red balls and N − D = 15 white balls. A random
sample of size n = 8, without replacement, is drawn and the number or red balls is
denoted by X. Then
f(x) =

10
x

15
8−x

25
8

0 ≤ x ≤ 8 .
4 Markov Chains
Example 1.(Brand Switching Problem)
Suppose that a manufacturer of a product (Brand 1) is competing with only one
other similar product (Brand 2). Both manufacturers have been engaged in aggressive
advertising programs which include offering rebates, etc. A survey is taken to find out
the rates at which consumers are switching brands or staying loyal to brands. Responses
to the survey are given below. If the manufacturers are competing for a population of
y = 300, 000 buyers, how should they plan for the future (immediate future, and in the
long-run)?
Brand Switching Data
This week
Last week Brand 1 Brand 2 Total
Brand 1 90 10 100
Brand 2 40 160 200
40
Brand 1 Brand 2
Brand 1 90/100 10/100
Brand 2 40/200 160/200
So
P =

0.9 0.1
0.2 0.8

Question 1. suppose that customer behavior is not changed over time. If 1/3 of all
customers purchased B1 this week.
What percentage will purchase B1 next week?
What percentage will purchase B2 next week?
What percentage will purchase B1 two weeks from now?
What percentage will purchase B2 two weeks from now?
Solution: Note that π
0
= (1/3, 2/3), then
π
1
= (π
1
1
, π
1
2
) = (π
0
1
, π
0
2
)P
π
1
= (π
1
1
, π
1
2
) = (1/3, 2/3)

0.9 0.1
0.2 0.8

= (1.3/3, 1.7/3)
B1 buyers will be 300, 000(1.3/3) = 130, 000
B2 buyers will be 300, 000(1.7/3) = 170, 000.
Two weeks from now: exercise.
Question 2. Determine whether each brand will eventually retain a constant share of
the market.
Solution:
We need to solve π = πP, and
¸
i
π
i
= 1, that is

1
, π
2
) = (π
1
, π
2
)

0.9 0.1
0.2 0.8

and
π
1
+ π
2
= 1
Matrix multiplication gives
π
1
= 0.9π
1
+ 0.2π
2
π
2
= 0.1π
1
+ 0.8π
2
π
1
+ π
2
= 1
41
One equation is redundant. Choose the first and the third. we get
0.1π
1
= 0.2π
2
and π
1
+ π
2
= 1
which gives

1
, π
2
) = (2/3, 1/3)
Brand 1 will eventually capture two thirds of the market (200, 000) customers.
Example 2. On any particular day Rebecca is either cheerful (c) or gloomy (g). If she is
cheerful today then she will be cheerful tomorrow with probability 0.7. If she is gloomy
today then she will be gloomy tomorrow with probability 0.4.
(i) What is the transition matrix P?
Solution:
P =

0.7 0.3
0.6 0.4

(ii) What is the fraction of days Rebecca is cheerful? gloomy?
Solution: The fraction of days Rebecca is cheerful is the probability that on any given
day Rebecca is cheerful. This can be obtained by solving π = πP, where π = (π
0
, π
1
),
and π
0
+ π
1
= 1.
Exercise. Complete this problem.
Review Exercises: Discrete Distributions
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. Identify the following as discrete or continuous random variables.
(i) The market value of a publicly listed security on a given day
(ii) The number of printing errors observed in an article in a weekly news magazine
(iii) The time to assemble a product (e.g. a chair)
(iv) The number of emergency cases arriving at a city hospital
(v) The number of sophomores in a randomly selected Math. class at a university
(vi) The rate of interest paid by your local bank on a given day
2. What restrictions do we place on the probabilities associated with a particular
probability distribution?
42
3. Indicate whether or not the following are valid probability distributions. If they
are not, indicate which of the restrictions has been violated.
(i)
x -1 0 1 3.5
p(x) .6 .1 .1 .2
(ii)
x -1 1 3.5
p(x) .6 .6 -.2
(ii)
x -2 1 4 6
p(x) .2 .2 .2 .1
43
4. A random variable X has the following probability distribution:
x 1 2 3 4 5
p(x) .05 .10 .15 .45 .25
(i) Verify that X has a valid probability distribution.
(ii) Find the probability that X is greater than 3, i.e. P(X > 3).
(iii) Find the probability that X is greater than or equal to 3, i.e. P(X ≥ 3).
(iv) Find the probability that X is less than or equal to 2, i.e. P(X ≤ 2).
(v) Find the probability that X is an odd number.
(vi) Graph the probability distribution for X.
5. A discrete random variable X has the following probability distribution:
x 10 15 20 25
p(x) .2 .3 .4 .1
(i) Calculate the expected value of X, E(X) = µ.
(ii) Calculate the variance of X, σ
2
.
(ii) Calculate the standard deviation of X, σ.
Answers: µ = 17, σ
2
= 21, σ = 4.58.
6. For each of the following probability distributions, calculate the expected value of
X, E(X) = µ; the variance of X, σ
2
; and the standard deviation of X, σ.
(i)
x 1 2 3 4
p(x) .4 .3 .2 .1
44
(ii)
x -2 -1 2 4
p(x) .2 .3 .3 .2
7. In how many ways can a committee of ten be chosen from fifteen individuals?
8. Answer by True of False . (Circle your choice).
T F (i) The expected value is always positive.
T F (ii) A random variable has a single numerical value for each outcome of a random
experiment.
T F (iii) The only rule that applies to all probability distributions is that the possible
random variable values are always between 0 and 1.
T F (iv) A random variable is one that takes on different values depending on the
chance outcome of an experiment.
T F (v) The number of television programs watched per day by a college student is
an example of a discrete random variable.
T F (vi) The monthly volume of gasoline sold in one gas station is an example of a
discrete random variable.
T F (vii) The expected value of a random variable provides a complete description of
the random variable’s probability distribution.
T F (viii) The variance can never be equal to zero.
T F (ix) The variance can never be negative.
T F (x) The probability p(x) for a discrete random variable X must be greater than
or equal to zero but less than or equal to one.
T F (xi) The sum of all probabilities p(x) for all possible values of X is always equal
to one.
T F (xii) The most common method for sampling more than one observation from a
population is called random sampling.
Review Exercises: Binomial Distribution
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
45
1. List the properties for a binomial experiment.
2. Give the formula for the binomial probability distribution.
3. Calculate
(i) 5!
(ii) 10!
(iii)
7!
3!4!
4. Consider a binomial distribution with n = 4 and p = .5.
(i) Use the formula to find P(0), P(1), · · · , P(4).
(ii) Graph the probability distribution found in (i)
(iii) Repeat (i) and (ii) when n = 4, and p = .2.
(iv) Repeat (i) and (ii) when n = 4, and p = .8.
5. Consider a binomial distribution with n = 5 and p = .6.
(i) Find P(0) and P(2) using the formula.
(ii) Find P(X ≤ 2) using the formula.
(iii) Find the expected value E(X) = µ
(iv) Find the standard deviation σ
6. Consider a binomial distribution with n = 500 and p = .6.
(i) Find the expected value E(X) = µ
(ii) Find the standard deviation σ
7. Consider a binomial distribution with n = 25 and p = .6.
(i) Find the expected value E(X) = µ
(ii) Find the standard deviation σ
(iii) Find P(0) and P(2) using the table.
(iv) Find P(X ≤ 2) using the table.
(v) Find P(X < 12) using the table.
(vi) Find P(X > 13) using the table.
(vii) Find P(X ≥ 8) using the table.
8. A sales organization makes one sale for every 200 prospects that it contacts. The
organization plans to contact 100, 000 prospects over the coming year.
(i) What is the expected value of X, the annual number of sales.
(ii) What is the standard deviation of X.
46
(iii) Within what limits would you expect X to fall with 95% probability. (Use the
empirical rule). Answers: µ = 500, σ = 22.3
9. Identify the binomial experiment in the following group of statements.
(i) a shopping mall is interested in the income levels of its customers and is taking a
survey to gather information
(ii) a business firm introducing a new product wants to know how many purchases
its clients will make each year
(iii) a sociologist is researching an area in an effort to determine the proportion of
households with male “head of households”
(iv) a study is concerned with the average hours worked be teenagers who are attend-
ing high school
(v) Determining whether or nor a manufactured item is defective.
(vi) Determining the number of words typed before a typist makes an error.
(vii) Determining the weekly pay rate per employee in a given company.
10. Answer by True of False . (Circle your choice).
T F (i) In a binomial experiment each trial is independent of the other trials.
T F (i) A binomial distribution is a discrete probability distribution
T F (i) The standard deviation of a binomial probability distribution is given by npq.
47
Chapter 4
Continuous Distributions
Contents.
1. Standard Normal
2. Normal
3. Uniform
4. Exponential
1 Introduction
RECALL: The continuous rv arises in situations when the population (or possible
outcomes) are continuous (or quantitative).
Example. Observe the lifetime of a light bulb, then
S = {x, 0 ≤ x < ∞}
Let the variable of interest, X, be observed lifetime of the light bulb then relevant events
would be {X ≤ x}, {X ≥ 1000}, or {1000 ≤ X ≤ 2000}.
The relevant question is to find the probability of each these events.
Important. For any continuous pdf the area under the curve is equal to 1.
2 The Normal Distribution
Standard Normal.
A normally distributed (bell shaped) random variable with µ = 0 and σ = 1 is said
to have the standard normal distribution. It is denoted by the letter Z.
48
pdf of Z:
f(z) =
1


e
−z
2
/2
; −∞< z < ∞,
Graph.
Tabulated Values.
Values of P(0 ≤ Z ≤ z) are tabulated in the appendix.
Critical Values: z
α
of the standard normal distribution are given by
P(Z ≥ z
α
) = α
which is in the tail of the distribution.
Examples.
(i) P(0 ≤ Z ≤ 1) = .3413
(ii) P(−1 ≤ Z ≤ 1) = .6826
(iii) P(−2 ≤ Z ≤ 2) = .9544
(iv) P(−3 ≤ Z ≤ 3) = .9974
Examples. Find z
0
such that
(i) P(Z > z
0
) = .10; z
0
= 1.28.
(ii) P(Z > z
0
) = .05; z
0
= 1.645.
(iii) P(Z > z
0
) = .025; z
0
= 1.96.
(iv) P(Z > z
0
) = .01; z
0
= 2.33.
(v) P(Z > z
0
) = .005; z
0
= 2.58.
(vi) P(Z ≤ z
0
) = .10, .05, .025, .01, .005. (Exercise)
Normal
A rv X is said to have a Normal pdf with parameters µ and σ if
Formula:
f(x) =
1
σ


e
−(x−µ)
2
/2σ
2
; −∞< x < ∞,
where
−∞< µ < ∞; 0 < σ < ∞.
Properties
Mean: E[X] = µ
Variance: V (X) = σ
2
Graph: Bell shaped.
Area under graph = 1.
Standardizing a normal r.v.:
49
Z-score:
Z =
X −µ
X
σ
X
OR (simply)
Z =
X −µ
σ
Conversely,
X = µ + σZ .
Example If X is a normal rv with parameters µ = 3 and σ
2
= 9, find (i) P(2 < X < 5),
(ii) P(X > 0), and (iii) P(X > 9).
Solution (i)
P(2 < X < 5) = P(−0.33 < Z < 0.67)
= .3779.
(ii)
P(X > 0) = P(Z > −1) = P(Z < 1)
= .8413.
(iii)
P(X > 9) = P(Z > 2.0)
= 0.5 −0.4772 = .0228
Exercise Refer to the above example, find P(X < −3).
Example The length of life of a certain type of automatic washer is approximately
normally distributed, with a mean of 3.1 years and standard deviation of 1.2 years. If
this type of washer is guaranteed for 1 year, what fraction of original sales will require
replacement?
Solution Let X be the length of life of an automatic washer selected at random, then
z =
1 −3.1
1.2
= −1.75
Therefore
P(X < 1) = P(Z < −1.75) =
50
Exercise: Complete the solution of this problem.
Normal Approximation to the Binomial Distribution.
When and how to use the normal approximation:
1. Large n, i.e. np ≥ 5 and n(1 −p) ≥ 5.
2. The approximation can be improved using correction factors.
Example. Let X be the number of times that a fair coin, flipped 40, lands heads.
(i) Find the probability that X = 20. (ii) Find P(10 ≤ X ≤ 20). Use the normal
approximation.
Solution Note that np = 20 and np(1 −p) = 10.
P(X = 20) = P(19.5 < X < 20.5)
= P(
19.5 −20

10
<
X −20

10
<
20.5 −20

10
)
P(−0.16 < Z < 0.16)
= .1272.
The exact result is
P(X = 20) =

40
20

(0.5)
20
(0.5)
20
= .1268
(ii) Exercise.
3 Uniform: U[a,b]
Formula:
f(x) =
1
b −a
a < x < b
= 0 elsewhere
Graph.
Mean: µ = (a + b)/2
Variance: σ
2
= (b −a)
2
/12; σ = (b −a)/

12
CDF: (Area between a and c)
P(X ≤ c) = 0, c ≤ a ,
P(X ≤ c) =
c −a
b −a
, a ≤ c ≤ b ,
P(X ≤ c) = 1, c ≥ b
51
Exercise. Specialize the above results to the Uniform [0, 1] case.
4 Exponential
The exponential pdf often arises, in practice, as being the distribution of the amount
of time until some specific event occurs. Examples include time until a new car breaks
down, time until an arrival at emergency room, ... etc.
A rv X is said to have an exponential pdf with parameter λ > 0 if
f(x) = λe
−λx
, x ≥ 0
= 0 elsewhere
Properties
Graph.
Mean: µ = 1/λ
Variance: σ
2
= 1/λ
2
, σ = 1/λ
CDF: P(X ≤ a) = 1 −e
−λa
.
P(X > a) = e
−λa
Example 1. Suppose that the length of a phone call in minutes is an exponential rv with
parameter λ = 1/10. If someone arrives immediately ahead of you at a public telephone
booth, find the probability that you will have to wait (i) more than 10 minutes, and (ii)
between 10 and 20 minutes.
Solution Let X be the be the length of a phone call in minutes by the person ahead of
you.
(i)
P(X > 10) = e
−λa
= e
−1
0.368
(ii)
P(10 < X < 20) = e
−1
−e
−2
0.233
Example 2. The amount of time, in hours, that a computer functions before breaking
down is an exponential rv with λ = 1/100.
(i) What is the probability that a computer will function between 50 and 150 hours
before breaking down?
(ii) What is the probability that it will function less than 100 hours?
Solution.
52
(i) The probability that a computer will function between 50 and 150 hours before
breaking down is given by
P(50 ≤ X ≤ 150) = e
−50/100
−e
−150/100
= e
−1/2
−e
−3/2
.384
(ii) Exercise.
Memoryless Property
FACT. The exponential rv has the memoryless property.
Converse The exponential distribution is the only continuous distribution with the
memoryless property.
Review Exercises: Normal Distribution
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. Calculate the area under the standard normal curve between the following values.
(i) z = 0 and z = 1.6 (i.e. P(0 ≤ Z ≤ 1.6))
(ii) z = 0 and z = −1.6 (i.e. P(−1.6 ≤ Z ≤ 0))
(iii) z = .86 and z = 1.75 (i.e. P(.86 ≤ Z ≤ 1.75))
(iv) z = −1.75 and z = −.86 (i.e. P(−1.75 ≤ Z ≤ −.86))
(v) z = −1.26 and z = 1.86 (i.e. P(−1.26 ≤ Z ≤ 1.86))
(vi) z = −1.0 and z = 1.0 (i.e. P(−1.0 ≤ Z ≤ 1.0))
(vii) z = −2.0 and z = 2.0 (i.e. P(−2.0 ≤ Z ≤ 2.0))
(viii) z = −3.0 and z = 3.0 (i.e. P(−3.0 ≤ Z ≤ 3.0))
2. Let Z be a standard normal distribution. Find z
0
such that
(i) P(Z ≥ z
0
) = 0.05
(ii) P(Z ≥ z
0
) = 0.99
(iii) P(Z ≥ z
0
) = 0.0708
(iv) P(Z ≤ z
0
) = 0.0708
(v) P(−z
0
≤ Z ≤ z
0
) = 0.68
(vi) P(−z
0
≤ Z ≤ z
0
) = 0.95
53
3. Let Z be a standard normal distribution. Find z
0
such that
(i) P(Z ≥ z
0
) = 0.10
(ii) P(Z ≥ z
0
) = 0.05
(iii) P(Z ≥ z
0
) = 0.025
(iv) P(Z ≥ z
0
) = 0.01
(v) P(Z ≥ z
0
) = 0.005
4. A normally distributed random variable X possesses a mean of µ = 10 and a
standard deviation of σ = 5. Find the following probabilities.
(i) X falls between 10 and 12 (i.e. P(10 ≤ X ≤ 12)).
(ii) X falls between 6 and 14 (i.e. P(6 ≤ X ≤ 14)).
(iii) X is less than 12 (i.e. P(X ≤ 12)).
(iv) X exceeds 10 (i.e. P(X ≥ 10)).
5. The height of adult women in the United States is normally distributed with mean
64.5 inches and standard deviation 2.4 inches.
(i) Find the probability that a randomly chosen woman is larger than 70 inches tall.
(Answer: .011)
(ii) Alice is 71 inches tall. What percentage of women are shorter than Alice. (Answer:
.9966)
6. The lifetimes of batteries produced by a firm are normally distributed with a mean
of 100 hours and a standard deviation of 10 hours. What is the probability a randomly
selected battery will last between 110 and 120 hours.
7. Answer by True of False . (Circle your choice).
T F (i) The standard normal distribution has its mean and standard deviation equal
to zero.
T F (ii) The standard normal distribution has its mean and standard deviation equal
to one.
T F (iii) The standard normal distribution has its mean equal to one and standard
deviation equal to zero.
T F (iv) The standard normal distribution has its mean equal to zero and standard
deviation equal to one.
T F (v) Because the normal distribution is symmetric half of the area under the curve
lies below the 40th percentile.
54
T F (vi) The total area under the normal curve is equal to one only if the mean is
equal to zero and standard deviation equal to one.
T F (vii) The normal distribution is symmetric only if the mean is zero and the
standard deviation is one.
55
Chapter 5
Sampling Distributions
Contents.
The Central Limit Theorem
The Sampling Distribution of the Sample Mean
The Sampling Distribution of the Sample Proportion
The Sampling Distribution of the Difference Between Two Sample Means
The Sampling Distribution of the Difference Between Two Sample Proportions
1 The Central Limit Theorem (CLT)
Roughly speaking, the CLT says
The sampling distribution of the sample mean, X, is
Z =
X −µ
X
σ
X
The sampling distribution of the sample proportion,
ˆ
P, is
Z =
ˆ p −µ
ˆ p
σ
ˆ p
2 Sampling Distributions
Suppose the distribution of X is normal with with mean µ and standard deviation σ.
(i) What is the distribution of
X−µ
σ
?
Answer: It is a standard normal, i.e.
56
Z =
X −µ
σ
I. The Sampling Distribution of the Sample Mean
(ii) What is the the mean (expected value) and standard deviation of X?
Answer:
µ
X
= E(X) = µ
σ
X
= S.E.(X) =
σ

n
(iii) What is the sampling distribution of the sample mean X?
Answer: The distribution of X is a normal distribution with mean µ and standard
deviation σ/

n, equivalently,
Z =
X −µ
X
σ
X
=
X −µ
σ/

n
(iv) What is the sampling distribution of the sample mean, X, if X is not normally
distributed?
Answer: The distribution of X is approximately a normal distribution with mean µ
and standard deviation σ/

n provided n is large (i.e. n ≥ 30).
Example. Consider a population, X, with mean µ = 4 and standard deviation σ = 3.
A sample of size 36 is to be selected.
(i) What is the mean and standard deviation of X?
(ii) Find P(4 < X < 5),
(iii) Find P(X > 3.5), (exercise)
(iv) Find P(3.5 ≤ X ≤ 4.5). (exercise)
II. The Sampling Distribution of the Sample Proportion
Suppose the distribution of X is binomial with with parameters n and p.
(ii) What is the the mean (expected value) and standard deviation of
ˆ
P?
Answer:
µ
ˆ
P
= E(
ˆ
P) = p
57
σ
ˆ
P
= S.E.(
ˆ
P) =

pq
n
(iii) What is the sampling distribution of the sample proportion
ˆ
P?
Answer:
ˆ
P has a normal distribution with mean p and standard deviation

pq
n
,
equivalently
Z =
ˆ
P −µ
ˆ
P
σ
ˆ
P
=
ˆ
P −p

pq
n
provided n is large (i.e. np ≥ 5, and nq ≥ 5).
Example. It is claimed that at least 30% of all adults favor brand A versus brand B.
To test this theory a sample n = 400 is selected. Suppose 130 individuals indicated
preference for brand A.
DATA SUMMARY: n = 400, x = 130, p = .30, ˆ p = 130/400 = .325
(i) Find the mean and standard deviation of the sample proportion
ˆ
P.
Answer:
µ
ˆ p
= p = .30
σ
ˆ p
=

pq
n
= .023
(ii) Find P(
ˆ
P > 0.30)
III. Comparing two Sample Means
E(X
1
−X
2
) = µ
1
−µ
2
σ
X
1
−X
2
=

σ
2
1
n
1
+
σ
2
2
n
2
Z =
X
1
−X
2
−(µ
1
−µ
2
)

σ
2
1
n
1
+
σ
2
2
n
2
provided n
1
, n
2
≥ 30.
58
IV. Comparing two Sample Proportions
E(
ˆ
P
1

ˆ
P
2
) = p
1
−p
2
σ
ˆ
P
1

ˆ
P
2
=

p
1
q
1
n
1
+
p
2
q
2
n
2
Z =
ˆ
P
1

ˆ
P
2
−(p
1
−p
2
)

p
1
q
1
n
1
+
p
2
q
2
n
2
provided n
1
and n
2
are large.
Review Exercises: Sampling Distributions
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. A normally distributed random variable X possesses a mean of µ = 20 and a
standard deviation of σ = 5. A random sample of n = 16 observations is to be selected.
Let X be the sample average.
(i) Describe the sampling distribution of X (i.e. describe the distribution of X and
give µ
x
, σ
x
). (Answer: µ = 20, σ
x
= 1.2)
(ii) Find the z-score of x = 22 (Answer: 1.6)
(iii) Find P(X ≥ 22) =
(iv) Find P(20 ≤ X ≤ 22)).
(v) Find P(16 ≤ X ≤ 19)).
(vi) Find P(X ≥ 23)).
(vii) Find P(X ≥ 18)).
2. The number of trips to doctor’s office per family per year in a given community is
known to have a mean of 10 with a standard deviation of 3. Suppose a random sample
of 49 families is taken and a sample mean is calculated.
(i) Describe the sampling distribution of the sample mean, X. (Include the mean µ
x
,
standard deviation σ
x
, and type of distribution).
59
(ii) Find the probability that the sample mean, X, does not exceed 9.(Answer: .01)
(iii) Find the probability that the sample mean, X, does not exceed 11. (Answer:
.99)
3. When a random sample of size n is drawn from a normal population with mean µ
and and variance σ
2
, the sampling distribution of the sample mean X will be
(a) exactly normal.
(b) approximately normal
(c) binomial
(d) none of the above
4. Answer by True of False . (Circle your choice).
T F (i) The central limit theorem applies regardless of the shape of the population
frequency distribution.
T F (ii) The central limit theorem is important because it explains why some estima-
tors tend to possess, approximately, a normal distribution.
60
Chapter 6
Large Sample Estimation
Contents.
1. Introduction
2. Point Estimators and Their Properties
3. Single Quantitative Population
4. Single Binomial Population
5. Two Quantitative Populations
6. Two Binomial Populations
7. Choosing the Sample Size
1 Introduction
Types of estimators.
1. Point estimator
2. Interval estimator: (L, U)
Desired Properties of Point Estimators.
(i) Unbiased: Mean of the sampling distribution is equal to the parameter.
(ii) Minimum variance: Small standard error of point estimator.
(iii) Error of estimation: distance between a parameter and its point estimate is small.
Desired Properties of Interval Estimators.
(i) Confidence coefficient: P(interval estimator will enclose the parameter)=1 − α
should be as high as possible.
(ii) Confidence level: Confidence coefficient expressed as a percentage.
(iii) Margin of Error: (Bound on the error of estimation) should be as small as possible.
Parameters of Interest.
61
Single Quantitative Population: µ
Single Binomial Population: p
Two Quantitative Populations: µ
1
−µ
2
Two Binomial Populations: p
1
−p
2
2 Point Estimators and Their Properties
Parameter of interest: θ
Sample data: n,
ˆ
θ, σ
ˆ
θ
Point estimator:
ˆ
θ
Estimator mean: µ
ˆ
θ
= θ (Unbiased)
Standard error: SE(
ˆ
θ) = σ
ˆ
θ
Assumptions: Large sample + others (to be specified in each case)
3 Single Quantitative Population
Parameter of interest: µ
Sample data: n, x, s
Other information: α
Point estimator: x
Estimator mean: µ
x
= µ
Standard error: SE(x) = σ/

n (also denoted as σ
x
)
Confidence Interval (C.I.) for µ:
x ±z
α/2
σ

n
Confidence level: (1 − α)100% which is the probability that the interval estimator
contains the parameter.
Margin of Error. ( or Bound on the Error of Estimation)
B = z
α/2
σ

n
Assumptions.
1. Large sample (n ≥ 30)
2. Sample is randomly selected
62
Example 1. We are interested in estimating the mean number of unoccupied seats per
flight, µ, for a major airline. A random sample of n = 225 flights shows that the sample
mean is 11.6 and the standard deviation is 4.1.
Data summary: n = 225; x = 11.6; s = 4.1.
Question 1. What is the point estimate of µ ( Do not give the margin of error)?
x = 11.6
Question 2. Give a 95% bound on the error of estimation (also known as the margin
of error).
B = z
α/2
σ

n
= 1.96
4.1

225
= 0.5357
Question 3. Find a 90% confidence interval for µ.
x ±z
α/2
σ

n
11.6 ±1.645
4.1

225
11.6 ±0.45 = (11.15, 12.05)
Question 4. Interpret the CI found in Question 3.
The interval contains µ with probability 0.90.
OR
If repeated sampling is used, then 90% of CI constructed would contain µ.
Question 5. What is the width of the CI found in Question 3.?
The width of the CI is
W = 2z
α/2
σ

n
W = 2(0.45) = 0.90
OR
W = 12.05 −11.15 = 0.90
Question 6. If n, the sample size, is increased what happens to the width of the CI?
what happens to the margin of error?
The width of the CI decreases.
The margin of error decreases.
Sample size:
n
(z
α/2
)
2
σ
2
B
2
63
where σ is estimated by s.
Note: In the absence of data, σ is sometimes approximated by
R
4
where R is the
range.
Example 2. Suppose you want to construct a 99% CI for µ so that W = 0.05. You are
told that preliminary data shows a range from 13.3 to 13.7. What sample size should
you choose?
A. Data summary: α = .01; R = 13.7 −13.3 = .4;
so σ .4/4 = .1. Now
B = W/2 = 0.05/2 = 0.025. Therefore
n
(z
α/2
)
2
σ
2
B
2
=
2.58
2
(.1)
2
0.025
2
= 106.50 .
So n = 107. (round up)
Exercise 1. Find the sample size necessary to reduce W in the flight example to .6. Use
α = 0.05.
4 Single Binomial Population
Parameter of interest: p
Sample data: n, x, ˆ p =
x
n
(x here is the number of successes).
Other information: α
Point estimator: ˆ p
Estimator mean: µ
ˆ p
= p
Standard error: σ
ˆ p
=

pq
n
Confidence Interval (C.I.) for p:
ˆ p ±z
α/2

ˆ pˆ q
n
Confidence level: (1 − α)100% which is the probability that the interval estimator
contains the parameter.
Margin of Error.
B = z
α/2

ˆ pˆ q
n
64
Assumptions.
1. Large sample (np ≥ 5; nq ≥ 5)
2. Sample is randomly selected
Example 3. A random sample of n = 484 voters in a community produced x = 257
voters in favor of candidate A.
Data summary: n = 484; x = 257; ˆ p =
x
n
=
257
484
= 0.531.
Question 1. Do we have a large sample size?
nˆ p = 484(0.531) = 257 which is ≥ 5.
nˆ q = 484(0.469) = 227 which is ≥ 5.
Therefore we have a large sample size.
Question 2. What is the point estimate of p and its margin of error?
ˆ p =
x
n
=
257
484
= 0.531
B = z
α/2

ˆ pˆ q
n
= 1.96

(0.531)(0.469)
484
= 0.044
Question 3. Find a 90% confidence interval for p.
ˆ p ±z
α/2

ˆ pˆ q
n
0.531 ±1.645

(0.531)(0.469)
484
0.531 ±0.037 = (0.494, 0.568)
Question 4. What is the width of the CI found in Question 3.?
The width of the CI is
W = 2z
α/2

ˆ pˆ q
n
= 2(0.037) = 0.074
Question 5. Interpret the CI found in Question 3.
The interval contains p with probability 0.90.
OR
If repeated sampling is used, then 90% of CI constructed would contain p.
Question 6. If n, the sample size, is increased what happens to the width of the CI?
what happens to the margin of error?
65
The width of the CI decreases.
The margin of error decreases.
Sample size.
n
(z
α/2
)
2
(ˆ pˆ q)
B
2
.
Note: In the absence of data, choose ˆ p = ˆ q = 0.5 or simply ˆ pˆ q = 0.25.
Example 4. Suppose you want to provide an accurate estimate of customers preferring
one brand of coffee over another. You need to construct a 95% CI for p so that B = 0.015.
You are told that preliminary data shows a ˆ p = 0.35. What sample size should you choose
? Use α = 0.05.
Data summary: α = .05; ˆ p = 0.35; B = 0.015
n
(z
α/2
)
2
(ˆ pˆ q)
B
2
=
(1.96)
2
(0.35)(0.65)
0.015
2
= 3, 884.28
So n = 3, 885. (round up)
Exercise 2. Suppose that no preliminary estimate of ˆ p is available. Find the new sample
size. Use α = 0.05.
Exercise 3. Suppose that no preliminary estimate of ˆ p is available. Find the sample
size necessary so that α = 0.01.
5 Two Quantitative Populations
Parameter of interest: µ
1
−µ
2
Sample data:
Sample 1: n
1
, x
1
, s
1
Sample 2: n
2
, x
2
, s
2
Point estimator: X
1
−X
2
Estimator mean: µ
X
1
−X
2
= µ
1
−µ
2
Standard error: SE(X
1
−X
2
) =

σ
2
1
n
1
+
σ
2
2
n
2
Confidence Interval.
(x
1
−x
2
) ±z
α/2

σ
2
1
n
1
+
σ
2
2
n
2
66
Assumptions.
1. Large samples ( n
1
≥ 30; n
2
≥ 30)
2. Samples are randomly selected
3. Samples are independent
Sample size.
n
(z
α/2
)
2

2
1
+ σ
2
2
)
B
2
6 Two Binomial Populations
Parameter of interest: p
1
−p
2
Sample 1: n
1
, x
1
, ˆ p
1
=
x
1
n
1
Sample 2: n
2
, x
2
, ˆ p
2
=
x
2
n
2
p
1
−p
2
(unknown parameter)
α (significance level)
Point estimator: ˆ p
1
− ˆ p
2
Estimator mean: µ
ˆ p
1
−ˆ p
2
= p
1
−p
2
Estimated standard error: σ
ˆ p
1
−ˆ p
2
=

ˆ p
1
ˆ q
1
n
1
+
ˆ p
2
ˆ q
2
n
2
Confidence Interval.
(ˆ p
1
− ˆ p
2
) ±z
α/2

ˆ p
1
ˆ q
1
n
1
+
ˆ p
2
ˆ q
2
n
2
Assumptions.
1. Large samples,
(n
1
p
1
≥ 5, n
1
q
1
≥ 5, n
2
p
2
≥ 5, n
2
q
2
≥ 5)
2. Samples are randomly and independently selected
Sample size.
n
(z
α/2
)
2
(ˆ p
1
ˆ q
1
+ ˆ p
2
ˆ q
2
)
B
2
For unkown parameters:
n
(z
α/2
)
2
(0.5)
B
2
Review Exercises: Large-Sample Estimation
67
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. A random sample of size n = 100 is selected form a quantitative population. The
data produced a mean and standard deviation of x = 75 and s = 6 respectively.
(i) Estimate the population mean µ, and give a 95% bound on the error of estimation
(or margin of error). (Answer: B=1.18)
(ii) Find a 99% confidence interval for the population mean. (Answer: B=1.55)
(iii) Interpret the confidence interval found in (ii).
(iv) Find the sample size necessary to reduce the width of the confidence interval in
(ii) by half. (Answer: n=400)
2. An examination of the yearly premiums for a random sample of 80 automobile
insurance policies from a major company showed an average of $329 and a standard
deviation of $49.
(i) Give the point estimate of the population parameter µ and a 99% bound on the
error of estimation. (Margin of error). (Answer: B=14.135)
(ii) Construct a 99% confidence interval for µ.
(iii) Suppose we wish our estimate in (i) to be accurate to within $5 with 95% con-
fidence; how many insurance policies should be sampled to achieve the desired level of
accuracy? (Answer: n=369)
3. Suppose we wish to estimate the average daily yield of a chemical manufactured
in a chemical plant. The daily yield recorded for n = 100 days, produces a mean and
standard deviation of x = 870 and s = 20 tons respectively.
(i) Estimate the average daily yield µ, and give a 95% bound on the error of estimation
(or margin of error).
(ii) Find a 99% confidence interval for the population mean.
(iii) Interpret the confidence interval found in (ii).
(iv) Find the sample size necessary to reduce the width of the confidence interval in
(ii) by half.
4. Answer by True of False . (Circle your choice).
T F (i) If the population variance increases and other factors are the same, the width
of the confidence interval for the population mean tends to increase.
68
T F (ii) As the sample size increases, the width of the confidence interval for the
population mean tends to decrease.
T F (iii) Populations are characterized by numerical descriptive measures called sta-
tistics.
T F (iv) If, for a given C.I., α is increased, then the margin of error will increase.
T F (v) The sample standard deviation s can be used to approximate σ when n is
larger than 30.
T F (vi) The sample mean always lies above the population mean.
69
Chapter 7
Large-Sample Tests of Hypothesis
Contents.
1. Elements of a statistical test
2. A Large-sample statistical test
3. Testing a population mean
4. Testing a population proportion
5. Testing the difference between two population means
6. Testing the difference between two population proportions
7. Reporting results of statistical tests: p-Value
1 Elements of a Statistical Test
Null hypothesis: H
0
Alternative (research) hypothesis: H
a
Test statistic:
Rejection region : reject H
0
if .....
Graph:
Decision: either “Reject H
0
” or “Do no reject H
0

Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to
“ favor H
a
” .
Comments:
* H
0
represents the status-quo
* H
a
is the hypothesis that we want to provide evidence to justify. We show that H
a
is true by showing that H
0
is false, that is proof by contradiction.
Type I error ≡ { reject H
0
|H
0
is true }
70
Type II error ≡ { do not reject H
0
|H
0
is false}
α = Prob{Type I error}
β = Prob{Type II error}
Power of a statistical test:
Prob{reject H
0
— H
0
is false }= 1 −β
Example 1.
H
0
: Innocent
H
a
: Guilty
α = Prob{sending an innocent person to jail}
β = Prob{letting a guilty person go free}
Example 2.
H
0
: New drug is not acceptable
H
a
: New drug is acceptable
α = Prob{marketing a bad drug}
β = Prob{not marketing an acceptable drug}
2 A Large-Sample Statistical Test
Parameter of interest: θ
Sample data: n,
ˆ
θ, σ
ˆ
θ
Test:
Null hypothesis (H
0
) : θ = θ
0
Alternative hypothesis (H
a
): 1) θ > θ
0
; 2) θ < θ
0
; 3) θ = θ
0
Test statistic (TS):
z =
ˆ
θ −θ
0
σ
ˆ
θ
Critical value: either z
α
or z
α/2
Rejection region (RR) :
1) Reject H
0
if z > z
α
2) Reject H
0
if z < −z
α
3) Reject H
0
if z > z
α/2
or z < −z
α/2
Graph:
Decision: 1) if observed value is in RR: “Reject H
0

2) if observed value is not in RR: “Do no reject H
0

71
Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to
· · · .
Assumptions: Large sample + others (to be specified in each case).
One tailed statistical test
Upper (right) tailed test
Lower (left) tailed test
Two tailed statistical test
3 Testing a Population Mean
Parameter of interest: µ
Sample data: n, x, s
Other information: µ
0
= target value, α
Test:
H
0
: µ = µ
0
H
a
: 1) µ > µ
0
; 2) µ < µ
0
; 3) µ = µ
0
T.S. :
z =
x −µ
0
σ/

n
Rejection region (RR) :
1) Reject H
0
if z > z
α
2) Reject H
0
if z < −z
α
3) Reject H
0
if z > z
α/2
or z < −z
α/2
Graph:
Decision: 1) if observed value is in RR: “Reject H
0

2) if observed value is not in RR: “Do no reject H
0

Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to
“ favor H
a
” .
Assumptions:
Large sample (n ≥ 30)
Sample is randomly selected
Example: Test the hypothesis that weight loss in a new diet program exceeds 20 pounds
during the first month.
Sample data : n = 36, x = 21, s
2
= 25, µ
0
= 20, α = 0.05
H
0
: µ = 20 (µ is not larger than 20)
72
H
a
: µ > 20 (µ is larger than 20)
T.S. :
z =
x −µ
0
s/

n
=
21 −20
5/

36
= 1.2
Critical value: z
α
= 1.645
RR: Reject H
0
if z > 1.645
Graph:
Decision: Do not reject H
0
Conclusion: At 5% significance level there is insufficient statistical evidence to con-
clude that weight loss in a new diet program exceeds 20 pounds per first month.
Exercise: Test the claim that weight loss is not equal to 19.5.
4 Testing a Population Proportion
Parameter of interest: p (unknown parameter)
Sample data: n and x (or ˆ p =
x
n
)
p
0
= target value
α (significance level)
Test:
H
0
: p = p
0
H
a
: 1) p > p
0
; 2) p < p
0
; 3) p = p
0
T.S. :
z =
ˆ p −p
0

p
0
q
0
/n
RR:
1) Reject H
0
if z > z
α
2) Reject H
0
if z < −z
α
3) Reject H
0
if z > z
α/2
or z < −z
α/2
Graph:
Decision:
1) if observed value is in RR: “Reject H
0

2) if observed value is not in RR: “Do not reject H
0

Conclusion: At (α)100% significance level there is (in)sufficient statistical evidence
to “ favor H
a
” .
Assumptions:
73
1. Large sample (np ≥ 5, nq ≥ 5)
2. Sample is randomly selected
Example. Test the hypothesis that p > .10 for sample data: n = 200, x = 26.
Solution.
ˆ p =
x
n
=
26
200
= .13,
Now
H
0
: p = .10
H
a
: p > .10
TS:
z =
ˆ p −p
0

p
0
q
0
/n
=
.13 −.10

(.10)(.90)/200
= 1.41
RR: reject H
0
if z > 1.645
Graph:
Dec: Do not reject H
0
Conclusion: At 5% significance level there is insufficient statistical evidence to con-
clude that p > .10.
Exercise Is the large sample assumption satisfied here ?
5 Comparing Two Population Means
Parameter of interest: µ
1
−µ
2
Sample data:
Sample 1: n
1
, x
1
, s
1
Sample 2: n
2
, x
2
, s
2
Test:
H
0
: µ
1
−µ
2
= D
0
H
a
: 1)µ
1
−µ
2
> D
0
; 2) µ
1
−µ
2
< D
0
;
3) µ
1
−µ
2
= D
0
T.S. :
z =
(x
1
−x
2
) −D
0

σ
2
1
n
1
+
σ
2
2
n
2
RR:
1) Reject H
0
if z > z
α
2) Reject H
0
if z < −z
α
74
3) Reject H
0
if z > z
α/2
or z < −z
α/2
Graph:
Decision:
Conclusion:
Assumptions:
1. Large samples ( n
1
≥ 30; n
2
≥ 30)
2. Samples are randomly selected
3. Samples are independent
Example: (Comparing two weight loss programs)
Refer to the weight loss example. Test the hypothesis that weight loss in the two diet
programs are different.
1. Sample 1 : n
1
= 36, x
1
= 21, s
2
1
= 25 (old)
2. Sample 2 : n
2
= 36, x
2
= 18.5, s
2
2
= 24 (new)
D
0
= 0, α = 0.05
H
0
: µ
1
−µ
2
= 0
H
a
: µ
1
−µ
2
= 0,
T.S. :
z =
(x
1
−x
2
) −0

σ
2
1
n
1
+
σ
2
2
n
2
= 2.14
Critical value: z
α/2
= 1.96
RR: Reject H
0
if z > 1.96 or z < −1.96
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to conclude
that weight loss in the two diet programs are different.
Exercise: Test the hypothesis that weight loss in the old diet program exceeds that of
the new program.
Exercise: Test the claim that the difference in mean weight loss for the two programs
is greater than 1.
6 Comparing Two Population Proportions
Parameter of interest: p
1
−p
2
Sample 1: n
1
, x
1
, ˆ p
1
=
x
1
n
1
,
75
Sample 2: n
2
, x
2
, ˆ p
2
=
x
2
n
2
,
p
1
−p
2
(unknown parameter)
Common estimate:
ˆ p =
x
1
+ x
2
n
1
+ n
2
Test:
H
0
: p
1
−p
2
= 0
H
a
: 1) p
1
−p
2
> 0
2) p
1
−p
2
< 0
3) p
1
−p
2
= 0
T.S. :
z =
(ˆ p
1
− ˆ p
2
) −0

ˆ pˆ q(1/n
1
+ 1/n
2
)
RR:
1) Reject H
0
if z > z
α
2) Reject H
0
if z < −z
α
3) Reject H
0
if z > z
α/2
or z < −z
α/2
Graph:
Decision:
Conclusion:
Assumptions:
Large sample(n
1
p
1
≥ 5, n
1
q
1
≥ 5, n
2
p
2
≥ 5, n
2
q
2
≥ 5)
Samples are randomly and independently selected
Example: Test the hypothesis that p
1
− p
2
< 0 if it is known that the test statistic is
z = −1.91.
Solution:
H
0
: p
1
−p
2
= 0
H
a
: p
1
−p
2
< 0
TS: z = −1.91
RR: reject H
0
if z < −1.645
Graph:
Dec: reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to conclude
that p
1
−p
2
< 0.
76
Exercise: Repeat as a two tailed test
7 Reporting Results of Statistical Tests: P-Value
Definition. The p-value for a test of a hypothesis is the smallest value of α for which
the null hypothesis is rejected, i.e. the statistical results are significant.
The p-value is called the observed significance level
Note: The p-value is the probability ( when H
0
is true) of obtaining a value of the
test statistic as extreme or more extreme than the actual sample value in support of H
a
.
Examples. Find the p-value in each case:
(i) Upper tailed test:
H
0
: θ = θ
0
H
a
: θ > θ
0
TS: z = 1.76
p-value = .0392
(ii) Lower tailed test:
H
0
: θ = θ
0
H
a
: θ < θ
0
TS: z = −1.86
p-value = .0314
(iii) Two tailed test:
H
0
: θ = θ
0
H
a
: θ = θ
0
TS: z = 1.76
p-value = 2(.0392) = .0784
Decision rule using p-value: (Important)
Reject H
0
for all α > p −value
Review Exercises: Testing Hypothesis
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. A local pizza parlor advertises that their average time for delivery of a pizza is
within 30 minutes of receipt of the order. The delivery time for a random sample of 64
77
orders were recorded, with a sample mean of 34 minutes and a standard deviation of 21
minutes.
(i) Is there sufficient evidence to conclude that the actual delivery time is larger than
what is claimed by the pizza parlor? Use α = .05.
H
0
:
H
a
:
T.S. (Answer: 1.52)
R.R.
Graph:
Dec:
Conclusion:
((ii) Test the hypothesis that H
a
: µ = 30.
2. Answer by True of False . (Circle your choice).
T F (v) If, for a given test, α is fixed and the sample size is increased, then β will
increase.
78
Chapter 8
Small-Sample Tests of Hypothesis
Contents:
1. Introduction
2. Student’s t distribution
3. Small-sample inferences about a population mean
4. Small-sample inferences about the difference between two means: Independent
Samples
5. Small-sample inferences about the difference between two means: Paired Samples
6. Inferences about a population variance
7. Comparing two population variances
1 Introduction
When the sample size is small we only deal with normal populations.
For non-normal (e.g. binomial) populations different techniques are necessary
2 Student’s t Distribution
RECALL
For small samples (n < 30) from normal populations, we have
z =
x −µ
σ/

n
If σ is unknown, we use s instead; but we no more have a Z distribution
Assumptions.
79
1. Sampled population is normal
2. Small random sample (n < 30)
3. σ is unknown
t =
x −µ
s/

n
Properties of the t Distribution:
(i) It has n −1 degrees of freedom (df)
(ii) Like the normal distribution it has a symmetric mound-shaped probability distri-
bution
(iii) More variable (flat) than the normal distribution
(iv) The distribution depends on the degrees of freedom. Moreover, as n becomes
larger, t converges to Z.
(v) Critical values (tail probabilities) are obtained from the t table
Examples.
(i) Find t
0.05,5
= 2.015
(ii) Find t
0.005,8
= 3.355
(iii) Find t
0.025,26
= 2.056
3 Small-Sample Inferences About a Population Mean
Parameter of interest: µ
Sample data: n, x, s
Other information: µ
0
= target value, α
Point estimator: x
Estimator mean: µ
x
= µ
Estimated standard error: σ
x
= s/

n
Confidence Interval for µ:
x ±t
α
2
,n−1
(
s

n
)
Test:
H
0
: µ = µ
0
H
a
: 1) µ > µ
0
; 2) µ < µ
0
; 3) µ = µ
0
.
Critical value: either t
α,n−1
or t
α
2
,n−1
80
T.S. : t =
x−µ
0
s/

n
RR:
1) Reject H
0
if t > t
α,n−1
2) Reject H
0
if t < −t
α,n−1
3) Reject H
0
if t > t
α
2
,n−1
or t < −t
α
2
,n−1
Graph:
Decision: 1) if observed value is in RR: “Reject H
0

2) if observed value is not in RR: “Do not reject H
0

Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to
“favor H
a
” .
Assumptions.
1. Small sample (n < 30)
2. Sample is randomly selected
3. Normal population
4. Unknown variance
Example For the sample data given below, test the hypothesis that weight loss in a new
diet program exceeds 20 pounds per first month.
1. Sample data: n = 25, x = 21.3, s
2
= 25, µ
0
= 20, α = 0.05
Critical value: t
0.05,24
= 1.711
H
0
: µ = 20
H
a
: µ > 20,
T.S.:
t =
x −µ
0
s/

n
=
21.3 −20
5/

25
= 1.3
RR: Reject H
0
if t > 1.711
Graph:
Decision: Do not reject H
0
Conclusion: At 5% significance level there is insufficient statistical evidence to con-
clude that weight loss in a new diet program exceeds 20 pounds per first month.
Exercise. Test the claim that weight loss is not equal to 19.5, (i.e. H
a
: µ = 19.5).
4 Small-Sample Inferences About the Difference Be-
tween Two Means: Independent Samples
Parameter of interest: µ
1
−µ
2
81
Sample data:
Sample 1: n
1
, x
1
, s
1
Sample 2: n
2
, x
2
, s
2
Other information: D
0
= target value, α
Point estimator: X
1
−X
2
Estimator mean: µ
X
1
−X
2
= µ
1
−µ
2
Assumptions.
1. Normal populations
2. Small samples ( n
1
< 30; n
2
< 30)
3. Samples are randomly selected
4. Samples are independent
5. Variances are equal with common variance
σ
2
= σ
2
1
= σ
2
2
Pooled estimator for σ.
s =

(n
1
−1)s
2
1
+ (n
2
−1)s
2
2
n
1
+ n
2
−2
Estimator standard error:
σ
X
1
−X
2
= σ

1
n
1
+
1
n
2
Reason:
σ
X
1
−X
2
=

σ
2
1
n
1
+
σ
2
2
n
2
=

σ
2
n
1
+
σ
2
n
2
= σ

1
n
1
+
1
n
2
Confidence Interval:
(x
1
−x
2
) ±(t
α/2,n
1
+n
2
−2
)(s

1
n
1
+
1
n
2
)
Test:
H
0
: µ
1
−µ
2
= D
0
82
H
a
: 1)µ
1
−µ
2
> D
0
; 2) µ
1
−µ
2
< D
0
;
3) µ
1
−µ
2
= D
0
T.S. :
t =
(x
1
−x
2
) −D
0
s

1
n
1
+
1
n
2
RR: 1) Reject H
0
if t > t
α,n
1
+n
2
−2
2) Reject H
0
if t < −t
α,n
1
+n
2
−2
3) Reject H
0
if t > t
α/2,n
1
+n
2
−2
or t < −t
α/2,n
1
+n
2
−2
Graph:
Decision:
Conclusion:
Example.(Comparison of two weight loss programs)
Refer to the weight loss example. Test the hypothesis that weight loss in a new diet
program is different from that of an old program. We are told that that the observed
value is 2.2 and the we know that
1. Sample 1 : n
1
= 7
2. Sample 2 : n
2
= 8
α = 0.05
Solution.
H
0
: µ
1
−µ
2
= 0
H
a
: µ
1
−µ
2
= 0
T.S. :
t =
(x
1
−x
2
) −0
s

1
n
1
+
1
n
2
= 2.2
Critical value: t
.025,13
= 2.160
RR: Reject H
0
if t > 2.160 or t < −2.160
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to conclude
that weight loss in the two diet programs are different.
Exercise: Test the claim that the difference in mean weight loss for the two programs
is greater than 0.
Minitab Commands: A twosample t procedure with a pooled estimate of variance
MTB> twosample C1 C2;
SUBC>pooled;
83
SUBC> alternative 1.
Note: alternative : 1=right-tailed; -1=left tailed; 0=two tailed.
5 Small-Sample Inferences About the Difference Be-
tween Two Means: Paired Samples
Parameter of interest: µ
1
−µ
2
= µ
d
Sample of paired differences data:
Sample : n = number of pairs, d = sample mean, s
d
Other information: D
0
= target value, α
Point estimator: d
Estimator mean: µ
d
= µ
d
Assumptions.
1. Normal populations
2. Small samples ( n
1
< 30; n
2
< 30)
3. Samples are randomly selected
4. Samples are paired (not independent)
Sample standard deviation of the sample of n paired differences
s
d
=

¸
n
i=1
(d
i
−d)
2
n −1
Estimator standard error: σ
d
= s
d
/

n
Confidence Interval.
d ±t
α/2,n−1
s
d
/

n
Test.
H
0
: µ
1
−µ
2
= D
0
(equivalently, µ
d
= D
0
)
H
a
: 1)µ
1
−µ
2
= µ
d
> D
0
; 2) µ
1
−µ
2
= µ
d
< D
0
;
3) µ
1
−µ
2
= µ
d
= D
0
,
T.S. :
t =
d −D
0
s
d
/

n
RR:
1) Reject H
0
if t > t
α,n−1
2) Reject H
0
if t < −t
α,n−1
84
3) Reject H
0
if t > t
α/2,n−1
or t < −t
α/2,n−1
Graph:
Decision:
Conclusion:
Example. A manufacturer wishes to compare wearing qualities of two different types
of tires, A and B. For the comparison a tire of type A and one of type B are randomly
assigned and mounted on the rear wheels of each of five automobiles. The automobiles
are then operated for a specified number of miles, and the amount of wear is recorded
for each tire. These measurements are tabulated below.
Automobile Tire A Tire B
1 10.6 10.2
2 9.8 9.4
3 12.3 11.8
4 9.7 9.1
5 8.8 8.3
x
1
= 10.24 x
2
= 9.76
Using the previous section test we would have t = 0.57 resulting in an insignificant
test which is inconsistent with the data.
Automobile Tire A Tire B d=A-B
1 10.6 10.2 .4
2 9.8 9.4 .4
3 12.3 11.8 .5
4 9.7 9.1 .6
5 8.8 8.3 .5
x
1
= 10.24 x
2
= 9.76 d = .48
Q1: Provide a summary of the data in the above table.
Sample summary: n = 5, d = .48, s
d
= .0837
Q2: Do the data provide sufficient evidence to indicate a difference in average wear
for the two tire types.
Test. (parameter µ
d
= µ
1
−µ
2
)
H
0
: µ
d
= 0
H
a
: µ
d
= 0
T.S. :
t =
d −D
0
s
d
/

n
=
.48 −0
.0837/

5
= 12.8
85
RR: Reject H
0
if t > 2.776 or t < −2.776 ( t
.025,4
= 2.776)
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to to con-
clude that the average amount of wear for type A tire is different from that for type B
tire.
Exercise. Construct a 99% confidence interval for the difference in average wear for the
two tire types.
6 Inferences About a Population Variance
Chi-square distribution. When a random sample of size n is drawn from a normal
population with mean µ and standard deviation σ, the sampling distribution of S
2
de-
pends on n. The standardized distribution of S
2
is called the chi-square distribution and
is given by
X
2
=
(n −1)s
2
σ
2
Degrees of freedom (df): ν = n −1
Graph: Non-symmetrical and depends on df
Critical values: using X
2
tables
Test.
H
0
: σ
2
= σ
2
0
H
a
: σ
2
= σ
2
0
(two-tailed test).
T.S. :
X
2
=
(n −1)s
2
σ
2
0
RR: Reject H
0
if X
2
> X
2
α/2
or X
2
< X
2
1−α/2
where X
2
is based on (n −1) degrees of
freedom.
Graph:
Decision:
Conclusion:
Assumptions.
1. Normal population
2. Random sample
Example:
86
Use text
7 Comparing Two Population Variances
F-distribution. When independent samples are drawn from two normal populations
with equal variances then S
2
1
/S
2
2
possesses a sampling distribution that is known as an
F distribution. That is
F =
s
2
1
s
2
2
Degrees of freedom (df): ν
1
= n
1
−1; ν
2
= n
2
−1
Graph: Non-symmetrical and depends on df
Critical values: using F tables
Test.
H
0
: σ
2
1
= σ
2
2
H
a
: σ
2
1
= σ
2
2
(two-tailed test).
T.S. :F =
s
2
1
s
2
2
where s
2
1
is the larger sample variance.
Note: F =
larger sample variance
smaller sample variance
RR: Reject H
0
if F > F
α/2
where F
α/2
is based on (n
1
− 1) and (n
2
− 1) degrees of
freedom.
Graph:
Decision:
Conclusion:
Assumptions.
1. Normal populations
2. Independent random samples
Example. (Investment Risk) Investment risk is generally measured by the volatility
of possible outcomes of the investment. The most common method for measuring in-
vestment volatility is by computing the variance ( or standard deviation) of possible
outcomes. Returns over the past 10 years for first alternative and 8 years for the second
alternative produced the following data:
Data Summary:
Investment 1: n
1
= 10, x
1
= 17.8%; s
2
1
= 3.21
Investment 2: n
2
= 8, x
2
= 17.8%; s
2
2
= 7.14
Both populations are assumed to be normally distributed.
87
Q1: Do the data present sufficient evidence to indicate that the risks for investments
1 and 2 are unequal ?
Solution.
Test:
H
0
: σ
2
1
= σ
2
2
H
a
: σ
2
1
= σ
2
2
(two-tailed test).
T.S. :
F =
s
2
2
s
2
1
=
7.14
3.21
= 2.22
.
RR: Reject H
0
if F > F
α/2
where
F
α/2,n
2
−1,n
1
−1
= F
.025,7,9
= 4.20
Graph:
Decision: Do not reject H
0
Conclusion: At 5% significance level there is insufficient statistical evidence to indicate
that the risks for investments 1 and 2 are unequal.
Exercise. Do the upper tail test. That is H
a
: σ
2
1
> σ
2
2
.
88
Chapter 9
Analysis of Variance
Contents.
1. Introduction
2. One Way ANOVA: Completely Randomized Experimental Design
3. The Randomized Block Design
1 Introduction
Analysis of variance is a statistical technique used to compare more than two popu-
lation means by isolating the sources of variability.
Example. Four groups of sales people for a magazine sales agency were subjected to
different sales training programs. Because there were some dropouts during the training
program, the number of trainees varied from program to program. At the end of the
training programs each salesperson was assigned a sales area from a group of sales areas
that were judged to have equivalent sales potentials. The table below lists the number
of sales made by each person in each of the four groups of sales people during the first
week after completing the training program. Do the data present sufficient evidence to
indicate a difference in the mean achievement for the four training programs?
Goal. Test whether the means are equal or not. That is
H
0
: µ
1
= µ
2
= µ
3
= µ
4
H
a
: Not all means are equal
Definitions:
(i) Response: variable of interest or dependent variable (sales)
(ii) Factor: categorical variable or independent variable (training technique)
(iii) Treatment levels (factor levels): method of training; t =4
89
Training Group
1 2 3 4
65 75 59 94
87 69 78 89
73 83 67 80
79 81 62 88
81 72 83
69 79 76
90
n
1
= 6 n
2
= 7 n
3
= 6 n
4
= 4 n = 23
T
i
454 549 425 351 GT= 1779
T
i
75.67 78.43 70.83 87.75
parameter µ
1
µ
2
µ
3
µ
4
(iv) ANOVA: ANalysis OF VAriance
(v) N-Way ANOVA: studies N factors.
(vi) experimental unit: (trainee)
2 One Way ANOVA: Completely Randomized Ex-
perimental Design
ANOVA Table
Source of error df SS MS F p-value
Treatments 3 712.6 237.5 3.77
Error 19 1,196.6 63.0
Totals 22 1909.2
Inferences about population means
Test.
H
0
: µ
1
= µ
2
= µ
3
= µ
4
H
a
: Not all means are equal
T.S. : F =
MST
MSE
= 3.77
where F is based on (t-1) and (n-t) df.
RR: Reject H
0
if F > F
α,t−1,n−t
i.e. Reject H
0
if F > F
0.05,3,19
= 3.13
90
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to indicate
a difference in the mean achievement for the four training programs.
Assumptions.
1. Sampled populations are normal
2. Independent random samples
3. All t populations have equal variances
Computations.
ANOVA Table
S of error df SS MS F p-value
Trments t-1 SST MST=SST/(t-1) MST/MSE
Error n-t SSE MSE=SSE/(n-t)
Totals n-1 TSS
Training Group
1 2 3 4
x
11
x
21
x
31
x
41
x
12
x
22
x
32
x
42
x
13
x
23
x
33
x
43
x
14
x
24
x
34
x
44
x
15
x
25
x
35
x
16
x
26
x
36
x
27
n
1
n
2
n
3
n
4
n
T
i
T
1
T
2
T
3
T
4
GT
T
i
T
1
T
2
T
3
T
4
parameter µ
1
µ
2
µ
3
µ
4
Notation:
TSS: sum of squares of total deviation.
SST: sum of squares of total deviation between treatments.
SSE: sum of squares of total deviation within treatments (error).
CM: correction for the mean
91
GT: Grand Total.
Computational Formulas for TSS, SST and SSE:
TSS =
t
¸
i=1
n
i
¸
j=1
x
2
ij
−CM
SST =
t
¸
i=1
T
2
i
n
i
−CM
SSE = TSS −SST
Calculations for the training example produce
CM = (
¸¸
x
ij
)
2
/n = 1, 779
2
/23 = 137, 601.8
TSS =
¸¸
x
2
ij
−CM = 1, 909.2
SST =
¸
T
2
i
n
i
−CM = 712.6
SSE = TSS −SST = 1, 196.6
Thus
ANOVA Table
Source of error df SS MS F p-value
Treatments 3 712.6 237.5 3.77
Error 19 1,196.6 63.0
Totals 22 1909.2
Confidence Intervals.
Estimate of the common variance:
s =

s
2
=

MSE =

SSE
n−t
CI for µ
i
:
T
i
±t
α/2,n−t
s

n
i
CI for µ
i
−µ
j
:
(T
i
−T
j
) ±t
α/2,n−t

s
2
(
1
n
i
+
1
n
j
)
MINITAB
MTB> aovoneway C1-C4.
Exercise. Produce a Minitab output for the above example.
92
3 The Randomized Block Design
Extends paired-difference design to more than two treatments.
A randomized block design consists of b blocks, each containing t experimental units.
The t treatments are randomly assigned to the units in each block, and each treatment
appears once in every block.
Example. A consumer preference study involving three different package designs (treat-
ments) was laid out in a randomized block design among four supermarkets (blocks).
The data shown in Table 1. below represent the number of units sold for each package
design within each supermarket during each of three given weeks.
(i) Provide a data summary.
(ii) Do the data present sufficient evidence to indicate a difference in the mean sales
for each package design (treatment)?
(iii) Do the data present sufficient evidence to indicate a difference in the mean sales
for the supermarkets?
weeks
w1 w2 w3
s1 (1) 17 (3) 23 (2) 34
s2 (3) 21 (1) 15 (2) 26
s3 (1) 1 (2) 23 (3) 8
s4 (2) 22 (1) 6 (3) 16
Remarks.
(i) In each supermarket (block) the first entry represents the design (treatment) and
the second entry represents the sales per week.
(ii) The three designs are assigned to each supermarket completely at random.
(iii) An alternate design would be to use 12 supermarkets. Each design (treatment)
would be randomly assigned to 4 supermarkets. In this case the difference in sales could
be due to more than just differences in package design. That is larger supermarkets
would be expected to have larger overall sales of the product than smaller supermarkets.
The randomized block design eliminates the store-to-store variability.
For computational purposes we rearrange the data so that
Data Summary. The treatment and block totals are
t = 3 treatments; b = 4 blocks
93
Treatments
t1 t2 t3 B
i
s1 17 34 23 B
1
s2 15 26 21 B
2
s3 1 23 8 B
3
s4 6 22 16 B
4
T
i
T
1
T
2
T
3
T
1
= 39, T
2
= 105, T
3
= 68
B
1
= 74, B
2
= 62, B
3
= 32, B
4
= 44
Calculations for the training example produce
CM = (
¸¸
x
ij
)
2
/n = 3, 745.33
TSS =
¸¸
x
2
ij
−CM = 940.67
SST =
¸
T
2
i
b
−CM = 547.17
SSB =
¸
B
2
i
t
−CM = 348.00
SSE = TSS −SST −SSB = 45.50
94
MINITAB.(Commands and Printouts)
MTB> Print C1-C3
ROW UNITS TRTS BLOCKS
1 17 1 1
2 34 2 1
3 23 3 1
4 15 1 2
5 26 2 2
6 21 3 2
7 1 1 3
8 23 2 3
9 8 3 3
10 6 1 4
11 22 2 4
12 16 3 4
MTB> ANOVA C1=C2 C3
ANOVA Table
Source of error df SS MS F p-value
Treatments 2 547.17 273.58 36.08 0.000
Blocks 3 348.00 116.00 15.30 0.003
Error 6 45.50 7.58
Totals 11 940.67
95
Solution to (ii)
Test.
H
0
: µ
1
= µ
2
= µ
3
H
a
: Not all means are equal
T.S. : F =
MST
MSE
= 36.09
where F is based on (t-1) and (n-t-b+1) df.
RR: Reject H
0
if F > F
α,t−1,n−t−b+1
i.e. Reject H
0
if F > F
0.05,2,6
= 5.14
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to indicate
a real difference in the mean sales for the three package designs.
Note that n −t −b + 1 = (t −1)(b −1).
Solution to (iii)
Test.
H
0
: Block means are equal
H
a
: Not all block means are equal (i.e. blocking is desirable)
T.S.: F =
MSB
MSE
= 15.30
where F is based on (b-1) and (n-t-b+1) df.
RR: Reject H
0
if F > F
α,b−1,n−t−b+1
i.e. Reject H
0
if F > F
0.005,3,6
= 12.92
Graph:
Decision: Reject H
0
Conclusion: At .5% significance level there is sufficient statistical evidence to indicate
a real difference in the mean sales for the four supermarkets, that is the data supports
our decision to use supermarkets as blocks.
Assumptions.
1. Sampled populations are normal
2. Dependent random samples due to blocking
3. All t populations have equal variances
Confidence Intervals.
Estimate of the common variance:
s =

s
2
=

MSE =

SSE
n−t−b+1
CI for µ
i
−µ
j
:
96
(T
i
−T
j
) ±t
α/2,n−t−b+1
s

2
b
Exercise. Construct a 90% C.I. for the difference between mean sales from package
designs 1 and 2.
97
Chapter 10
Simple Linear Regression and
Correlation
Contents.
1. Introduction: Example
2. A Simple Linear probabilistic model
3. Least squares prediction equation
4. Inferences concerning the slope
5. Estimating E(y|x) for a given x
6. Predicting y for a given x
7. Coefficient of correlation
8. Analysis of Variance
9. Computer Printouts
1 Introduction
Linear regression is a statistical technique used to predict (forecast) the value of a
variable from known related variables.
Example.( Ad Sales) Consider the problem of predicting the gross monthly sales volume
y for a corporation that is not subject to substantial seasonal variation in its sales volume.
For the predictor variable x we use the the amount spent by the company on advertising
during the month of interest. We wish to determine whether advertising is worthwhile,
that is whether advertising is actually related to the firm’s sales volume. In addition we
wish to use the amount spent on advertising to predict the sales volume. The data in the
table below represent a sample of advertising expenditures,x, and the associated sales
98
volume, y, for 10 randomly selected months.
Ad Sales Data
Month y(y$10,000) x(x$10,000)
1 101 1.2
2 92 0.8
3 110 1.0
4 120 1.3
5 90 0.7
6 82 0.8
7 93 1.0
8 75 0.6
9 91 0.9
10 105 1.1
Definitions.
(i) Response: dependent variable of interest (sales volume)
(ii) Independent (predictor) variable ( Ad expenditure)
(iii) Linear equations (straight line): y = a + bx
Scatter diagram:
Best fit straight line:
Equation of a straight line:
(y-intercept and slope)
2 A Simple Linear Probabilistic Model
Model.
Y = β
0
+ β
1
X +
where
x: independent variable (predictor)
y: dependent variable (response)
β
0
and β
1
are unknown parameters.
: random error due to other factors not included in the model.
Assumptions.
1. E() := µ

= 0.
2. V ar() := σ
2

= σ
2
.
99
3. The r.v. has a normal distribution with mean 0 and variance σ
2
.
4. The random components of any two observed y values are independent.
3 Least Squares Prediction Equation
The least squares prediction equation is sometimes called the estimated regression
equation or the prediction equation.
ˆ y =
ˆ
β
0
+
ˆ
β
1
x
This equation is obtained by using the method of least squares; that is
min
¸
(y − ˆ y)
2
Computational Formulas.
Objective: Estimate β
0
, β
1
and σ
2
.
x =
¸
x/n; y =
¸
y/n
SS
xx
=
¸
(x −x)
2
=
¸
x
2
−(
¸
x)
2
/n
SS
yy
=
¸
(y −y)
2
=
¸
y
2
−(
¸
y)
2
/n
SS
xy
=
¸
(x −x)(y −y) =
¸
xy −(
¸
x)(
¸
y)/n
ˆ
β
1
= SS
xy
/SS
xx
ˆ
β
0
= y −
ˆ
β
1
x.
To estimate σ
2
SSE = SS
yy

ˆ
β
1
SS
xy
= SS
yy
−(SS
xy
)
2
/SS
xx
.
s
2
=
SSE
n −2
Remarks.
(i)
ˆ
β
1
: is the slope of the estimated regression equation.
(ii) s
2
provides a measure of spread of points (x, y) around the regression line.
Ad Sales example
Question 1. Do a scatter diagram. Can you say that x and y are linearly related?
Answer.
Question 2. Use the computational formulas to provide a data summary.
100
Answer.
Data Summary.
x = 0.94; y = 95.9
SS
xx
= .444
SS
xy
= 23.34
SS
yy
= 1600.9
101
Optional material
Ad Sales Calculations
Month x y x
2
xy y
2
1 1.2 101 1.44 121.2 10,201
2 0.8 92 0.64 73.6 8,464
3 1.0 110 1.00 110.0 12,100
4 1.3 120 1.69 156.0 14,400
5 0.7 90 0.49 63.0 8,100
6 0.8 82 0.64 65.6 6,724
7 1.0 93 1.00 93.0 8,649
8 0.6 75 0.36 45.0 5,625
9 0.9 91 0.81 81.9 8,281
10 1.1 105 1.21 115.5 11,025
Sum
¸
x
¸
y
¸
x
2
¸
xy
¸
y
2
9.4 959 9.28 924.8 93,569
x = 0.94 y = 95.9
x =
¸
x/n = 0.94; y =
¸
y/n = 95.9
SS
xx
=
¸
x
2
−(
¸
x)
2
/n = 9.28 −
(9.4)
2
10
= .444
SS
xy
=
¸
xy −(
¸
x)(
¸
y)/n = 924.8 −
(9.4)(959)
10
= 23.34
SS
yy
=
¸
y
2
−(
¸
y)
2
/n = 93, 569 −
(959)
2
10
= 1600.9
102
Question 3. Estimate the parameters β
0
, and β
1
.
Answer.
ˆ
β
1
= SS
xy
/SS
xx
=
23.34
.444
= 52.5676 52.57
ˆ
β
0
= y −
ˆ
β
1
x = 95.9 −(52.5676)(.94) 46.49.
Question 4. Estimate σ
2
.
Answer.
SSE = SS
yy

ˆ
β
1
SS
xy
= 1, 600.9 −(52.5676)(23.34) = 373.97 .
Therefore
s
2
=
SSE
n −2
=
373.97
8
= 46.75
Question 5. Find the least squares line for the data.
Answer.
ˆ y =
ˆ
β
0
+
ˆ
β
1
x = 46.49 + 52.57x
Remark. This equation is also called the estimated regression equation or prediction
line.
Question 6. Predict sales volume, y, for a given expenditure level of $10, 000 (i.e.
x = 1.0).
Answer.
ˆ y = 46.49 + 52.57x = 46.49 + (52.57)(1.0) = 99.06.
So sales volume is $990, 600.
Question 7. Predict the mean sales volume E(y|x) for a given expenditure level of
$10, 000, x = 1.0.
Answer.
E(y|x) = 46.49 + 52.57x = 46.49 + (52.57)(1.0) = 99.06
so the mean sales volume is $990, 600.
Remark. In Question 6 and Question 7 we obtained the same estimate, the bound
on the error of estimation will, however, be different.
4 Inferences Concerning the Slope
Parameter of interest: β
1
Point estimator:
ˆ
β
1
103
Estimator mean: µ
ˆ
β
1
= β
1
Estimator standard error: σ
ˆ
β
1
= σ/

SS
xx
Test.
H
0
: β
1
= β
10
(no linear relationship)
H
a
: β
1
= β
10
(there is linear relationship)
T.S. :
t =
ˆ
β
1
−β
10
s/

SSxx
RR:
Reject H
0
if t > t
α/2,n−2
or t < −t
α/2,n−2
Graph:
Decision:
Conclusion:
Question 8. Determine whether there is evidence to indicate a linear relationship be-
tween advertising expenditure, x, and sales volume, y.
Answer.
Test.
H
0
: β
1
= 0 (no linear relationship)
H
a
: β
1
= 0 (there is linear relationship)
T.S. :
t =
ˆ
β
1
−0
s/

SSxx
=
52.57 −0
6.84/

.444
= 5.12
RR: ( critical value: t
.025,8
= 2.306)
Reject H
0
if t > 2.306 or t < −2.306
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to indicate
a linear relation ship between advertising expenditure, x, and sales volume, y.
Confidence interval for β
1
:
ˆ
β
1
±t
α/2,n−2
s

SSxx
Question 9. Find a 95% confidence interval for β
1
.
Answer.
104
ˆ
β
1
±t
α/2,n−2
s

SSxx
52.57 ±2.306
6.84

.444
52.57 ±23.57 = (28.90, 76.24)
5 Estimating E(y|x) For a Given x
The confidence interval (CI) for the expected (mean) value of y given x = x
p
is given
by
ˆ y ±t
α/2,n−2

s
2
[
1
n
+
(x
p
−x)
2
SS
xx
]
6 Predicting y for a Given x
The prediction interval (PI) for a particular value of y given x = x
p
is given by
ˆ y ±t
α/2,n−2

s
2
[1 +
1
n
+
(x
p
−x)
2
SS
xx
]
7 Coefficient of Correlation
In a previous section we tested for a linear relationship between x and y.
Now we examine how strong a linear relationship between x and y is.
We call this measure coefficient of correlation between y and x.
r =
SS
xy

SS
xx
SS
yy
Remarks.
(i) −1 ≤ r ≤ 1.
105
(ii) The population coefficient of correlation is ρ.
(iii) r > 0 indicates a positive correlation (
ˆ
β
1
> 0)
(iv) r < 0 indicates a negative correlation (
ˆ
β
1
< 0)
(v) r = 0 indicates no correlation (
ˆ
β
1
= 0)
Question 10. Find the coefficient of correlation, r.
Answer.
r =
SS
xy

SS
xx
SS
yy
=
23.34

0.444(1, 600.9)
= 0.88
Coefficient of determination
Algebraic manipulations show that
r
2
=
SS
yy
−SSE
SS
yy
Question 11. By what percentage is the sum of squares of deviations of y about the
mean (SS
yy
) is reduced by using ˆ y rather than y as a predictor of y?
Answer.
r
2
=
SS
yy
−SSE
SS
yy
= 0.88
2
= 0.77
r
2
= is called the coefficient of determination
8 Analysis of Variance
Notation:
TSS := SS
yy
=
¸
(y −y)
2
(Total SS of deviations).
SSR =
¸
(ˆ y −y)
2
(SS of deviations due to regression or explained deviations)
SSE =
¸
(y − ˆ y)
2
(SS of deviations for the error or unexplained deviations)
TSS = SSR+ SSE
Question 12. Give the ANOVA table for the AD sales example.
Answer.
Question 13. Use ANOVA table to test for a significant linear relationship between
sales and advertising expenditure.
106
ANOVA Table
Source df SS MS F p-value
Reg. 1 1,226.927 1,226.927 26.25 0.0001
Error 8 373.973 46.747
Totals 9 1,600.900
ANOVA Table
Source df SS MS F p-value
Reg. 1 SSR MSR=SSR/(1) MSR/MSE
Error n-2 SSE MSE=SSE/(n-2)
Totals n-1 TSS
Answer.
Test.
H
0
: β
1
= 0 (no linear relationship)
H
a
: β
1
= 0 (there is linear relationship)
T.S.: F =
MSR
MSE
= 26.25
RR: ( critical value: F
.005,1,8
= 14.69)
Reject H
0
if F > 14.69
(OR: Reject H
0
if α > p-value)
Graph:
Decision: Reject H
0
Conclusion: At 0.5% significance level there is sufficient statistical evidence to indicate
a linear relationship between advertising expenditure, x, and sales volume, y.
9 Computer Printouts for Regression Analysis
Store y in C1 and x in C2.
MTB> Plot C1 C2. : Gives a scatter diagram.
MTB> Regress C1 1 C2.
Computer output for Ad sales example:
More generally we obtain:
107
The regression equation is
y=46.5 + 52.6 x
Predictor Coef Stdev t-ratio P
Constant 46.486 9.885 4.70 0.000
x 52.57 10.26 5.12 0.000
s=6.837 R-sq=76.6% R-sq(adj)=73.7%
Analysis of Variance
Source df SS MS F p-value
Reg. 1 1,226.927 1,226.927 26.25 0.000
Error 8 373.973 46.747
Totals 9 1,600.900
Review Exercises: Linear Regression
Please show all work. No credit for a correct final answer without a valid argu-
ment. Use the formula, substitution, answer method whenever possible. Show your work
graphically in all relevant questions.
1. Given the following data set
x -3 -1 1 1 2
y 6 4 3 1 1
(i) Plot the scatter diagram, and indicate whether x and y appear linearly related.
(ii) Show that
¸
x = 0;
¸
y = 15;
¸
x
2
= 16;
¸
y
2
= 63; SS
xx
= 16; SS
yy
= 18; and
SS
xy
= −16.
(iii) Find the regression equation for the data. (Answer: ˆ y = 3 −x)
(iv) Plot the regression equation on the same graph as (i); Does the line appear to
provide a good fit for the data points?
(v) Compute SSE and s
2
. (Answer: s
2
= 2/3)
(vi) Estimate the expected value of y when x = −1
(vii) Find the correlation coefficient r and find r
2
. (Answer: r = −.943, r
2
= .889)
108
The regression equation is
y =
ˆ
β
0
+
ˆ
β
1
x
Predictor Coef Stdev t-ratio P
Constant
ˆ
β
0
σ
ˆ
β
0
TS: t p-value
x
ˆ
β
1
σ
ˆ
β
1
TS: t p-value
s =

MSE R −sq = r
2
R-sq(adj)
Analysis of Variance
Source df SS MS F p-value
Reg. 1 SSR MSR=SSR/(1) MSR/MSE
Error n-2 SSE MSE=SSE/(n-2)
Totals n-1 TSS
2. A study of middle to upper-level managers is undertaken to investigate the re-
lationship between salary level,Y , and years of work experience, X. A random sample
sample of 20 managers is chosen with the following results (in thousands of dollars):
¸
x
i
= 235;
¸
y
i
= 763.8; SS
xx
= 485.75; SS
yy
= 2, 236.1; and SS
xy
= 886.85. It is
further assumed that the relationship is linear.
(i) Find
ˆ
β
0
,
ˆ
β
1
, and the estimated regression equation.
(Answer: ˆ y = 16.73 + 1.826x)
(ii) Find the correlation coefficient, r.(Answer: r = .85)
(iii) Find r
2
and interpret it value.
3. The Regress Minitab’s command has been applied to data on family income, X,
and last year’s energy consumption, Y , from a random sample of 25 families. The income
data are in thousands of dollars and the energy consumption are in millions of BTU. A
portion of a linear regression computer printout is shown below.
Predictor Coef stdev t-ratio P
Constant 82.036 2.054 39.94 0.000
X 0.93051 0.05727 16.25 0.000
s= R-sq=92.0% R-sq(adj)=91.6%
Analysis of Variance
109
Source DF SS MS F P
Regression 7626.6 264.02 0.000
Error 23
Total 8291
(i) Complete all missing entries in the table.
(ii) Find
ˆ
β
0
,
ˆ
β
1
, and the estimated regression equation.
(iii) Do the data present sufficient evidence to indicate that Y and X are linearly
related? Test by using α = 0.01.
(iv) Determine a point estimate for last year’s mean energy consumption of all families
with an annual income of $40,000.
4. Answer by True of False . (Circle your choice).
T F (i) The correlation coefficient r shows the degree of association between x and y.
T F (ii) The coefficient of determination r
2
shows the percentage change in y resulting
form one-unit change in x.
T F (iii) The last step in a simple regression analysis is drawing a scatter diagram.
T F (iv) r = 1 implies no linear correlation between x and y.
T F (v) We always estimate the value of a parameter and predict the value of a
random variable.
T F (vi) If β
1
= 1, we always predict the same value of y regardless of the value of x.
T F (vii) It is necessary to assume that the response y of a probability model has a
normal distribution if we are to estimate the parameters β
0
, β
1
, and σ
2
.
110
Chapter 11
Multiple Linear Regression
Contents.
1. Introduction: Example
2. Multiple Linear Model
3. Analysis of Variance
4. Computer Printouts
1 Introduction: Example
Multiple linear regression is a statistical technique used predict (forecast) the value
of a variable from multiple known related variables.
2 A Multiple Linear Model
Model.
Y = β
0
+ β
1
X
1
+ β
2
X
2
+ β
3
X
3
+
where
x
i
: independent variables (predictors)
y: dependent variable (response)
β
i
: unknown parameters.
: random error due to other factors not included in the model.
Assumptions.
1. E() := µ

= 0.
2. V ar() := σ
2

= σ
2
.
3. has a normal distribution with mean 0 and variance σ
2
.
111
4. The random components of any two observed y values are independent.
3 Least Squares Prediction Equation
Estimated Regression Equation
ˆ y =
ˆ
β
0
+
ˆ
β
1
x
1
+
ˆ
β
2
x
2
+
ˆ
β
3
x
3
This equation is obtained by using the method of least squares
Multiple Regression Data
Obser. y x
1
x
2
x
3
1 y
1
x
11
x
21
x
31
2 y
2
x
12
x
22
x
32
· · · · · · · · · · · · · · ·
n y
n
x
1n
x
2n
x
3n
Minitab Printout
The regression equation is
y =
ˆ
β
0
+
ˆ
β
1
x
1
+
ˆ
β
2
x
2
+
ˆ
β
3
x
3
Predictor Coef Stdev t-ratio P
Constant
ˆ
β
0
σ
ˆ
β
0
TS: t p-value
x
1
ˆ
β
1
σ
ˆ
β
1
TS: t p-value
x
2
ˆ
β
2
σ
ˆ
β
2
TS: t p-value
x
3
ˆ
β
3
σ
ˆ
β
3
TS: t p-value
s =

MSE R
2
= r
2
R
2
(adj)
Analysis of Variance
Source df SS MS F p-value
Reg. 3 SSR MSR=SSR/(3) MSR/MSE
Error n −4 SSE MSE=SSE/(n-4)
Totals n −1 TSS
112
Source df SS
x
1
1 SSx
1
x
1
x
2
1 SSx
2
x
2
x
3
1 SSx
3
x
3
Unusual observations (ignore)
113
MINITAB.
Use REGRESS command to regress y stored in C1 on the 3 predictor variables stored
in C2 −C4.
MTB> Regress C1 3 C2-C4;
SUBC> Predict x1 x2 x3.
The subcommand PREDICT in Minitab, followed by fixed values of x
1
, x
2
, and x
3
calculates the estimated value of ˆ y (Fit), its estimated standard error (Stdev.Fit), a 95%
CI for E(y), and a 95% PI for y.
Example. A county assessor wishes to develop a model to relate the market value, y, of
single-family residences in a community to the variables:
x
1
: living area in thousands of square feet;
x
2
: number of floors;
x
3
: number of bedrooms;
x
4
: number of baths.
Observations were recorded for 29 randomly selected single-family homes from res-
idences recently sold at fair market value. The resulting prediction equation will then
be used for assessing the values of single family residences in the county to establish the
amount each homeowner owes in property taxes.
A Minitab printout is given below:
MTB> Regress C1 4 C2-C5;
SUBC> Predict 1.0 1 3 2;
SUBC> Predict 1.4 2 3 2.5.
The regression equation is
y = −16.6 + 7.84x
1
−34.4x
2
−7.99x
3
+ 54.9x
4
Predictor Coef. Stdev t-ratio P
Constant −16.58 18.88 −0.88 0.389
x
1
7.839 1.234 6.35 0.000
x
2
−34.39 11.15 −3.09 0.005
x
3
−7.990 8.249 −0.97 0.342
x
4
54.93 13.52 4.06 0.000
s = 16.58 R
2
= 88.2% R
2
(adj) = 86.2%
114
Analysis of Variance
Source df SS MS F p-value
Reg. 4 49359 12340 44.88 0.000
Error 24 6599 275
Totals 28 55958
Source df SS
x
1
1 44444
x
2
1 59
x
3
1 321
x
4
1 4536
Fit Stdev.Fit 95%C.I. 95%P.I.
113.32 5.80 (101.34, 125.30) (77.05, 149.59)
137.75 5.48 (126.44, 149.07) (101.70, 173.81)
115
Q1. What is the prediction equation ?
The regression equation is
y = −16.6 + 7.84x
1
−34.4x
2
−7.99x
3
+ 54.9x
4
Q2. What type of model has been chosen to fit the data?
Multiple linear regression model.
Q3. Do the data provide sufficient evidence to indicate that the model contributes
information for the prediction of y? Test using α = 0.05.
Test:
H
0
: model not useful
H
a
: model is useful
T.S. : p-value=0.000
DR. Reject H
0
if α > p −value
Graph:
Decision: Reject H
0
Conclusion: At 5% significance level there is sufficient statistical evidence to indicate
that the model contributes information for the prediction of y.
Q4. Give a 95% CI for E(y) and PI for y when x
1
= 10, x
2
= 1, x
3
= 3, and x
4
= 2.
CI: (101.34, 125.30)
PI: (77.05, 149.59)
Non-Linear Models
Example.
ˆ y =
ˆ
β
0
+
ˆ
β
1
x
1
+
ˆ
β
2
x
2
+
ˆ
β
3
x
2
1
x
2
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MBA 604, Spring 2003 MBA 604 Introduction to Probability and Statistics Course Content. Topic 1: Data Analysis Topic 2: Probability Topic 3: Random Variables and Discrete Distributions Topic 4: Continuous Probability Distributions Topic 5: Sampling Distributions Topic 6: Point and Interval Estimation Topic 7: Large Sample Estimation Topic 8: Large-Sample Tests of Hypothesis Topic 9: Inferences From Small Sample Topic 10: The Analysis of Variance Topic 11: Simple Linear Regression and Correlation Topic 12: Multiple Linear Regression

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Contents
1 Data Analysis 1 Introduction . . . . . . . . . 2 Graphical Methods . . . . . 3 Numerical methods . . . . . 4 Percentiles . . . . . . . . . . 5 Sample Mean and Variance For Grouped Data . . . . . 6 z-score . . . . . . . . . . . . 2 Probability 1 Sample Space and Events 2 Probability of an event . . 3 Laws of Probability . . . . 4 Counting Sample Points . 5 Random Sampling . . . . 6 Modeling Uncertainty . . . 5 5 7 9 16 17 17 22 22 23 25 28 30 30 35 35 37 38 40 48 48 48 51 52

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3 Discrete Random Variables 1 Random Variables . . . . . . . 2 Expected Value and Variance 3 Discrete Distributions . . . . . 4 Markov Chains . . . . . . . . 4 Continuous Distributions 1 Introduction . . . . . . . 2 The Normal Distribution 3 Uniform: U[a,b] . . . . . 4 Exponential . . . . . . .

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. . . . . . . . . . . . . . . . . . . . . . 2 Student’s t Distribution . . . . 7 Reporting Results of Statistical Tests: P-Value . . . . . . . . . . . . . . . 3 Small-Sample Inferences About a Population Mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 56 56 61 61 62 62 64 66 67 70 70 71 72 73 74 75 77 79 79 79 80 81 84 86 87 89 89 90 93 . . . . . . . . . . 8 Small-Sample Tests of Hypothesis 1 Introduction . . . . . . . . . . . . . . . . . . . . .5 Sampling Distributions 1 The Central Limit Theorem (CLT) . . 3 The Randomized Block Design . . . . . . . . . . . 7 Large-Sample Tests of Hypothesis 1 Elements of a Statistical Test . . 5 Two Quantitative Populations . . . . . . . . . . . . 9 Analysis of Variance 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Inferences About a Population Variance . . . . . . . . . . . . . . . . . . . . . 6 Two Binomial Populations . . . . . . 6 Large Sample Estimation 1 Introduction . . . . . . . . . . . . 2 Sampling Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Point Estimators and Their Properties 3 Single Quantitative Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Testing a Population Mean . . . . . . . . . . . . . . . 5 Comparing Two Population Means . . . . . . . . . 5 Small-Sample Inferences About the Difference Between Two Means: Paired Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Single Binomial Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Testing a Population Proportion . . . . . . . . . . . . . . . . . . . . . 2 One Way ANOVA: Completely Randomized Experimental Design . . . . . . . . . . . 7 Comparing Two Population Variances . . . . . . . . . . . . . . . 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Small-Sample Inferences About the Difference Between Two Means: Independent Samples . . . . . . . . 6 Comparing Two Population Proportions . . . . . 2 A Large-Sample Statistical Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . 5 Estimating E(y|x) For a Given x . . . . 98 98 99 100 103 105 105 105 106 107 111 111 111 112 11 Multiple Linear Regression 1 Introduction: Example . . . . . . . . . . . . . . . . . . . . . . 6 Predicting y for a Given x . . . . . . . . . . 7 Coefficient of Correlation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Least Squares Prediction Equation . . . . . . . . . . . . . . . . . . . . 2 A Simple Linear Probabilistic Model . . .10 Simple Linear Regression and Correlation 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Least Squares Prediction Equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 . . . . . . 9 Computer Printouts for Regression Analysis . . 2 A Multiple Linear Model . . . . . . . . . . . . . . . . . . . . . . . . . 8 Analysis of Variance . . . . . . . . . . . . . . . . . . . . . . 4 Inferences Concerning the Slope . . . . . . . . . . . .

5 . Is there any relationship between your GPA and employment opportunities. or possible side effects. How fuel efficient a certain car model is? 4. what are your chances of passing? 6. Introduction Statistical Problems Descriptive Statistics Graphical Methods Frequency Distributions (Histograms) Other Methods Numerical methods Measures of Central Tendency Measures of Variability Empirical Rule Percentiles 1 Introduction Statistical Problems 1. A market analyst wants to know the effectiveness of a new diet. What is the effect of package designs on sales.F) (or multiple choice) examination completely randomly. 3. 5. 2. A pharmaceutical Co. If you answer all questions on a (T. wants to know if a new drug is superior to already existing drugs.Chapter 1 Data Analysis Chapter Content.

height.g. Objective. Inferential Statistics: deals with procedures used to make inferences (predictions) about a population parameter from information contained in a sample.7.g. (ii) a design of the experiment or sampling procedure. major. times to assemble a product) Information: Any aquired data ( e. (iii) Collection and analysis of data (gathering and summarizing data). Definitions Probability: A game of chance Statistics: Branch of science that deals with data analysis Course objective: To make decisions in the prescence of uncertainty Terminology Data: Any recorded event (e. How many individuals you need to sample for your inferences to be acceptable? What is meant by the margin of error? 8.g. How to pick the stocks to invest in? I. How to interpret polls. decisions) about certain characteristics of a population based on information contained in a sample. (better statement) To make inferences (predictions. all freshman students at the university) Sample: A subset of measurements selected from the population of interest Variable: A property of an individual population unit (e. What is the effect of market strategy on market share? 9. A collection of numbers (data)) Knowledge: Useful data Population: set of all measurements of interest (e. Types of data: qualitative vs quantitative OR discrete vs continuous Descriptive statistics Graphical vs numerical methods 6 . (v) A measure of “goodness” or reliability for the procedure. weight of freshman students) Descriptive Statistics: deals with procedures used to summarize the information contained in a set of measurements.g. (iv) Procedure for making predictions about the population based on sample information. Elements of a statistical problem: (i) A clear definition of the population and variable of interest. all registered voters.

f 1 5.9 28.0-9.8 13. (Most of the time between 7 and 13.4 14.03 6 25.20) 7/25 (.0-17.4 12.05 3 13.7 16.6 18.3 19.0-21.00 Let k = # of classes max = largest measurement min = smallest measurement n = sample size w = class width Rule of thumb: -The number of classes chosen is usually between 5 and 20.8 22.03 2 9.0-29.12) 1/25 (.2 20. freq.5 15.8 15.4 16.1 Loss 15.5 19.6 9.0-13. 7 .04) 1.3 8.2 12.9 7. Method: Construct a statistical graph called a “histogram” (or frequency distribution) Weight Loss Data class boundtally class aries freq.2 Graphical Methods Frequency and relative frequency distributions (Histograms): Example Weight 20.0 1 Totals 25 rel.6 5. f /n 3/25 (.07 4 17.0-25.8 9.12) 5/25 (.06 5 21.1 17.24) 3/25 (.4 23.28) 6/25 (.9 Objective: Provide a useful summary of the available information.8 Data 24.) -The more data one has the larger is the number of classes.0 11.

6−5. Proceed as above Possible shapes of frequency distributions 1.Pie-Charts .3log10 (n). easiest to handle .Line Charts . k w= Note: w = 28.4 6 = 3. Exponential 3. Steps in Constructing a Frequency Distribution (Histogram) 1.0 (why?) 6 Graphs: Graph the frequency and relative frequency distributions.It lends itself easily to more in depth analysis Other Graphical Methods -Statistical Table: Comparing different populations . Poisson (discrete variables) Important -The normal distribution is the most popular. Normal distribution (Bell shape) 2. most useful. Determine the number of classes 2. Exercise.87.Formulas: k = 1 + 3. Comment on the usefulness of each including k = 6.Cheating with Charts 8 .Bar Charts . Binomial. Locate class boundaries 4. Determine the class width 3. Uniform 4. But we used w = 29−5 = 4.It occurs naturally in practical applications . Repeat the above example using 12 and 4 classes respectively. max − min .

21. I.5 6 2. Sample Mean (arithmetic average) x = x = x1 +x2 +···+xn n x n or Example 1: Given a sample of 5 test grades (90. 3. Note: If n is odd. the median is the middle number 9 . Measures of Central Tendency Given a sample of measurements (x1 . 95. x2 . 29. · · · .3 Numerical methods Measures of Central Tendency 1. 60. xn ) where n = sample size xi = value of the ith observation in the sample 1. 4. Sample mode Measures of Dispersion (Variability) Range Mean Absolute Deviation (MAD) Sample Variance Sample Standard Deviation 1. 18. 22. Sample Median The median of a sample (data set) is the middle number when the measurements are arranged in ascending order. 19) x = 20 + 18 + 22 + 29 + 21 + 19 = 129 x x = n = 129 = 21. 80. 5 Example 2: Let x = age of a randomly selected student sample: (20. 75) then x = 90 + 95 + 80 + 60 + 75 = 400 x x = n = 400 = 80. Sample mean 2. 2. Sample median 3.

n = 5 Step 1: arrange in ascending order 2. 3. 2. Mode The mode is the value of x (observation) that occurs with the greatest frequency. 14). Example 2: Sample (9. 6. 11. 2. 9. 11. 7. Example 1: Sample (9. 2. 11. 11. 7. Example: Sample: (9. 2 Remarks: (i) x is sensitive to extreme values (ii) the median is insensitive to extreme values (because median is a measure of location or position). 14. 2. mode = 7 10 . n = 6 Step 1: 2. 7). 14 Step 2: med = 7+9 = 8. 7.If n is even. 11. 6. 14). 7. the median is the average of the middle two numbers. 14 Step 2: med = 9. 9. 7. 7.

median and mode on relative frequency distribution. 11 .Effect of x.

x2 . Range: Range = largest measurement . s2 s2 = 4.II. · · · . Measures of Variability Given: a sample of size n sample: (x1 . xn ) 1. 95) Range = max . Sample Variance. n 6 x = 80 n |x − x| n Remarks: (i) MAD is a good measure of variability (ii) It is difficult for mathematical manipulations 3. s (x − x)2 n−1 12 . Mean Absolute Difference (MAD) (not in textbook) MAD = Example 2: Same sample x= x x − x |x − x| 90 10 10 85 5 5 65 -15 15 75 -5 5 70 -10 10 95 15 15 Totals 480 0 60 MAD = 60 |x − x| = = 10. 65. 85.smallest measurement or Range = max . 75. Sample Standard Deviation.min = 95-65 = 30 2. 70.min Example 1: Sample (90.

2 (or s = Example: Same sample 13 .83 Shortcut Formula for Calculating s2 and s s2 = ( x) x2 − n n−1 2 s= ( x) x2 − n n−1 √ s2 ).s = or s = √ s2 (x−x)2 n−1 Example: Same sample as before (x = 80) x x − x (x − x)2 90 10 100 85 5 25 65 -15 225 75 -5 25 70 -10 100 95 15 225 Totals 480 0 700 Therefore x= s2 = 480 x = = 80 n 6 700 (x − x)2 = = 140 n−1 5 √ √ s = s2 = 140 = 11.

· · · . x2 . s = 2 2 ( x) n 2 2 Numerical methods(Summary) Data: {x1 . xn } (i) Measures of central tendency Sample mean: x = n i Sample median: the middle number when the measurements are arranged in ascending order Sample mode: most frequently occurring value (ii) Measures of variability Range: r = max − min √ Sample standard deviation: s= s2 Exercise: Find all the measures of central tendency and measures of variability for the weight loss example. 400 700 = = = 140 5 5 √ √ s2 = 140 = 11. 100 − 38. · · · .x x2 90 8100 85 7225 65 4225 75 5625 70 4900 95 9025 Totals 480 39. Data: {x1 . x2 .100 x − 39. xN } Population mean: µ = Population variance: xi N x Sample Variance: s2 = (xi −x)2 n−1 σ2 = (xi − µ)2 N 14 . Graphical Interpretation of the Variance: Finite Populations Let N = population size.83. 100 − (480) 6 s = = n−1 5 39.

e. σ. 93) contains at least 99% (almost all) of the observations Comments. s = 6. and a set of measurements x1 . i. . . (x − s. 81) contains approximately 68% of the observations (ii) (63. s = 6. The frequency distribution is known to be normal (bell shaped). Then (i) approximately 68% of the measurements lie within one standard deviations of their sample mean. 81] (ii) (k = 2): at least 75% of all grades lie in [63. Population parameters: µ. (x − 3s. i. x + ks). x + 3s) Example A data set has x = 75. x2 . x2 . .e. i. at least (1 − k12 ) of the measurements lie within k standard deviations of their sample mean. Sample statistics: x. . Restated. Then (i) (k = 1): at least 0% of all grades lie in [69. 87] (iii) (k = 3): at least 88% of all grades lie in [57. i. s. . xn . 93] (iv) (k = 4): at least ?% of all grades lie in [?. x + s) (ii) approximately 95% of the measurements lie within two standard deviations of their sample mean. Practical Significance of the standard deviation Chebyshev’s Inequality. (x − 2s. . ?] (v) (k = 5): at least ?% of all grades lie in [?. Example. 87) contains approximately 95% of the observations (iii) (57. σ 2 . At least (1 − k12 ) observations lie in the interval (x − ks. xn . Given a set of measurements x1 . s2 . Empirical rule. x + 2s) (iii) at least (almost all) 99% of the measurements lie within three standard deviations of their sample mean.e. . Can you improve the estimates in Chebyshev’s Inequality. A set of grades has x = 75.e. that is bell shaped.Population standard deviation: σ = √ σ 2 . ?] Suppose that you are told that the frequency distribution is bell shaped. (Regardless of the shape of frequency distribution) Given a number k ≥ 1. (xi − µ)2 N σ= Population parameters vs sample statistics. Then (i) (69. (i) Empirical rule works better if sample size is large (ii) In your calculations always keep 6 significant digits 15 . .

(S1) position = . 17.25(8 − 5) = 5 + . .5 3. .) = 4 Percentiles Using percentiles is useful if data is badly skewed.7(8 − 5) = 5 + 2.(iii) Approximation: s range 4 s x (iv) Coefficient of variation (c.7 (S2) 30th percentile = 5 + . Median (50th percentile) Example.5(11 − 10) = 10. Upper Quartile (75th percentile) Example.v. 14. (i) Find the 30th percentile. . .3(n + 1) = .75(n + 1) = . (S1) position = . (S1) position = . 1.25 Interquartiles.25 (S2) Q1 = 5 + . The pth percentile is a number x such that p% of all measurements fall below the pth percentile and (100 − p)% fall above it.75 (S2) Q3 = 14 + . xn be a set of measurements arranged in increasing order. Let 0 < p < 100. (S1) position = .1 Special Cases. Find the interquartile (IQ) in the above example. x2 . Let x1 .5(n + 1) = .75 = 5. 16 . 10. Example. Data: 2. Definition.1 = 7. 11. IQ = Q3 − Q1 Exercise. 8.5(9) = 4.25(n + 1) = .75(9) = 6. Lower Quartile (25th percentile) Example. Solution. 20.75 2.5 (S2) median: Q2 = 10 + .3(9) = 2.25(9) = 2.75(17 − 14) = 16. 5.

023 3 6 25.0-21. xg = xf n s2 = g x2 f − ( xf )2 /n n−1 where the summation is over the number of classes k.166 1.0-9.0-29.0 27 1 Totals 25 Example: (weight loss data) x2 f 147 605 1.0-17.0-25. freq.015 7 4 17. The population z-score for a measurement x is 17 .0-13.809 xf 21 55 105 114 69 27 391 Let k = number of classes. x f 1 5. Compare with the raw data results. sample variance and sample standard deviation of the grouped data in the weight loss example. Formulas.587 729 6. The sample z-score for a measurement x is z= x−x s 2.019 6 5 21. Exercise: Use the grouped data formulas to calculate the sample mean.5 Sample Mean and Variance For Grouped Data Weight Loss Data class boundaries mid-pt.575 2.07 3 2 9.011 5 3 13. 6 z-score 1.

84 .84 . 1. above (below) the mean your score is)? Answer.92 1. s. (iii) Using k = 7 classes. Show your work graphically in all relevant questions.93 . these data represent the early morning readings for the 25 days sampled. (i. (Fluoride Problem) The regulation board of health in a particular state specify that the fluoride level must not exceed 1.81 . Although fluoride levels are measured more than once per day.05 . What is your relative standing. substitution.89 . (iv) Locate class boundaries (v) Construct the frequency and relative frequency distributions for the data.z= x−µ σ Example.83 .85 . A set of grades has x = 75.82 . answer method whenever possible. w. Suppose your score is 85.86 .85 . No credit for a correct final answer without a valid argument. Use the formula.0803.78 .94 .66 z= s 6 standard deviations above average.5 ppm (parts per million). .0065.8588.79 (i) Show that x = .e. of each class interval. s = . 18 .76 . (ii) Find the range. how many standard deviations. find the width.97 .97 .89 . R.88 . Review Exercises: Data Analysis Please show all work.71 .83 .94 . The 25 measurements below represent the fluoride level for a sample of 25 days. 85 − 75 x−x = = 1. s = 6.75 .77 . s2 = .

(Vertical axis must be clearly labeled) 2.5. 15. 2.class frequency . (ii) Find the sample median. 16. 24. 5. mode =5 range = 7. 4. (viii) Find the sample standard deviation. (v) Find the mean absolute difference. class frequency.80. ss . Grades for 50 students from a previous MAT test are summarized below.90-. 5) (i) Find the sample mean. s = 2. med =5.85. (vii) Find the sample variance using the short-cut formula.90. 8. (iv) Find the sample range.95. Given the following data set (weight loss per week) (9.588. (vi) Find the sample variance using the defining formula. (ix) Find the first and third quartiles. (x) Repeat (i)-(ix) for the data set (21. 6. Answers: x = 5. Q1 and Q3 .75. (iii) Find the sample mode. 24). Q − 3 = 8.001.00-1.05 Totals relative frequency (vi) Graph the frequency and relative frequency distributions and state your conclusions. MAD=2.80-.85-. f xf x2 f 40 -504 50 -606 60-7010 70-8015 80-9010 90-100 5 Totals 19 . 3.75-.25.70-.7.95-1.

Answers: Σxf = 21. s2 = 196. Σx2 f = 18. (Circle your choice). Assume the standard deviation is known to be 4 and that the frequency distribution is known to be bell-shaped. 250.475. (i) Approximately what percentage of measurements fall in the interval (22. sg = . 5. 20 .58.6% of measurements. ∞) 7. µ + 2σ) (iii) Find the interval around the mean that contains 68% of measurements (iv)Find the interval around the mean that contains 95% of measurements 6.(i) Complete all entries in the table. (4 pts. (Vertical axis must be clearly labeled) (iii) Find the sample mean for the grouped data (iv) Find the sample variance and standard deviation for the grouped data. T F (ii) The mean is insensitive to extreme values. s = 14. (i) Find the sample mean and standard deviation for the raw data. (iii) Compare the answers in (i) and (ii). (ii) Graph the frequency distribution. (ii) find the percentage of measurements fall in the interval (µ + 2σ. xg =. Suppose that the relative frequency distribution is bell-shaped. Σx2 f = 270. 34) (ii) Approximately what percentage of measurements fall in the interval (µ. x = 72. Refer to the data in the fluoride problem. 4. T F (v) Numerical descriptive measures computed from sample measurements are called parameters.0745. (ii) Find the sample mean and standard deviation for the grouped data. Suppose that the mean of a population is 30. Answers: Σxf = 3610. T F (iv) The variance is equal to the square of the standard deviation. T F (vi) The number of students attending a Mathematics lecture on any given day is a discrete variable. T F (i) The median is insensitive to extreme values. Using the empirical rule (i) find the interval around the mean that contains 99.2. the mean is larger than the median. T F (iii) For a positively skewed frequency distribution. Refer to the raw data in the fluoride problem.) Answer by True of False .

T F (viii) Although we may have a large mass of data. statistical techniques allow us to adequately describe and summarize the data with an average. T F (x) A statistic is a number that describes a population characteristic. 21 . T F (xi) A parameter is a number that describes a sample characteristic. T F (ix) A sample is a subset of the population. T F (xii) A population is a subset of the sample. T F (xiii) A population is the complete collection of items under study.T F (vii) The median is a better measure of central tendency than the mean when a distribution is badly skewed.

throw a die. counting arrivals at emergency room.Chapter 2 Probability Contents. inspecting an assembly line. Population: Set of all possible observations. Outcome of an experiment: Elementary event (simple event): one possible outcome of an experiment Event (Compound event): One or more possible outcomes of a random experiment Sample space: the set of all sample points (simple events) for an experiment is called a sample space. a population could be generated by repeating an experiment indefinitely. Sample space : S 22 . or set of all possible outcomes for an experiment Notation. Conceptually. Sample Space and Events Probability of an Event Equally Likely Outcomes Conditional Probability and Independence Laws of Probability Counting Sample Points Random Sampling 1 Sample Space and Events Definitions Random experiment: involves obtaining observations of some kind Examples Toss of a coin. etc. polling.

the probability of A is P (A) Interpretation n = # of trials of an experiment nA n 23 . C. 3. is the event containing all sample points that are both in A and B. Let A = {E1 . B = {E1 . n. E5 . E6 }.Sample point: E1 . . Example Suppose S = {E1 . E3 . is the event containing all sample points in either A or B or both. (any capital letter). 3. Sometimes we use AB or AandB for intersection. More definitions Union. . The intersection of A and B. Venn diagram: Example. . E4 . . E2 . . We may think of S as representation of possible outcomes of a throw of a die. E3 . E3 }. Sometimes we use notA or A for complement. (i. The union of A and B. etc. Intersection and Complementation Given A and B two events in a sample space S. E2 . That is S = {1. B. 5. . . . A ∪ B. E2 . E5 }. Then (i)A ∪ B = {E1 . 2. D. Sometimes we use AorB for union. The complement of A. . E3 }. 4. E etc.e. (iv) A and B are not mutually exclusive (why?) (v) Give two events in S that are mutually exclusive. E6 }. 1. 2. of times and the event A is observed nA times. E6 }. E2 . Mutually Exclusive Events (Disjoint Events) Two events are said to be mutually exclusive (or disjoint) if their intersection is empty. is the event containing all sample points that are not in A. S = {E1 . 6}. (ii) AB = {E1 . (iii) Ac = {E2 . Event: A. E5 }. B c = {E4 . E6 }. . . 2 Probability of an event Relative Frequency Definition If an experiment is repeated a large number. Ac . E2 . A ∩ B = φ). A ∩ B.

. E10 }. 9 and P (E10 ) = 2/20. List all simple events 3. . E2 . Definition The probability of any event A is equal to the sum of the probabilities of the sample points in A. S where the summation is over all sample points in S. . A: P (A) = P (E6 ) + P (E7 ) + P (E8 ) + P (E9 ) + P (E10 ) = 1/20 + 1/5 + 1/5 + 1/5 + 1/10 = 0.nA = frequency of the event A nA = relative frequency of A n P (A) nA n if n is large enough. Example. Assign probabilities to simple events 4. . We refer to P (Ei ) as the probability of the Ei . i ≥ 6}. .. 6 and P (Ei ) = 1/5. Determine the simple events that constitute an event 5. . Add up the simple events’ probabilities to obtain the probability of the event 24 . Define the experiment 2. In tabular form.75 Steps in calculating probabilities of events 1. 8. . i = 1.) Conceptual Definition of Probability Consider a random experiment whose sample space is S with sample points E1 . P (A) = limn→∞ nn . . i = 7. . . . we have Ei p(Ei ) E1 E2 E3 E4 E5 E6 E7 E8 E9 E10 1/20 1/20 1/20 1/20 1/20 1/20 1/5 1/5 1/5 1/10 Question: Calculate P (A) where A = {Ei . . Let S = {E1 . For each event Ei of the sample space S define a number P (E) that satisfies the following three conditions: (i) 0 ≤ P (Ei ) ≤ 1 for all i (ii) P (S) = 1 (iii) (Additive property) P (Ei ) = 1. A (In fact. It is known that P (Ei) = 1/20.

P(T)=. (iii) In some cases probabilities can be a measure of belief (subjective probability). S = {HH. T T } A = {HT. (ii) At the conceptual level we assign probabilities to events. T H. . Toss a fair coin 3 times. (iv) Typically. T H} P (A) = 0.5. for any event A P (A) = sample points in A #(A) NA = = N sample points in S #(S) where N is the number of the sample points in S and NA is the number of the sample points in A. at most one head. should make sense. (i) List all the sample points in the sample space Solution: S = {HHH. P(H)=.g. Example. (e.5 in a toss of a fair coin). Equally Likely Outcomes The equally likely probability P defined on a finite sample space S = {E1 . .5 Interpretations of Probability (i) In real world applications one observes (measures) relative frequencies. . however. assigns the same probability P (Ei ) = 1/N for all Ei . The assignment. Then P (A ∩ B) P (A|B) = P (B) 25 . then use the laws of probability to calculate the probabilities of compound events. In this case. . · · · T T T } (Complete this) (ii) Find the probability of observing exactly two heads. This measure of belief should however satisfy the axioms. we would like to assign probabilities to simple events directly. Solution.Example Calculate the probability of observing one H in a toss of two fair coins. HT. 3 Laws of Probability Conditional Probability The conditional probability of the event A given that event B has occurred is denoted by P (A|B). one cannot measure probabilities. one can estimate probabilities. However. EN }.

(i) If A and B are independent. if A and B are independent P (AB) = P (A)P (B) Example Let S = {E1 . E2 . .D = {E6 }. E6 }. then P (A|B) = P (A) and P (B|A) = P (B). E5 }. (i) What does it mean that all elementary events are equally likely? (ii) Use the complementation rule to find P (Ac ). (i) Two events A and B are said to be independent if P (A ∩ B) = P (A)P (B). (ii) If A is independent of B then B is independent of A. E4 . Remarks. E3 . . B = {E1 . E6 }. P (B|A) = P (A ∩ B) P (A) Independent Events Definitions. if A and B are mutually exclusive. A = {E1 . . (ii) Two events A and B that are not independent are said to be dependent. E2 . E3 }.provided P (B) > 0. then P (AB) = 0 and P (A ∪ B) = P (A) + P (B) Multiplicative law (Product rule) P (A ∩ B) = P (A|B)P (B) = P (B|A)P (A) Moreover. Suppose that all elementary events are equally likely. (iii) Find P (A|B) and P (B|A) (iv) Find P (D) and P (D|C) 26 . . Similarly. C = {E2 . Probability Laws Complementation law: P (A) = 1 − P (Ac ) Additive law: P (A ∪ B) = P (A) + P (B) − P (A ∩ B) Moreover.

present. what is the probability a person has the disease given that the test result is positive? Solution Let D be the event that the tested person has the disease and E the event that the test result is positive. Law of total probability Let the B.005) (.95)(. (ii) Bayes’ Law is important in several fields of applications.323. the test also yields a “false positive” results for 1 percent of healthy persons tested. A laboratory blood test is 95 percent effective in detecting a certain disease when it is. B c be complementary events and let A denote an arbitrary event.01. P (D|E) = = = = 27 . Then P (B|A) = P (AB) P (A|B)P (B) = . with probability 0. Bayes’ Law Let the B.01)(. then. in fact.005) + (. Then P (A) = P (A ∩ B) + P (A ∩ B c ) . or P (A) = P (A|B)P (B) + P (A|B c )P (B c ). P (A) P (A|B)P (B) + P (A|B c )P (B c ) Remarks.95)(. However. the test result will imply he or she has the disease. Example 1.(v) Are A and B independent? Are C and D independent? (vi) Find P (A ∩ B) and P (A ∪ B). B c .995) 95 294 . (i) The events of interest here are B. The desired probability P (D|E) is obtained by P (D ∩ E) P (E) P (E|D)P (D) P (E|D)P (D) + P (E|D c )P (D c) (. and (ii) P (B|A) and P (B c |A) are called posterior (revised) probabilities. (That is.) If 0. P (B) and P (B c ) are called prior probabilities. B c be complementary events and let A denote an arbitrary event.5 percent of the population actually has the disease. if a healthy person is tested.

Then if experiment 1 can result in any one of m possible outcomes and if. Probabilities in Tabulated Form 4 Counting Sample Points Is it always necessary to list all sample points in S? Coins 1 3 5 10 30 50 Coin Tosses sample-points Coins sample-points 2 2 4 8 4 16 32 6 64 1024 20 1.Thus only 32 percent of those persons whose test results are positive actually have the disease. there are n possible outcomes of experiment 2. Generalized basic principle of counting 28 . for each outcome of experiment 1. Examples. each of whom has 3 sons. 250 1015 = one trillion. nA where n and nA are the number of points in S and A respectively. from the basic principle. we see. then together there are mn possible outcomes of the two experiments. Basic principle of counting: mn rule Suppose that two experiments are to be performed. 240 1012 = one thousand billion. (i) Toss two coins: mn = 2 × 2 = 4 (ii) Throw two dice: mn = 6 × 6 = 36 (iii) A small community consists of 10 men. A RECALL: P (A) = nn . so for some applications we need to find n.576 9 10 40 1012 15 10 64 1019 Note that 230 109 = one billion. If one man and one of his sons are to be chosen as father and son of the year. that there are 10 × 3 = 30 possible choices. how many different choices are possible? Solution: Let the choice of the man as the outcome of the first experiment and the subsequent choice of one of his sons as the outcome of the second experiment.048.

and if. (ii) A box contains 10 balls. 7! 29 . then there are a total of n1 · n2 · · · nr possible outcomes of the r experiments. 760. Permutations: (Ordered arrangements) The number of ways of ordering n distinct objects taken r at a time (order is important) is given by n! = n(n − 1)(n − 2) · · · (n − r + 1) (n − r)! Examples (i) In how many ways can you arrange the letters a. In how many different ways can you select 3 balls? Solution: Note that n = 10. and if for each of these n1 possible outcomes there are n2 possible outcomes of the second experiment. 4 sophomores. 000 possible license plates. Balls are selected without replacement one at a time. is to be chosen. how many license plates would be possible if repetition among letters or numbers were prohibited? Solution: In this case there would be 26 · 25 · 24 · 10 · 9 · 8 · 7 = 78. and 7 between C and D. A subcommittee of 4. (ii) A college planning committee consists of 3 freshmen.If r experiments that are to be performed are such that the first one may result in any of n1 possible outcomes. consisting of 1 individual from each class. .4. and 2 seniors. . What is the total number of available routes between A and D? Solution: The total number of available routes is mnt = 5. . b and c.7 = 140. r = 3. 4 between B and C. How many different subcommittees are possible? Solution: It follows from the generalized principle of counting that there are 3·4·5·2 = 120 possible subcommittees. Number of different ways is 10 · 9 · 8 = 10! = 720. 000 possible license plates. and if for each of the possible outcomes of the first two experiments there are n3 possible outcomes of the third experiment. (iii) How many different 7−place license plates are possible if the first 3 places are to be occupied by letters and the final 4 by numbers? Solution: It follows from the generalized principle of counting that there are 26 · 26 · 26 · 10 · 10 · 10 · 10 = 175. Answer: There are 3! = 6 arrangements or permutations. 5 juniors. 624. List all arrangements. Examples (i) There are 5 routes available between A and B. (iv) In (iii)..

6 Modeling Uncertainty The purpose of modeling uncertainty (randomness) is to discover the laws of change. 475. how many different committees consisting of 2 men and 3 women can be formed? Solution: 5 7 = 350 possible committees. the laws governing the change may themselves remain fixed as time passes. (n−r)! Combinations For r ≤ n. For instance = 20. (ii) From a group of 5 men and 7 women. Consider a chance experiment: Toss of a coin. (i) If n is large. 2 3 5 Random Sampling Definition. Remarks. (iii) Tables of random numbers may be used to select random samples.18 3.2. we define n! n = r (n − r)!r! and say that n r represents the number of possible combinations of n objects taken r at a time (with no regard to order). Concept of Probability.1 = 1140 possible committees. we say the random sample provides an honest representation of the population. 30 .19. A sample of size n is said to be a random sample if the n elements are selected in such a way that every possible combination of n elements has an equal probability of being selected. Examples (i) A committee of 3 is to be formed from a group of 20 people. Example. 1. (ii) For finite populations the number of possible samples of size n is the number of possible samples when N = 28 and n = 4 is 28 4 N n . How many different committees are possible? Solution: There are 20 3 = 20! 3!17! = 20.(which is equal to n! ). Even though probability (chance) involves the notion of change. In this case the sampling process is called simple random sampling.

A fair die is tossed for a very large number of times. Now.5)3 = 0. C. Use the Binomial law to show that P (2Heads) = 5 (0. It was observed that face 6 appeared 1. Estimate how many times the die is tossed. Answer. Show your work graphically in all relevant questions. approximately).Probabilistic Law.5 exactly. D.5)3 2 5! (0. 9000 times. B. it works ( i.e.3125 = 2!3! Conclusion.e. (Theory versus Application) (i) Theory is an exact discipline developed from logically defined axioms (conditions). substitution. (ii) Theory is related to physical phenomena only in inexact terms (i. (iii) When theory is applied to real problems. 500. Why Probabilistic Reasoning? Example. what percentage of trials produce 2 Heads? answer. The Interplay Between Probability and Statistics. In a fair coin tossing experiment the percentage of (H)eads is very close to 0. Toss 5 coins repeatedly and write down the number of heads observed in each trial. answer method whenever possible. (ii) Describe the following events: A = { observe exactly two heads} B = { Observe at most one tail} C = { Observe at least two heads} D = {Observe exactly one tail} (iii) Find the probabilities of events A. In the model (abstraction): P (H) = 0. 31 . Use the formula. 1.5)2 (. An experiment consists of tossing 3 fair coins. (Thus saving time and effort). it makes sense). Example. There is no need to carry out this experiment to answer the question. Review Exercises: Probability Please show all work. 2.5)2 (1 − . (i) List all the elements in the sample space.5. No credit for a correct final answer without a valid argument.

2. C and D: A . 6}. (ix) Refer to problem 2. P (B).2. (iv) Find the probability of the event C = {odd}. P (2) = .06 . 3.08 1. and 3. (iv) Compare problems 2.1. C. 32 . and answer questions (i)-(viii). 2. The following probability table gives the intersection probabilities for four events A. P (D). find P (A). (iii) Find the probability of the event B = {even}. (i) List all the elements in the sample space. 4.. 5.2. B.1.P(3)=. (ii) Find the probability of the complement of A. 6} such that P (1) = . Find (i) A ∪ B (ii) A ∩ B (iii) B ∩ C (iv) Ac (v) C c (vi) A ∪ C (vii) A ∩ C (viii) Find the probabilities in (i)-(vii).31 . 5. P (6) = . 5. P (D|A) and P (C|B). B.3. (ii) Describe the following events: A = { observe a number larger than 3 } B = { Observe an even number} C = { Observe an odd number} (iii) Find the probabilities of events A. P (C). 3. Refer to problem 3.55 B 0.00 C D (i) Using the definitions.1. P (5) = . (i) Find the probability of the event A = {4. P (C|A). P(4)=. An experiment consists of throwing a fair die. Suppose that S = {1. 4.

P (A) = .6. A box contains four black and six white balls. are A and B mutually exclusive? independent? (iii) If P (A ∪ B) = . Second report: The chances of rain are today 30%. (iii) Find the probability of selecting one black and one red ball. Use the laws of probability to justify your answers to the following questions: (i) If P (A ∪ B) = .3. tomorrow 40%. S = {bwr. what is the probability that both balls are black? both are white? the first is white and the second is black? the first is black and the second is white? one ball is black? (iii) Repeat (ii) if the balls are selected with replacement. a black (b). (i) Find the sample space S (Hint: there is 10 sample points).4.) 8. 33 . P (A) = . red (r). are A and B mutually exclusive? independent? 7. either today or tomorrow 60%.7. Three balls are to be selected at random. and P (B) = . (iv) Find P (A ∪ B).4. A box contains five balls. P (A) = . · · ·} (ii) Find the probability of selecting a black ball. tomorrow 40%. 9. and green (g). orange (o). are A and B mutually exclusive? independent? (ii) If P (A ∪ B) = . white (w).(ii) Find P (B c ). Suppose that the following two weather forecasts were reported on two local TV stations for the same period. (Hint: Let A and B be the events of rain today and rain tomorrow.2. 6. what is the probability that it is white? black? (ii) If two balls are selected without replacement. (vii) Are C and D independent events? Justify your answer. (v) Are B and C independent events? Justify your answer. either today or tomorrow 60%.5. (iii) Find P (A ∩ B). First report: The chances of rain are today 30%. if any. Which of the two reports. (vi) Are B and C mutually exclusive events? Justify your answer.65. (i) If a ball is selected at random.5. both today and tomorrow 20%. both today and tomorrow 10%. is more believable? Why? No credit if answer is not justified. and P (B) = . (viii) Are C and D mutually exclusive events? Justify your answer. and P (B) = .

9. T F (xi) If two events are independent. the event may not occur at all in 10 trials. T F (ix) Although the probability of an event occurring is . T F (vii) The probability of an event can sometimes be larger than one. then the probability of each outcome is 1/5. T F (iv) The sum of the probabilities of all simple events in the sample space may be less than 1 depending on circumstances.(Hint: Start by defining the events B1 and B − 2 as the first ball is black and the second ball is black respectively. T F (viii) The probability of an elementary event can never be larger than one half. T F (v) A random sample of n observations from a population is not likely to provide a good estimate of a parameter. T F (i) An event is a specific collection of simple events. T F (ii) The probability of an event can sometimes be negative. Answer by True of False . T F (x) If a random experiment has 5 possible outcomes. T F (iii) If A and B are mutually exclusive events. T F (vi) A random sample of n observations from a population is one in which every different subset of size n from the population has an equal probability of being selected. the occurrence of one event should not affect the likelihood of the occurrence of the other event. then they are also dependent. (Circle your choice). Then use the product rule) 10. and by defining the events W1 abd W − 2 as the first ball is white and the second ball is white respectively. 34 .

Example. Note that X takes integer values even though the sample space consists of H’s and T’s. T T H} {X = 2} = {HHT. be the number of heads observed then relevant events would be {X = 0} = {T T T } {X = 1} = {HT T. T HT.Chapter 3 Random Variables and Discrete Distributions Contents. T T H. then S = {HHH. Toss a coin 3 times. HT H. T HT. X. T HH. T T T } Let the variable of interest. The relevant question is to find the probability of each these events. Random Variables Expected Values and Variance Binomial Poisson Hypergeometric 1 Random Variables The discrete rv arises in situations when the population (or possible outcomes) are discrete (or qualitative). HT T. HT H. HHT. T HH} {X = 3} = {HHH}. 35 .

throw a die. X is discrete (qualitative data) 36 . etc.) A Continuous r.20 x p(x) 0 1 2 0. etc.30 0.10 x p(x) -1 1 2 0.) is a rule that assigns a numerical value to each possible outcome of a random experiment. and (ii) x p(x) = 1 where the summation is over all possible values of x.v. price. Y . A random variable (r.60 0.40 0. to represent r.50 -0. etc.v.The variable X transforms the problem of calculating probabilities from that of set theory to calculus.50 0. toss a coin. Discrete distributions in tabulated form Example.variable: it takes a numerical value Notation: We use X. Interpretation: -random: the value of the r. assigns a probability p(x) for each possible x such that (i) 0 ≤ p(x) ≤ 1. (e.s. Definition.g.v. X.) Discrete Distributions The probability distribution of a discrete r. Which of the following defines a probability distribution? x p(x) 0 1 2 0.v. weight.20 Remarks.v. A Discrete r. (i) Discrete distributions arise when the r.v.. has a continuum of possible values.v. assigns a finite or countably infinite number of possible values (e.30 0. is unknown until the outcome is observed .g. height.

then the standard deviation of X.(ii) Continuous distributions arise when the r. we describe a random experiment (population) by using random variables.v.2 If X is a rv with mean µ. or sometimes µX to emphasize its dependence on X. 2 Expected Value and Variance Definition 2. (ii) In Probability we described a random experiment (population) in terms of events and probabilities of events. Definition 2.3 If X is a rv with mean µ. denoted by σX . (or simply σ) is defined by σ= Shortcut Formula σ= x2 p(x) − µ2 V (X) = (x − µ)2 p(x) 37 . (iii) Here. (i) In data analysis we described a set of data (sample) by dividing it into classes and calculating relative frequencies. X is continuous (quantitative data) Remarks. Notation: The expected value of X is also denoted by µ = E[X]. then the variance of X is defined by σ2 = x 2 Notation: Sometimes we use σ 2 = V (X) (or σX ).1 The expected value of a discrete rv X is denoted by µ and is defined to be µ= x xp(x). Shortcut Formula x2 p(x) − µ2 σ2 = (x − µ)2 p(x) Definition 2. and probability distribution functions.

The binomial experiment (distribution) arises in following situation: (i) the underlying experiment consists of n independent and identical trials.633 (ii) P (X < 6) = P (X ≤ 5) = .7 38 . (iii) the probability of a success in a single trial is equal to p and remains the same throughout the experiment. . Cumulative probabilities are given in the table. and (iv) the experimenter is interested in the rv X that counts the number of successes observed in n trials.367 (iv) P (X = 5) = P (X ≤ 5) − P (X ≤ 4) = .201 Exercise: Answer the same question with p = 0. A r. A rv X is said to have a Bernoulli distribution with parameter p if Formula: p(x) = px (1 − p)1−x x = 0.834 (iii) P (X > 4) = 1 − P (X ≤ 4) = 1 − . p = . a success or a failure.v.633 = . σ = npq Example: Bernoulli. (ii) each trial results in one of two possible outcomes. . 1. Tabulated form: x p(x) 0 1 1-p p Mean: µ = p √ Variance: σ 2 = pq.3 Discrete Distributions Binomial. σ = pq Binomial Tables. Example. Suppose X has a binomial distribution with n = 10. Mean: µ = np √ Variance: σ 2 = npq.633 = . n) x where q = 1 − p. Find (i) P (X ≤ 4) = . . 1. X is said to have a binomial distribution with parameters n and p if p(x) = n x n−x p q (x = 0.834 − .4. .

Poisson. Hypergeometric. Solution.5 0. without replacement. Graph. Example. Solution. from a finite population of size N divided into two classes consisting 39 . we have P (X ≥ 1) = 1 − P (X = 0) = 1 − e−0. Find the probability that a sample of of 10 items will contain at most 1 defective item. .395 Rule of Thumb. The Poisson random variable arises when counting the number of events that occur in an interval of time when the events are occurring at a constant rate. Mean: µ = λ √ Variance: σ 2 = λ. The Poisson distribution provides good approximations to binomial probabilities when n is large and µ = np is small.9)9 = 0.71828 Example. . Using the binomial distribution. the desired probability is P (X ≤ 1) = p(0) + p(1) = 10 10 (0.7361 0 1 Using Poisson approximation. number of items in a batch of a random size. Suppose that the probability that an item produced by a certain machine will be defective is 0. . 1.7358 which is close to the exact answer.1)1 (0.9)10 + (0. x = 0.1)0 (0. number of items demanded from an inventory. Calculate the probability that there is at least one error on this page.1. preferably with np ≤ 7. . σ = λ Note: e 2. The hypergeometric distribution arises when one selects a random sample of size n. examples include number of arrivals at an emergency room. Letting X denote the number of errors on a single page. Suppose the number of typographical errors on a single page of your book has a Poisson distribution with parameter λ = 1/2. A rv X is said to have a Poisson distribution with parameter λ > 0 if p(x) = e−λ λx /x!. we have λ = np = 1 e−1 + e−1 0.

and in the long-run)? Brand Switching Data This week Last week Brand 1 Brand 2 Brand 1 90 10 Brand 2 40 160 Total 100 200 40 . If the manufacturers are competing for a population of y = 300. 000 buyers. We define F (x) = 0. elsewhere. A random sample of size n = 8. Both manufacturers have been engaged in aggressive advertising programs which include offering rebates. 4 Markov Chains Example 1.of D elements of the first kind and N − D of the second kind. Such a scheme is called sampling without replacement from a finite dichotomous population. is drawn and the number or red balls is denoted by X. without replacement. Then f (x) = 10 x 25 8 15 8−x 0≤x≤8. D). (Sampling without replacement) Suppose an urn contains D = 10 red balls and N − D = 15 white balls. A survey is taken to find out the rates at which consumers are switching brands or staying loyal to brands. Responses to the survey are given below. Example. how should they plan for the future (immediate future.(Brand Switching Problem) Suppose that a manufacturer of a product (Brand 1) is competing with only one other similar product (Brand 2). n − N + D) ≤ x ≤ min(n. Formula: f (x) = D x N −D n−x N n . D Mean: E[X] = n( N ) D Variance: V (X) = ( N −n )(n)( N (1 − N −1 D )) N The N −n N −1 is called the finite population correction factor. etc. where max(0.

2π2 π2 = 0.8 = (1. and i πi = 1.8 41 . Solution: We need to solve π = πP .Brand 1 Brand 2 Brand 1 90/100 10/100 Brand 2 40/200 160/200 So P = 0.7/3) B1 buyers will be 300.1π1 + 0. suppose that customer behavior is not changed over time. Determine whether each brand will eventually retain a constant share of the market. 2/3) 0. that is (π1 . 000 B2 buyers will be 300. Question 2.8π2 π1 + π2 = 1 0. π2 ) = (1/3. π2 )P 1 1 π 1 = (π1 .3/3.1 0.9 0.3/3) = 130.9π1 + 0. 1.9 0. If 1/3 of all customers purchased B1 this week. 2/3). π2 ) = (π1 . 000(1. π2 ) and π1 + π2 = 1 Matrix multiplication gives π1 = 0.7/3) = 170. 000. then 1 1 0 0 π 1 = (π1 . 000(1. Two weeks from now: exercise. π2 ) = (π1 . What percentage will purchase B1 next week? What percentage will purchase B2 next week? What percentage will purchase B1 two weeks from now? What percentage will purchase B2 two weeks from now? Solution: Note that π 0 = (1/3.1 0.2 0.8 Question 1.2 0.1 0.2 0.9 0.

a chair) (iv) The number of emergency cases arriving at a city hospital (v) The number of sophomores in a randomly selected Math. we get 0. where π = (π0 . answer method whenever possible. Example 2. 1/3) Brand 1 will eventually capture two thirds of the market (200. class at a university (vi) The rate of interest paid by your local bank on a given day 2. 1.4 (ii) What is the fraction of days Rebecca is cheerful? gloomy? Solution: The fraction of days Rebecca is cheerful is the probability that on any given day Rebecca is cheerful.7 0. (i) What is the transition matrix P ? Solution: 0. Exercise. No credit for a correct final answer without a valid argument. (i) The market value of a publicly listed security on a given day (ii) The number of printing errors observed in an article in a weekly news magazine (iii) The time to assemble a product (e. and π0 + π1 = 1. This can be obtained by solving π = πP .4. Identify the following as discrete or continuous random variables.1π1 = 0.6 0. What restrictions do we place on the probabilities associated with a particular probability distribution? 42 . On any particular day Rebecca is either cheerful (c) or gloomy (g). Complete this problem.2π2 which gives (π1 . π2 ) = (2/3. Review Exercises: Discrete Distributions and π1 + π2 = 1 Please show all work.3 P = 0. 000) customers.g.7. If she is cheerful today then she will be cheerful tomorrow with probability 0.One equation is redundant. Show your work graphically in all relevant questions. If she is gloomy today then she will be gloomy tomorrow with probability 0. Use the formula. π1 ). substitution. Choose the first and the third.

2 (ii) x -1 1 p(x) .2 .6 . Indicate whether or not the following are valid probability distributions. indicate which of the restrictions has been violated.1 43 .5 -.2 (ii) x p(x) -2 1 4 . (i) x p(x) -1 0 1 .5 .6 3.1 . If they are not.1 3.6 .2 .3.2 6 .

σ. A discrete random variable X has the following probability distribution: x p(x) 10 15 20 25 . σ 2 .25 (i) Verify that X has a valid probability distribution. E(X) = µ. (iv) Find the probability that X is less than or equal to 2.4 . (iii) Find the probability that X is greater than or equal to 3. (v) Find the probability that X is an odd number.1 (i) Calculate the expected value of X. calculate the expected value of X.3 3 4 .15 .1 44 .2 .4 . P (X > 3).e. Answers: µ = 17.4. A random variable X has the following probability distribution: x p(x) 1 2 .05 . 6.58.45 . σ 2 = 21.10 3 4 5 . (vi) Graph the probability distribution for X. (ii) Find the probability that X is greater than 3. P (X ≥ 3). i. For each of the following probability distributions. and the standard deviation of X. (i) x p(x) 1 2 . i.2 .3 . σ = 4.e. (ii) Calculate the standard deviation of X. σ.e. i. P (X ≤ 2). 5. σ 2 . (ii) Calculate the variance of X. E(X) = µ. the variance of X.

T F (vi) The monthly volume of gasoline sold in one gas station is an example of a discrete random variable. In how many ways can a committee of ten be chosen from fifteen individuals? 8. Use the formula.3 . T F (ii) A random variable has a single numerical value for each outcome of a random experiment. Answer by True of False . answer method whenever possible. T F (v) The number of television programs watched per day by a college student is an example of a discrete random variable. T F (iii) The only rule that applies to all probability distributions is that the possible random variable values are always between 0 and 1. T F (viii) The variance can never be equal to zero. T F (xii) The most common method for sampling more than one observation from a population is called random sampling. T F (xi) The sum of all probabilities p(x) for all possible values of X is always equal to one. substitution. Show your work graphically in all relevant questions. Review Exercises: Binomial Distribution Please show all work. T F (vii) The expected value of a random variable provides a complete description of the random variable’s probability distribution. (Circle your choice). No credit for a correct final answer without a valid argument.3 4 . 45 . T F (x) The probability p(x) for a discrete random variable X must be greater than or equal to zero but less than or equal to one. T F (i) The expected value is always positive. T F (iv) A random variable is one that takes on different values depending on the chance outcome of an experiment.2 7. T F (ix) The variance can never be negative.(ii) x p(x) -2 -1 2 .2 .

· · · . Consider a binomial distribution with n = 4 and p = . 5. (ii) Graph the probability distribution found in (i) (iii) Repeat (i) and (ii) when n = 4.5.8.6. 46 .2. (vi) Find P (X > 13) using the table. A sales organization makes one sale for every 200 prospects that it contacts. P (1). (ii) What is the standard deviation of X.1. Consider a binomial distribution with n = 5 and p = . and p = .6. the annual number of sales. The organization plans to contact 100. (i) Use the formula to find P (0). Consider a binomial distribution with n = 25 and p = . (i) Find the expected value E(X) = µ (ii) Find the standard deviation σ (iii) Find P (0) and P (2) using the table. List the properties for a binomial experiment. 2. Consider a binomial distribution with n = 500 and p = . (iv) Repeat (i) and (ii) when n = 4. and p = . 000 prospects over the coming year. (i) Find P (0) and P (2) using the formula. (iv) Find P (X ≤ 2) using the table. (iii) Find the expected value E(X) = µ (iv) Find the standard deviation σ 6. 8. Calculate (i) 5! (ii) 10! (iii) 7! 3!4! 4. (ii) Find P (X ≤ 2) using the formula. 3. (vii) Find P (X ≥ 8) using the table.6. (v) Find P (X < 12) using the table. (i) Find the expected value E(X) = µ (ii) Find the standard deviation σ 7. Give the formula for the binomial probability distribution. P (4). (i) What is the expected value of X.

(i) a shopping mall is interested in the income levels of its customers and is taking a survey to gather information (ii) a business firm introducing a new product wants to know how many purchases its clients will make each year (iii) a sociologist is researching an area in an effort to determine the proportion of households with male “head of households” (iv) a study is concerned with the average hours worked be teenagers who are attending high school (v) Determining whether or nor a manufactured item is defective. (vi) Determining the number of words typed before a typist makes an error. 10. T F (i) A binomial distribution is a discrete probability distribution T F (i) The standard deviation of a binomial probability distribution is given by npq. (Use the empirical rule). Answer by True of False .3 9. (Circle your choice). T F (i) In a binomial experiment each trial is independent of the other trials. Answers: µ = 500. 47 . σ = 22. (vii) Determining the weekly pay rate per employee in a given company.(iii) Within what limits would you expect X to fall with 95% probability. Identify the binomial experiment in the following group of statements.

Exponential 1 Introduction RECALL: The continuous rv arises in situations when the population (or possible outcomes) are continuous (or quantitative). 48 . X. 0 ≤ x < ∞} Let the variable of interest. Normal 3. {X ≥ 1000}. Observe the lifetime of a light bulb. It is denoted by the letter Z. 1. be observed lifetime of the light bulb then relevant events would be {X ≤ x}. Standard Normal 2. A normally distributed (bell shaped) random variable with µ = 0 and σ = 1 is said to have the standard normal distribution.Chapter 4 Continuous Distributions Contents. then S = {x. Important. The relevant question is to find the probability of each these events. For any continuous pdf the area under the curve is equal to 1. Uniform 4. 2 The Normal Distribution Standard Normal. Example. or {1000 ≤ X ≤ 2000}.

2π Graph.9974 Examples. Tabulated Values.005. z0 = 1.005.10. (i) P (0 ≤ Z ≤ 1) = . (v) P (Z > z0 ) = . (iii) P (Z > z0 ) = . (vi) P (Z ≤ z0 ) = . σ 2π where −∞ < µ < ∞. Standardizing a normal r. Critical Values: zα of the standard normal distribution are given by P (Z ≥ zα ) = α which is in the tail of the distribution.: 49 .58.pdf of Z: 1 2 f (z) = √ e−z /2 .28. −∞ < x < ∞.01. . (iv) P (Z > z0 ) = . .9544 (iv) P (−3 ≤ Z ≤ 3) = .6826 (iii) P (−2 ≤ Z ≤ 2) = .33.025. z0 = 1. z0 = 2.025. . . z0 = 2. Properties Mean: E[X] = µ Variance: V (X) = σ 2 Graph: Bell shaped.645. −∞ < z < ∞. Area under graph = 1.v. Find z0 such that (i) P (Z > z0 ) = . 0 < σ < ∞ .3413 (ii) P (−1 ≤ Z ≤ 1) = . (Exercise) Normal A rv X is said to have a Normal pdf with parameters µ and σ if Formula: 1 2 2 f (x) = √ e−(x−µ) /2σ .05.96. (ii) P (Z > z0 ) = . Values of P (0 ≤ Z ≤ z) are tabulated in the appendix. Examples. z0 = 1.01.10.05.

Example If X is a normal rv with parameters µ = 3 and σ 2 = 9. X − µX σX X −µ σ X = µ + σZ .33 < Z < 0.5 − 0. with a mean of 3.0228 Exercise Refer to the above example.2 50 . If this type of washer is guaranteed for 1 year.3779.0) = 0. Solution (i) P (2 < X < 5) = P (−0.67) = . (iii) P (X > 9) = P (Z > 2.2 years. and (iii) P (X > 9). Example The length of life of a certain type of automatic washer is approximately normally distributed.8413.4772 = .75) = 1 − 3. (ii) P (X > 0).75 1. what fraction of original sales will require replacement? Solution Let X be the length of life of an automatic washer selected at random.1 years and standard deviation of 1. find P (X < −3). (ii) P (X > 0) = P (Z > −1) = P (Z < 1) = .Z-score: Z= OR (simply) Z= Conversely. then z= Therefore P (X < 1) = P (Z < −1. find (i) P (2 < X < 5).1 = −1.

c ≤ a . i. Large n. When and how to use the normal approximation: 1. Normal Approximation to the Binomial Distribution.e. The approximation can be improved using correction factors.16) = . P (X ≤ c) = b−a P (X ≤ c) = 1.a ≤ c ≤ b . Solution Note that np = 20 and np(1 − p) = 10. Mean: µ = (a + b)/2 51 .5) = P( X − 20 20. 40 (0.16 < Z < 0. 2.1272.b] 1 a<x<b b−a = 0 elsewhere Formula: f (x) = √ Variance: σ 2 = (b − a)2 /12. lands heads. Use the normal approximation. flipped 40. The exact result is P (X = 20) = (ii) Exercise.5 < X < 20.Exercise: Complete the solution of this problem. (i) Find the probability that X = 20. σ = (b − a)/ 12 CDF: (Area between a and c) P (X ≤ c) = 0. (ii) Find P (10 ≤ X ≤ 20).5 − 20 19. c ≥ b Graph.5)20 = . P (X = 20) = P (19.5 − 20 √ < √ < √ ) 10 10 10 P (−0. Let X be the number of times that a fair coin.5)20 (0. Example. c−a . np ≥ 5 and n(1 − p) ≥ 5.1268 20 3 Uniform: U[a.

Examples include time until a new car breaks down. in practice. in hours.. find the probability that you will have to wait (i) more than 10 minutes. If someone arrives immediately ahead of you at a public telephone booth..368 Example 2. (i) P (X > 10) = e−λa = e−1 (ii) P (10 < X < 20) = e−1 − e−2 0. The amount of time. 1] case. x ≥ 0 = 0 elsewhere Properties Graph. P (X > a) = e−λa Example 1. Mean: µ = 1/λ Variance: σ 2 = 1/λ2. as being the distribution of the amount of time until some specific event occurs. etc. Solution Let X be the be the length of a phone call in minutes by the person ahead of you. and (ii) between 10 and 20 minutes. . A rv X is said to have an exponential pdf with parameter λ > 0 if f (x) = λe−λx . Specialize the above results to the Uniform [0. that a computer functions before breaking down is an exponential rv with λ = 1/100. 52 .233 0. Suppose that the length of a phone call in minutes is an exponential rv with parameter λ = 1/10.Exercise. (i) What is the probability that a computer will function between 50 and 150 hours before breaking down? (ii) What is the probability that it will function less than 100 hours? Solution. time until an arrival at emergency room. 4 Exponential The exponential pdf often arises. σ = 1/λ CDF: P (X ≤ a) = 1 − e−λa .

e. (i) z = 0 and z = 1. Use the formula. P (.(i) The probability that a computer will function between 50 and 150 hours before breaking down is given by P (50 ≤ X ≤ 150) = e−50/100 − e−150/100 = e−1/2 − e−3/2 .68 (vi) P (−z0 ≤ Z ≤ z0 ) = 0.6 ≤ Z ≤ 0)) (iii) z = .99 (iii) P (Z ≥ z0 ) = 0.75 (i.0 and z = 3.e.0 and z = 1.0)) (vii) z = −2.95 53 . answer method whenever possible. Let Z be a standard normal distribution. 1.0708 (iv) P (Z ≤ z0 ) = 0.26 and z = 1. Calculate the area under the standard normal curve between the following values.86 and z = 1.e.86 (i. P (−1.e.0708 (v) P (−z0 ≤ Z ≤ z0 ) = 0.6 (i.0)) (viii) z = −3.75 and z = −. Show your work graphically in all relevant questions. Review Exercises: Normal Distribution Please show all work. Converse The exponential distribution is the only continuous distribution with the memoryless property.6 (i.0)) 2.26 ≤ Z ≤ 1.05 (ii) P (Z ≥ z0 ) = 0.e.6)) (ii) z = 0 and z = −1. substitution. Find z0 such that (i) P (Z ≥ z0 ) = 0.0 (i. P (0 ≤ Z ≤ 1. P (−2. P (−1.86)) (vi) z = −1.75 ≤ Z ≤ −.384 (ii) Exercise.86)) (v) z = −1. P (−1.0 (i. P (−1.0 ≤ Z ≤ 2.0 ≤ Z ≤ 1.0 ≤ Z ≤ 3.e.0 and z = 2.e. No credit for a correct final answer without a valid argument.86 ≤ Z ≤ 1.86 (i. Memoryless Property FACT.0 (i.e.75)) (iv) z = −1. P (−3. The exponential rv has the memoryless property.

P (X ≥ 10)). T F (ii) The standard normal distribution has its mean and standard deviation equal to one. (Answer: . Find z0 such that (i) P (Z ≥ z0 ) = 0.005 4. (Circle your choice). 5.5 inches and standard deviation 2. P (10 ≤ X ≤ 12)). P (6 ≤ X ≤ 14)). (i) X falls between 10 and 12 (i.3. 7.011) (ii) Alice is 71 inches tall.4 inches.01 (v) P (Z ≥ z0 ) = 0. P (X ≤ 12)). (ii) X falls between 6 and 14 (i. (Answer: . A normally distributed random variable X possesses a mean of µ = 10 and a standard deviation of σ = 5.10 (ii) P (Z ≥ z0 ) = 0.9966) 6. Find the following probabilities. (i) Find the probability that a randomly chosen woman is larger than 70 inches tall. T F (v) Because the normal distribution is symmetric half of the area under the curve lies below the 40th percentile. The lifetimes of batteries produced by a firm are normally distributed with a mean of 100 hours and a standard deviation of 10 hours. T F (i) The standard normal distribution has its mean and standard deviation equal to zero. What is the probability a randomly selected battery will last between 110 and 120 hours.e.025 (iv) P (Z ≥ z0 ) = 0. Answer by True of False . (iii) X is less than 12 (i.e. 54 . What percentage of women are shorter than Alice.e. Let Z be a standard normal distribution. T F (iv) The standard normal distribution has its mean equal to zero and standard deviation equal to one. The height of adult women in the United States is normally distributed with mean 64.e. (iv) X exceeds 10 (i.05 (iii) P (Z ≥ z0 ) = 0. T F (iii) The standard normal distribution has its mean equal to one and standard deviation equal to zero.

T F (vii) The normal distribution is symmetric only if the mean is zero and the standard deviation is one. 55 .T F (vi) The total area under the normal curve is equal to one only if the mean is equal to zero and standard deviation equal to one.

P . the CLT says The sampling distribution of the sample mean. i. The Central Limit Theorem The Sampling Distribution of The Sampling Distribution of The Sampling Distribution of The Sampling Distribution of the the the the Sample Mean Sample Proportion Difference Between Two Sample Means Difference Between Two Sample Proportions 1 The Central Limit Theorem (CLT) Roughly speaking. is Z= X − µX σX ˆ The sampling distribution of the sample proportion.Chapter 5 Sampling Distributions Contents. is Z= p − µp ˆ ˆ σp ˆ 2 Sampling Distributions Suppose the distribution of X is normal with with mean µ and standard deviation σ.e. X. (i) What is the distribution of X−µ ? σ Answer: It is a standard normal. 56 .

Z= X −µ σ I. equivalently. if X is not normally distributed? Answer: The distribution of X is approximately a normal distribution with mean µ √ and standard deviation σ/ n provided n is large (i. Z= X − µX X −µ √ = σX σ/ n (iv) What is the sampling distribution of the sample mean.(X) = √ n (iii) What is the sampling distribution of the sample mean X? Answer: The distribution of X is a normal distribution with mean µ and standard √ deviation σ/ n. ˆ (ii) What is the the mean (expected value) and standard deviation of P ? Answer: ˆ µP = E(P ) = p ˆ 57 . X. A sample of size 36 is to be selected. with mean µ = 4 and standard deviation σ = 3. X. (exercise) (iv) Find P (3. The Sampling Distribution of the Sample Proportion Suppose the distribution of X is binomial with with parameters n and p.5 ≤ X ≤ 4. The Sampling Distribution of the Sample Mean (ii) What is the the mean (expected value) and standard deviation of X? Answer: µX = E(X) = µ σ σX = S.5). n ≥ 30). (exercise) II. (i) What is the mean and standard deviation of X? (ii) Find P (4 < X < 5). (iii) Find P (X > 3. Example.E.5). Consider a population.e.

n provided n is large (i. and nq ≥ 5).ˆ σP = S. It is claimed that at least 30% of all adults favor brand A versus brand B. n2 ≥ 30.30 ˆ σp = ˆ ˆ (ii) Find P (P > 0.325 ˆ ˆ (i) Find the mean and standard deviation of the sample proportion P . Comparing two Sample Means E(X 1 − X 2 ) = µ1 − µ2 2 2 σ1 σ2 + n1 n2 pq = . x = 130. p = . DATA SUMMARY: n = 400. Suppose 130 individuals indicated preference for brand A.023 n σX 1 −X 2 = Z= X 1 − X 2 − (µ1 − µ2 ) 2 σ1 n1 + 2 σ2 n2 provided n1 . To test this theory a sample n = 400 is selected. Answer: µp = p = . np ≥ 5.(P ) = ˆ pq n ˆ (iii) What is the sampling distribution of the sample proportion P ? ˆ Answer: P has a normal distribution with mean p and standard deviation equivalently Z= ˆ ˆ P − µP P −p ˆ = pq σP ˆ n pq .30.30) III.e.E. p = 130/400 = . Example. 58 .

(Answer: µ = 20. No credit for a correct final answer without a valid argument.2) (ii) Find the z-score of x = 22 (Answer: 1. A random sample of n = 16 observations is to be selected. (v) Find P (16 ≤ X ≤ 19)). 59 . describe the distribution of X and give µx . (Include the mean µx . X. standard deviation σx . A normally distributed random variable X possesses a mean of µ = 20 and a standard deviation of σ = 5. and type of distribution). σx ). 1. Use the formula. (i) Describe the sampling distribution of X (i. (i) Describe the sampling distribution of the sample mean. (vi) Find P (X ≥ 23)). Let X be the sample average. Suppose a random sample of 49 families is taken and a sample mean is calculated.IV.6) (iii) Find P (X ≥ 22) = (iv) Find P (20 ≤ X ≤ 22)). Show your work graphically in all relevant questions. substitution.e. Comparing two Sample Proportions ˆ ˆ E(P1 − P2 ) = p1 − p2 p1 q1 p2 q2 + n1 n2 σP1 −P2 = ˆ ˆ Z= provided n1 and n2 are large. The number of trips to doctor’s office per family per year in a given community is known to have a mean of 10 with a standard deviation of 3. (vii) Find P (X ≥ 18)). answer method whenever possible. 2. σx = 1. ˆ ˆ P1 − P2 − (p1 − p2 ) p1 q1 2 + pnq2 n1 2 Review Exercises: Sampling Distributions Please show all work.

01) (iii) Find the probability that the sample mean. the sampling distribution of the sample mean X will be (a) exactly normal.99) 3. When a random sample of size n is drawn from a normal population with mean µ and and variance σ 2 . X. X.(ii) Find the probability that the sample mean. approximately. 60 . does not exceed 11. (Answer: . T F (i) The central limit theorem applies regardless of the shape of the population frequency distribution. does not exceed 9.(Answer: . T F (ii) The central limit theorem is important because it explains why some estimators tend to possess. (b) approximately normal (c) binomial (d) none of the above 4. a normal distribution. Answer by True of False . (Circle your choice).

61 . (ii) Minimum variance: Small standard error of point estimator. Two Binomial Populations 7. Single Quantitative Population 4. Choosing the Sample Size 1 Introduction Types of estimators. Point Estimators and Their Properties 3. Point estimator 2. 1. Interval estimator: (L. Introduction 2. (iii) Error of estimation: distance between a parameter and its point estimate is small.Chapter 6 Large Sample Estimation Contents. Two Quantitative Populations 6. Single Binomial Population 5. Parameters of Interest. (i) Unbiased: Mean of the sampling distribution is equal to the parameter. Desired Properties of Interval Estimators. (i) Confidence coefficient: P(interval estimator will enclose the parameter)=1 − α should be as high as possible. 1. (iii) Margin of Error: (Bound on the error of estimation) should be as small as possible. (ii) Confidence level: Confidence coefficient expressed as a percentage. U) Desired Properties of Point Estimators.

1.I. Large sample (n ≥ 30) 2. x. Margin of Error. ( or Bound on the Error of Estimation) σ B = zα/2 √ n Assumptions. Sample is randomly selected 62 . σθ ˆ Point estimator: θ Estimator mean: µθ = θ (Unbiased) ˆ ˆ Standard error: SE(θ) = σ ˆ θ Assumptions: Large sample + others (to be specified in each case) 3 Single Quantitative Population Parameter of interest: µ Sample data: n. s Other information: α Point estimator: x Estimator mean: µx = µ √ Standard error: SE(x) = σ/ n (also denoted as σx ) Confidence Interval (C.Single Quantitative Population: µ Single Binomial Population: p Two Quantitative Populations: µ1 − µ2 Two Binomial Populations: p1 − p2 2 Point Estimators and Their Properties Parameter of interest: θ ˆ ˆ Sample data: n.) for µ: σ x ± zα/2 √ n Confidence level: (1 − α)100% which is the probability that the interval estimator contains the parameter. θ.

σ x ± zα/2 √ n 4. µ. Question 5.5357 B = zα/2 √ = 1. Interpret the CI found in Question 3.6 ± 1. The interval contains µ with probability 0.15 = 0. Data summary: n = 225. OR If repeated sampling is used.6 and the standard deviation is 4.Example 1. A random sample of n = 225 flights shows that the sample mean is 11.6 Question 2. 12.90 OR W = 12. x = 11. Give a 95% bound on the error of estimation (also known as the margin of error).05 − 11.6 ± 0. then 90% of CI constructed would contain µ. Sample size: (zα/2 )2 σ 2 n B2 63 .6.05) Question 4. 4. Find a 90% confidence interval for µ. for a major airline.645 √ 225 11.45) = 0.90. If n. Question 1. the sample size.15.1.90 Question 6.? The width of the CI is σ W = 2zα/2 √ n W = 2(0.1 σ = 0. s = 4.1. What is the width of the CI found in Question 3. We are interested in estimating the mean number of unoccupied seats per flight.45 = (11. The margin of error decreases.96 √ n 225 Question 3. What is the point estimate of µ ( Do not give the margin of error)? x = 11.1 11. is increased what happens to the width of the CI? what happens to the margin of error? The width of the CI decreases.

7 − 13. Find the sample size necessary to reduce W in the flight example to .) for p: p ± zα/2 ˆ pq ˆˆ n Confidence level: (1 − α)100% which is the probability that the interval estimator contains the parameter.3 = . Data summary: α = . x. ˆ x Other information: α Point estimator: p ˆ Estimator mean: µp = p ˆ Standard error: σp = ˆ pq n Confidence Interval (C. Margin of Error. 0.1.4/4 = . Example 2.025.05. Note: In the absence of data. so σ .4.0252 So n = 107.05.I.7. You are told that preliminary data shows a range from 13.582 (.1)2 = = 106. R = 13. Now B = W/2 = 0.01. B = zα/2 pq ˆˆ n 64 . p = n (x here is the number of successes). (round up) Exercise 1.3 to 13.where σ is estimated by s.50 . σ is sometimes approximated by R where R is the 4 range. Use α = 0. Therefore n (zα/2 )2 σ 2 B2 2. Suppose you want to construct a 99% CI for µ so that W = 0. 4 Single Binomial Population Parameter of interest: p Sample data: n.05/2 = 0.6. What sample size should you choose? A.

531)(0.469) = 1.531 ± 0. Sample is randomly selected Example 3. the sample size.037) = 0.96 = 0.531) = 257 which is ≥ 5. A random sample of n = 484 voters in a community produced x = 257 voters in favor of candidate A. If n.531)(0. is increased what happens to the width of the CI? what happens to the margin of error? 65 .469) 484 0.568) Question 4. Interpret the CI found in Question 3. nq ≥ 5) 2.645 (0.Assumptions.531 n 484 B = zα/2 pq ˆˆ (0. What is the point estimate of p and its margin of error? p= ˆ x 257 = = 0. p nˆ = 484(0. p ± zα/2 ˆ pq ˆˆ n 0. What is the width of the CI found in Question 3.494.469) = 227 which is ≥ 5. x = 257. then 90% of CI constructed would contain p.531 ± 1.531. Large sample (np ≥ 5. p = n = 257 = 0. Question 2.90.074 n Question 5. ˆ x 484 Question 1. OR If repeated sampling is used. Find a 90% confidence interval for p.? The width of the CI is W = 2zα/2 pq ˆˆ = 2(0. q Therefore we have a large sample size. The interval contains p with probability 0.044 n 484 Question 3. Data summary: n = 484.037 = (0. Question 6. 1. Do we have a large sample size? nˆ = 484(0. 0.

Sample size. 885. You are told that preliminary data shows a p = 0. Exercise 3.05. 2 B Note: In the absence of data. x2 . 884.01.35. Data summary: α = . n pˆ (zα/2 )2 (ˆq) .35)(0. Suppose you want to provide an accurate estimate of customers preferring one brand of coffee over another. Use α = 0. choose p = q = 0. ˆ ˆ ˆˆ Example 4.The width of the CI decreases. x1 . Suppose that no preliminary estimate of p is available. The margin of error decreases.25. Find the new sample ˆ size. 5 Two Quantitative Populations Parameter of interest: µ1 − µ2 Sample data: Sample 1: n1 . B = 0.35. Find the sample ˆ size necessary so that α = 0. You need to construct a 95% CI for p so that B = 0.96)2 (0.5 or simply pq = 0. (x1 − x2 ) ± zα/2 2 2 σ1 σ2 + n1 n2 66 . p = 0. (round up) Exercise 2.28 0. s1 Sample 2: n2 .015 ˆ n pˆ (zα/2 )2 (ˆq ) 2 B (1. s2 Point estimator: X 1 − X 2 Estimator mean: µX 1 −X 2 = µ1 − µ2 Standard error: SE(X 1 − X 2 ) = 2 σ1 n1 + 2 σ2 n2 Confidence Interval.65) = = 3. What sample size should you choose ˆ ? Use α = 0.0152 So n = 3.05.015. Suppose that no preliminary estimate of p is available.05.

1. n2 ≥ 30) 2. (n1 p1 ≥ 5.5) B2 ˆˆ p1 q1 p2 q2 ˆˆ + n1 n2 p1 q1 ˆ ˆ n1 + p2 q2 ˆ ˆ n2 Review Exercises: Large-Sample Estimation 67 . n2 q2 ≥ 5) 2. ˆ (ˆ1 − p2 ) ± zα/2 p Assumptions. x2 . 1. p ˆ ˆˆ (zα/2 )2 (ˆ1 q1 + p2 q2 ) n 2 B For unkown parameters: n (zα/2 )2 (0. Samples are randomly and independently selected Sample size. p1 = n1 ˆ 1 Sample 2: n2 . Samples are randomly selected 3. n2 p2 ≥ 5. x1 .Assumptions. 2 2 (zα/2 )2 (σ1 + σ2 ) n B2 6 Two Binomial Populations Parameter of interest: p1 − p2 x Sample 1: n1 . Large samples ( n1 ≥ 30. n1 q1 ≥ 5. p2 = ˆ x2 n2 p1 − p2 (unknown parameter) α (significance level) ˆ Point estimator: p1 − p2 ˆ Estimator mean: µp1−ˆ2 = p1 − p2 ˆ p Estimated standard error: σp1 −ˆ2 = ˆ p Confidence Interval. Large samples. Samples are independent Sample size.

An examination of the yearly premiums for a random sample of 80 automobile insurance policies from a major company showed an average of $329 and a standard deviation of $49. 1. (i) Estimate the average daily yield µ. (Answer: B=14. Use the formula.Please show all work. (iv) Find the sample size necessary to reduce the width of the confidence interval in (ii) by half. (Margin of error). A random sample of size n = 100 is selected form a quantitative population. 4. produces a mean and standard deviation of x = 870 and s = 20 tons respectively. (iii) Interpret the confidence interval found in (ii). (Answer: B=1. (Answer: B=1. The data produced a mean and standard deviation of x = 75 and s = 6 respectively. (Circle your choice). (i) Give the point estimate of the population parameter µ and a 99% bound on the error of estimation. (i) Estimate the population mean µ. and give a 95% bound on the error of estimation (or margin of error). Show your work graphically in all relevant questions. answer method whenever possible. how many insurance policies should be sampled to achieve the desired level of accuracy? (Answer: n=369) 3. (iv) Find the sample size necessary to reduce the width of the confidence interval in (ii) by half. the width of the confidence interval for the population mean tends to increase. T F (i) If the population variance increases and other factors are the same. Suppose we wish to estimate the average daily yield of a chemical manufactured in a chemical plant.135) (ii) Construct a 99% confidence interval for µ. Answer by True of False . No credit for a correct final answer without a valid argument. The daily yield recorded for n = 100 days.55) (iii) Interpret the confidence interval found in (ii).18) (ii) Find a 99% confidence interval for the population mean. (iii) Suppose we wish our estimate in (i) to be accurate to within $5 with 95% confidence. (ii) Find a 99% confidence interval for the population mean. 68 . substitution. and give a 95% bound on the error of estimation (or margin of error). (Answer: n=400) 2.

69 . the width of the confidence interval for the population mean tends to decrease. T F (iv) If.I. α is increased. T F (iii) Populations are characterized by numerical descriptive measures called statistics. for a given C. T F (v) The sample standard deviation s can be used to approximate σ when n is larger than 30.. T F (vi) The sample mean always lies above the population mean. then the margin of error will increase.T F (ii) As the sample size increases.

. Testing the difference between two population means 6. that is proof by contradiction. Comments: * H0 represents the status-quo * Ha is the hypothesis that we want to provide evidence to justify.Chapter 7 Large-Sample Tests of Hypothesis Contents. Type I error ≡ { reject H0 |H0 is true } 70 . Testing the difference between two population proportions 7. Testing a population proportion 5. Graph: Decision: either “Reject H0 ” or “Do no reject H0 ” Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to “ favor Ha ” .. Reporting results of statistical tests: p-Value 1 Elements of a Statistical Test Null hypothesis: H0 Alternative (research) hypothesis: Ha Test statistic: Rejection region : reject H0 if .. We show that Ha is true by showing that H0 is false. Testing a population mean 4.. Elements of a statistical test 2. A Large-sample statistical test 3. 1.

Type II error ≡ { do not reject H0 |H0 is false} α = P rob{Type I error} β = P rob{Type II error} Power of a statistical test: Prob{reject H0 — H0 is false }= 1 − β Example 1. H0 : Innocent Ha : Guilty α = P rob{sending an innocent person to jail} β = P rob{letting a guilty person go free} Example 2. 3) θ = θ0 Test statistic (TS): ˆ θ − θ0 z= σθ ˆ Critical value: either zα or zα/2 Rejection region (RR) : 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: 1) if observed value is in RR: “Reject H0 ” 2) if observed value is not in RR: “Do no reject H0 ” 71 . σθ Test: Null hypothesis (H0 ) : θ = θ0 Alternative hypothesis (Ha ): 1) θ > θ0 . θ. H0 : New drug is not acceptable Ha : New drug is acceptable α = P rob{marketing a bad drug} β = P rob{not marketing an acceptable drug} 2 A Large-Sample Statistical Test Parameter of interest: θ ˆ ˆ Sample data: n. 2) θ < θ0 .

x. s Other information: µ0 = target value. 3) µ = µ0 T.05 H0 : µ = 20 (µ is not larger than 20) 72 .Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to ··· . One tailed statistical test Upper (right) tailed test Lower (left) tailed test Two tailed statistical test 3 Testing a Population Mean Parameter of interest: µ Sample data: n. Assumptions: Large sample + others (to be specified in each case). Assumptions: Large sample (n ≥ 30) Sample is randomly selected Example: Test the hypothesis that weight loss in a new diet program exceeds 20 pounds during the first month. x = 21. α Test: H0 : µ = µ 0 Ha : 1) µ > µ0 .S. µ0 = 20. 2) µ < µ0 . : x − µ0 √ z= σ/ n Rejection region (RR) : 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: 1) if observed value is in RR: “Reject H0 ” 2) if observed value is not in RR: “Do no reject H0 ” Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to “ favor Ha ” . α = 0. s2 = 25. Sample data : n = 36.

3) p = p0 T. : p − p0 ˆ z= p0 q0 /n RR: 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: 1) if observed value is in RR: “Reject H0 ” 2) if observed value is not in RR: “Do not reject H0 ” Conclusion: At (α)100% significance level there is (in)sufficient statistical evidence to “ favor Ha ” .S.5.S. : 21 − 20 x − µ0 √ √ = = 1.Ha : µ > 20 (µ is larger than 20) T. 2) p < p0 .645 Graph: Decision: Do not reject H0 Conclusion: At 5% significance level there is insufficient statistical evidence to conclude that weight loss in a new diet program exceeds 20 pounds per first month.2 z= s/ n 5/ 36 Critical value: zα = 1. Exercise: Test the claim that weight loss is not equal to 19.645 RR: Reject H0 if z > 1. Assumptions: 73 . 4 Testing a Population Proportion Parameter of interest: p (unknown parameter) Sample data: n and x (or p = n ) ˆ x p0 = target value α (significance level) Test: H 0 : p = p0 Ha : 1) p > p0 .

10.90)/200 RR: reject H0 if z > 1. : (x1 − x2 ) − D0 z= 2 σ1 σ2 + n2 n1 2 RR: 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 74 .645 Graph: Dec: Do not reject H0 Conclusion: At 5% significance level there is insufficient statistical evidence to conclude that p > . s2 Test: H 0 : µ 1 − µ 2 = D0 Ha : 1)µ1 − µ2 > D0 .10 Ha : p > . x1 .1.10 TS: p − p0 ˆ . 3) µ1 − µ2 = D0 T.10 for sample data: n = 200. ˆ x Now H0 : p = . x2 .10)(. Test the hypothesis that p > . nq ≥ 5) 2.S. s1 Sample 2: n2 . x = 26. Large sample (np ≥ 5.13 − .13. 2) µ1 − µ2 < D0 . Exercise Is the large sample assumption satisfied here ? 5 Comparing Two Population Means Parameter of interest: µ1 − µ2 Sample data: Sample 1: n1 .10 z= = = 1.41 p0 q0 /n (. Solution. 26 p = n = 200 = . Sample is randomly selected Example.

1.96 RR: Reject H0 if z > 1.3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: Conclusion: Assumptions: 1. n2 ≥ 30) 2.05 H0 : µ 1 − µ 2 = 0 Ha : µ1 − µ2 = 0. ˆ 1 75 .S. : (x1 − x2 ) − 0 = 2. x1 . Samples are randomly selected 3. x2 = 18. Samples are independent Example: (Comparing two weight loss programs) Refer to the weight loss example. Exercise: Test the claim that the difference in mean weight loss for the two programs is greater than 1. 6 Comparing Two Population Proportions Parameter of interest: p1 − p2 x Sample 1: n1 . T. s2 = 25 (old) 1 2. Sample 2 : n2 = 36.96 Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to conclude that weight loss in the two diet programs are different. α = 0.14 z= 2 σ1 σ2 + n2 n1 2 Critical value: zα/2 = 1. Large samples ( n1 ≥ 30. p1 = n1 .5. Sample 1 : n1 = 36. s2 = 24 (new) 2 D0 = 0. Exercise: Test the hypothesis that weight loss in the old diet program exceeds that of the new program. x1 = 21.96 or z < −1. Test the hypothesis that weight loss in the two diet programs are different.

n2 p2 ≥ 5.91. x2 . : z= x1 + x2 n1 + n2 (ˆ1 − p2 ) − 0 p ˆ pq (1/n1 + 1/n2 ) ˆˆ RR: 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: Conclusion: Assumptions: Large sample(n1 p1 ≥ 5. n1 q1 ≥ 5.645 Graph: Dec: reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to conclude that p1 − p2 < 0. 76 . Solution: H 0 : p1 − p2 = 0 H a : p1 − p2 < 0 TS: z = −1.Sample 2: n2 . n2 p1 − p2 (unknown parameter) Common estimate: p= ˆ Test: H 0 : p1 − p2 = 0 Ha : 1) p1 − p2 > 0 2) p1 − p2 < 0 3) p1 − p2 = 0 T.91 RR: reject H0 if z < −1.S. p2 = ˆ x2 . n2 q2 ≥ 5) Samples are randomly and independently selected Example: Test the hypothesis that p1 − p2 < 0 if it is known that the test statistic is z = −1.

1. The p-value is called the observed significance level Note: The p-value is the probability ( when H0 is true) of obtaining a value of the test statistic as extreme or more extreme than the actual sample value in support of Ha . Examples. Find the p-value in each case: (i) Upper tailed test: H0 : θ = θ0 Ha : θ > θ0 TS: z = 1.e.76 p-value = 2(.76 p-value = . the statistical results are significant.0314 (iii) Two tailed test: H0 : θ = θ0 Ha : θ = θ0 TS: z = 1. Use the formula. A local pizza parlor advertises that their average time for delivery of a pizza is within 30 minutes of receipt of the order.0392 (ii) Lower tailed test: H0 : θ = θ0 Ha : θ < θ0 TS: z = −1.0784 Decision rule using p-value: (Important) Reject H0 for all α > p − value Review Exercises: Testing Hypothesis Please show all work. i. substitution. No credit for a correct final answer without a valid argument. answer method whenever possible. The p-value for a test of a hypothesis is the smallest value of α for which the null hypothesis is rejected.Exercise: Repeat as a two tailed test 7 Reporting Results of Statistical Tests: P-Value Definition. Show your work graphically in all relevant questions. The delivery time for a random sample of 64 77 .0392) = .86 p-value = .

Answer by True of False . α is fixed and the sample size is increased. with a sample mean of 34 minutes and a standard deviation of 21 minutes. 2. Graph: Dec: Conclusion: ((ii) Test the hypothesis that Ha : µ = 30.05. (Circle your choice). (i) Is there sufficient evidence to conclude that the actual delivery time is larger than what is claimed by the pizza parlor? Use α = .S. T F (v) If.52) R. then β will increase.orders were recorded. 78 . for a given test. (Answer: 1. H0 : Ha : T.R.

binomial) populations different techniques are necessary 2 Student’s t Distribution RECALL For small samples (n < 30) from normal populations. Student’s t distribution 3. we use s instead. Introduction 2. but we no more have a Z distribution Assumptions. Small-sample inferences about the difference between two means: Paired Samples 6. Inferences about a population variance 7. Small-sample inferences about the difference between two means: Independent Samples 5. Small-sample inferences about a population mean 4. we have z= x−µ √ σ/ n If σ is unknown.g. Comparing two population variances 1 Introduction When the sample size is small we only deal with normal populations.Chapter 8 Small-Sample Tests of Hypothesis Contents: 1. 79 . For non-normal (e.

n−1 ( √ ) 2 n Test: H0 : µ = µ 0 Ha : 1) µ > µ0 . Critical value: either tα. Small random sample (n < 30) 3.015 (ii) Find t0.1.5 = 2. as n becomes larger.355 (iii) Find t0.n−1 2 80 . t converges to Z. x.05. 3) µ = µ0 . 2) µ < µ0 .005.8 = 3.n−1 or t α .26 = 2. α Point estimator: x Estimator mean: µx = µ √ Estimated standard error: σx = s/ n Confidence Interval for µ: s x ± t α .056 3 Small-Sample Inferences About a Population Mean Parameter of interest: µ Sample data: n. (v) Critical values (tail probabilities) are obtained from the t table Examples. (i) Find t0.025. s Other information: µ0 = target value. σ is unknown t= x−µ √ s/ n Properties of the t Distribution: (i) It has n − 1 degrees of freedom (df) (ii) Like the normal distribution it has a symmetric mound-shaped probability distribution (iii) More variable (flat) than the normal distribution (iv) The distribution depends on the degrees of freedom. Sampled population is normal 2. Moreover.

: 21. µ0 = 20. test the hypothesis that weight loss in a new diet program exceeds 20 pounds per first month.S. Normal population 4.n−1 2) Reject H0 if t < −tα. Assumptions. 4 Small-Sample Inferences About the Difference Between Two Means: Independent Samples Parameter of interest: µ1 − µ2 81 .3 t= s/ n 5/ 25 RR: Reject H0 if t > 1. Small sample (n < 30) 2.05 Critical value: t0.711 Graph: Decision: Do not reject H0 Conclusion: At 5% significance level there is insufficient statistical evidence to conclude that weight loss in a new diet program exceeds 20 pounds per first month. T.3 − 20 x − µ0 √ √ = = 1. α = 0.n−1 3) Reject H0 if t > t α .n−1 2 2 Graph: Decision: 1) if observed value is in RR: “Reject H0 ” 2) if observed value is not in RR: “Do not reject H0 ” Conclusion: At 100α% significance level there is (in)sufficient statistical evidence to “favor Ha ” .24 = 1. Ha : µ = 19.711 H0 : µ = 20 Ha : µ > 20. Exercise. Sample is randomly selected 3.e. s2 = 25.T.3.n−1 or t < −t α . Sample data: n = 25.05.5). 1. Test the claim that weight loss is not equal to 19. Unknown variance Example For the sample data given below. 1.5.S. : t = x−µ0 √ s/ n RR: 1) Reject H0 if t > tα. x = 21. (i.

Normal populations 2. 1.n1 +n2 −2 )(s Test: H 0 : µ 1 − µ 2 = D0 1 1 + ) n1 n2 2 2 σ1 σ2 + = n1 n2 (n1 − 1)s2 + (n2 − 1)s2 1 2 n1 + n2 − 2 1 1 + n1 n2 σ2 σ2 + n1 n2 1 1 + n1 n2 82 . n2 < 30) 3. s1 Sample 2: n2 . s2 Other information: D0 = target value. s= Estimator standard error: σX 1 −X 2 = σ Reason: σX 1 −X 2 = = σ Confidence Interval: (x1 − x2 ) ± (tα/2. α Point estimator: X 1 − X 2 Estimator mean: µX 1 −X 2 = µ1 − µ2 Assumptions. Small samples ( n1 < 30.Sample data: Sample 1: n1 . Variances are equal with common variance 2 2 σ 2 = σ1 = σ2 Pooled estimator for σ. x1 . x2 . Samples are randomly selected 4. Samples are independent 5.

Ha : 1)µ1 − µ2 > D0 ; 2) µ1 − µ2 < D0 ; 3) µ1 − µ2 = D0 T.S. : (x1 − x2 ) − D0 t= 1 1 s n1 + n2 RR: 1) Reject H0 if t > tα,n1 +n2 −2 2) Reject H0 if t < −tα,n1 +n2 −2 3) Reject H0 if t > tα/2,n1 +n2 −2 or t < −tα/2,n1 +n2 −2 Graph: Decision: Conclusion: Example.(Comparison of two weight loss programs) Refer to the weight loss example. Test the hypothesis that weight loss in a new diet program is different from that of an old program. We are told that that the observed value is 2.2 and the we know that 1. Sample 1 : n1 = 7 2. Sample 2 : n2 = 8 α = 0.05 Solution. H0 : µ 1 − µ 2 = 0 Ha : µ 1 − µ 2 = 0 T.S. : (x1 − x2 ) − 0 = 2.2 t= 1 1 s n1 + n2 Critical value: t.025,13 = 2.160 RR: Reject H0 if t > 2.160 or t < −2.160 Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to conclude that weight loss in the two diet programs are different. Exercise: Test the claim that the difference in mean weight loss for the two programs is greater than 0. Minitab Commands: A twosample t procedure with a pooled estimate of variance MTB> twosample C1 C2; SUBC>pooled;

83

SUBC> alternative 1. Note: alternative : 1=right-tailed; -1=left tailed; 0=two tailed.

5

Small-Sample Inferences About the Difference Between Two Means: Paired Samples

Parameter of interest: µ1 − µ2 = µd Sample of paired differences data: Sample : n = number of pairs, d = sample mean, sd Other information: D0 = target value, α Point estimator: d Estimator mean: µd = µd Assumptions. 1. Normal populations 2. Small samples ( n1 < 30; n2 < 30) 3. Samples are randomly selected 4. Samples are paired (not independent) Sample standard deviation of the sample of n paired differences sd =
n i=1 (di

− d)2 n−1

√ Estimator standard error: σd = sd / n Confidence Interval. √ d ± tα/2,n−1 sd / n Test. H0 : µ1 − µ2 = D0 (equivalently, µd = D0 ) Ha : 1)µ1 − µ2 = µd > D0 ; 2) µ1 − µ2 = µd < D0 ; 3) µ1 − µ2 = µd = D0 , T.S. : d − D0 √ t= sd / n RR: 1) Reject H0 if t > tα,n−1 2) Reject H0 if t < −tα,n−1

84

3) Reject H0 if t > tα/2,n−1 or t < −tα/2,n−1 Graph: Decision: Conclusion: Example. A manufacturer wishes to compare wearing qualities of two different types of tires, A and B. For the comparison a tire of type A and one of type B are randomly assigned and mounted on the rear wheels of each of five automobiles. The automobiles are then operated for a specified number of miles, and the amount of wear is recorded for each tire. These measurements are tabulated below. Automobile Tire A Tire B 1 10.6 10.2 2 9.8 9.4 3 12.3 11.8 4 9.7 9.1 5 8.8 8.3 x1 = 10.24 x2 = 9.76 Using the previous section test we would have t = 0.57 resulting in an insignificant test which is inconsistent with the data. Automobile Tire A Tire B d=A-B 1 10.6 10.2 .4 2 9.8 9.4 .4 3 12.3 11.8 .5 4 9.7 9.1 .6 5 8.8 8.3 .5 x1 = 10.24 x2 = 9.76 d = .48 Q1: Provide a summary of the data in the above table. Sample summary: n = 5, d = .48, sd = .0837 Q2: Do the data provide sufficient evidence to indicate a difference in average wear for the two tire types. Test. (parameter µd = µ1 − µ2 ) H0 : µ d = 0 Ha : µ d = 0 T.S. : .48 − 0 d − D0 √ = 12.8 √ = t= sd / n .0837/ 5

85

776 ( t.RR: Reject H0 if t > 2. the sampling distribution of S 2 depends on n. : (n − 1)s2 X2 = 2 σ0 2 2 RR: Reject H0 if X 2 > Xα/2 or X 2 < X1−α/2 where X 2 is based on (n − 1) degrees of freedom. 2 H0 : σ 2 = σ0 2 Ha : σ 2 = σ0 (two-tailed test). Random sample Example: 86 .S.776) Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to to conclude that the average amount of wear for type A tire is different from that for type B tire. Graph: Decision: Conclusion: Assumptions. When a random sample of size n is drawn from a normal population with mean µ and standard deviation σ. T. The standardized distribution of S 2 is called the chi-square distribution and is given by (n − 1)s2 X2 = σ2 Degrees of freedom (df): ν = n − 1 Graph: Non-symmetrical and depends on df Critical values: using X 2 tables Test. 6 Inferences About a Population Variance Chi-square distribution. Construct a 99% confidence interval for the difference in average wear for the two tire types. Exercise.776 or t < −2.025.4 = 2. Normal population 2. 1.

14 Both populations are assumed to be normally distributed. Independent random samples Example.8%. The most common method for measuring investment volatility is by computing the variance ( or standard deviation) of possible outcomes. ν2 = n2 − 1 Graph: Non-symmetrical and depends on df Critical values: using F tables Test. That is s2 F = 1 s2 2 Degrees of freedom (df): ν1 = n1 − 1.21 1 2 Investment 2: n2 = 8. T. Normal populations 2. s2 = 7.S. (Investment Risk) Investment risk is generally measured by the volatility of possible outcomes of the investment. Graph: Decision: Conclusion: Assumptions. x2 = 17.8%. x1 = 17. 1. When independent samples are drawn from two normal populations 2 2 with equal variances then S1 /S2 possesses a sampling distribution that is known as an F distribution. Returns over the past 10 years for first alternative and 8 years for the second alternative produced the following data: Data Summary: Investment 1: n1 = 10. :F = s2 1 s2 2 where s2 is the larger sample variance. 2 2 H0 : σ1 = σ2 2 2 Ha : σ1 = σ2 (two-tailed test). 1 Note: F = larger sample variance smaller sample variance RR: Reject H0 if F > Fα/2 where Fα/2 is based on (n1 − 1) and (n2 − 1) degrees of freedom. 87 .Use text 7 Comparing Two Population Variances F-distribution. s2 = 3.

7.025. That is Ha : σ1 > σ2 .S.22 F = 2 = 2 s1 3. 88 .n1 −1 = F.14 = 2.Q1: Do the data present sufficient evidence to indicate that the risks for investments 1 and 2 are unequal ? Solution. : s2 7. T. Do the upper tail test.21 .n2 −1.9 = 4. RR: Reject H0 if F > Fα/2 where Fα/2. Test: 2 2 H0 : σ1 = σ2 2 2 Ha : σ1 = σ2 (two-tailed test).20 Graph: Decision: Do not reject H0 Conclusion: At 5% significance level there is insufficient statistical evidence to indicate that the risks for investments 1 and 2 are unequal. 2 2 Exercise.

The table below lists the number of sales made by each person in each of the four groups of sales people during the first week after completing the training program. Because there were some dropouts during the training program. One Way ANOVA: Completely Randomized Experimental Design 3.Chapter 9 Analysis of Variance Contents. That is H0 : µ 1 = µ 2 = µ 3 = µ 4 Ha : Not all means are equal Definitions: (i) Response: variable of interest or dependent variable (sales) (ii) Factor: categorical variable or independent variable (training technique) (iii) Treatment levels (factor levels): method of training. Do the data present sufficient evidence to indicate a difference in the mean achievement for the four training programs? Goal. 1. t =4 89 . the number of trainees varied from program to program. Test whether the means are equal or not. Four groups of sales people for a magazine sales agency were subjected to different sales training programs. Introduction 2. Example. At the end of the training programs each salesperson was assigned a sales area from a group of sales areas that were judged to have equivalent sales potentials. The Randomized Block Design 1 Introduction Analysis of variance is a statistical technique used to compare more than two population means by isolating the sources of variability.

e. H0 : µ 1 = µ 2 = µ 3 = µ 4 Ha : Not all means are equal M ST T.6 237.43 µ1 µ2 n3 = 6 425 70.1 65 87 73 79 81 69 2 75 69 83 81 72 79 90 Training Group 3 4 59 94 78 89 67 80 62 88 83 76 Ti Ti parameter n1 = 6 n2 = 7 454 549 75.0 22 1909.05. RR: Reject H0 if F > Fα.2 Source of error Treatments Error Totals Inferences about population means Test. (vi) experimental unit: (trainee) 2 One Way ANOVA: Completely Randomized Experimental Design ANOVA Table df SS MS F p-value 3 712. : F = M SE = 3.75 µ4 n = 23 GT= 1779 (iv) ANOVA: ANalysis OF VAriance (v) N-Way ANOVA: studies N factors.n−t i.67 78.83 µ3 n4 = 4 351 87.3.5 3.13 90 .6 63.S.77 19 1.77 where F is based on (t-1) and (n-t) df.t−1. Reject H0 if F > F0.196.19 = 3.

All t populations have equal variances Computations. SST: sum of squares of total deviation between treatments. Assumptions. CM: correction for the mean 91 . S of error df SS Trments t-1 SST Error n-t SSE Totals n-1 TSS ANOVA Table MS F MST=SST/(t-1) MST/MSE MSE=SSE/(n-t) p-value Training Group 1 2 3 x11 x21 x31 x12 x22 x32 x13 x23 x33 x14 x24 x34 x15 x25 x35 x16 x26 x36 x27 n1 T1 T1 µ1 n2 T2 T2 µ2 n3 T3 T3 µ3 4 x41 x42 x43 x44 Ti Ti parameter n4 T4 T4 µ4 n GT Notation: TSS: sum of squares of total deviation. 1. SSE: sum of squares of total deviation within treatments (error). Sampled populations are normal 2. Independent random samples 3.Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to indicate a difference in the mean achievement for the four training programs.

Exercise.196. Produce a Minitab output for the above example. Estimate of the common variance: √ √ s = s2 = MSE = SSE n−t CI for µi : s T i ± tα/2. 92 .77 19 1.2 Ti2 ni − CM = 712.5 3.8 CM = ( T SS = x2 − CM = 1.6 63. 601. Computational Formulas for TSS. SST and SSE: t ni T SS = i=1 j=1 t x2 − CM ij SST = Ti2 − CM i=1 ni SSE = T SS − SST Calculations for the training example produce xij )2 /n = 1.GT: Grand Total.6 Thus Source of error Treatments Error Totals ANOVA Table df SS MS F p-value 3 712.2 ij SST = SSE = T SS − SST = 1.n−t √ ni CI for µi − µj : (T i − T j ) ± tα/2.n−t s2 ( 1 1 + ) ni nj MINITAB MTB> aovoneway C1-C4. 196.0 22 1909. 909.6 Confidence Intervals.6 237. 7792/23 = 137.

A randomized block design consists of b blocks. Each design (treatment) would be randomly assigned to 4 supermarkets.3 The Randomized Block Design Extends paired-difference design to more than two treatments. and each treatment appears once in every block. b = 4 blocks 93 . (iii) An alternate design would be to use 12 supermarkets. For computational purposes we rearrange the data so that Data Summary. That is larger supermarkets would be expected to have larger overall sales of the product than smaller supermarkets. (ii) The three designs are assigned to each supermarket completely at random. The data shown in Table 1. (i) In each supermarket (block) the first entry represents the design (treatment) and the second entry represents the sales per week. Example. (ii) Do the data present sufficient evidence to indicate a difference in the mean sales for each package design (treatment)? (iii) Do the data present sufficient evidence to indicate a difference in the mean sales for the supermarkets? weeks w1 w2 w3 (1) 17 (3) 23 (2) 34 (3) 21 (1) 15 (2) 26 (1) 1 (2) 23 (3) 8 (2) 22 (1) 6 (3) 16 s1 s2 s3 s4 Remarks. The t treatments are randomly assigned to the units in each block. The treatment and block totals are t = 3 treatments. The randomized block design eliminates the store-to-store variability. A consumer preference study involving three different package designs (treatments) was laid out in a randomized block design among four supermarkets (blocks). each containing t experimental units. below represent the number of units sold for each package design within each supermarket during each of three given weeks. (i) Provide a data summary. In this case the difference in sales could be due to more than just differences in package design.

B4 = 44 Calculations for the training example produce xij )2 /n = 3.50 Ti2 b 2 Bi t − CM = 547. T3 = 68 B1 = 74.67 ij SST = − CM = 348. T2 = 105.00 SSB = SSE = T SS − SST − SSB = 45.33 CM = ( T SS = x2 − CM = 940. B3 = 32.s1 s2 s3 s4 Ti Treatments t1 t2 t3 17 34 23 15 26 21 1 23 8 6 22 16 T1 T2 T3 Bi B1 B2 B3 B4 T1 = 39.17 94 . B2 = 62. 745.

000 3 348.58 11 940.67 95 .MINITAB.58 36.00 116.30 0.08 0.003 6 45.17 273.00 15.50 7.(Commands and Printouts) MTB> Print C1-C3 ROW 1 2 3 4 5 6 7 8 9 10 11 12 UNITS 17 34 23 15 26 21 1 23 8 6 22 16 TRTS 1 2 3 1 2 3 1 2 3 1 2 3 BLOCKS 1 1 1 2 2 2 3 3 3 4 4 4 MTB> ANOVA C1=C2 C3 Source of error Treatments Blocks Error Totals ANOVA Table df SS MS F p-value 2 547.

14 Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to indicate a real difference in the mean sales for the three package designs.5% significance level there is sufficient statistical evidence to indicate a real difference in the mean sales for the four supermarkets. H0 : Block means are equal Ha : Not all block means are equal (i.3.S.Solution to (ii) Test.6 = 5. All t populations have equal variances Confidence Intervals.e.b−1.2. Reject H0 if F > F0.t−1.005. Estimate of the common variance: √ √ SSE s = s2 = MSE = n−t−b+1 CI for µi − µj : 96 . Sampled populations are normal 2. that is the data supports our decision to use supermarkets as blocks.: F = M SB M SE = 15.92 Graph: Decision: Reject H0 Conclusion: At . RR: Reject H0 if F > Fα. Dependent random samples due to blocking 3. H0 : µ 1 = µ 2 = µ 3 Ha : Not all means are equal M ST T.30 where F is based on (b-1) and (n-t-b+1) df.09 where F is based on (t-1) and (n-t-b+1) df. 1.05. Note that n − t − b + 1 = (t − 1)(b − 1).n−t−b+1 i. blocking is desirable) T.6 = 12. : F = M SE = 36. Reject H0 if F > F0.e. Solution to (iii) Test.n−t−b+1 i.S.e. Assumptions. RR: Reject H0 if F > Fα.

n−t−b+1 s 2 b Exercise. Construct a 90% C. 97 . for the difference between mean sales from package designs 1 and 2.I.(T i − T j ) ± tα/2.

Predicting y for a given x 7. Least squares prediction equation 4. 1. Introduction: Example 2. Analysis of Variance 9. Example. For the predictor variable x we use the the amount spent by the company on advertising during the month of interest. and the associated sales 98 . A Simple Linear probabilistic model 3. Estimating E(y|x) for a given x 6. Coefficient of correlation 8. We wish to determine whether advertising is worthwhile.x. The data in the table below represent a sample of advertising expenditures. that is whether advertising is actually related to the firm’s sales volume. Computer Printouts 1 Introduction Linear regression is a statistical technique used to predict (forecast) the value of a variable from known related variables. In addition we wish to use the amount spent on advertising to predict the sales volume.Chapter 10 Simple Linear Regression and Correlation Contents.( Ad Sales) Consider the problem of predicting the gross monthly sales volume y for a corporation that is not subject to substantial seasonal variation in its sales volume. Inferences concerning the slope 5.

0 120 1. for 10 randomly selected months.3 90 0. V ar( ) := σ 2 = σ 2 . E( ) := µ = 0.000) 101 1.7 82 0.000) x(x$10. (i) Response: dependent variable of interest (sales volume) (ii) Independent (predictor) variable ( Ad expenditure) (iii) Linear equations (straight line): y = a + bx Scatter diagram: Best fit straight line: Equation of a straight line: (y-intercept and slope) 2 A Simple Linear Probabilistic Model Model. Month 1 2 3 4 5 6 7 8 9 10 Ad Sales Data y(y$10. : random error due to other factors not included in the model.1 Definitions. Assumptions.8 93 1.volume. Y = β0 + β1 X + where x: independent variable (predictor) y: dependent variable (response) β0 and β1 are unknown parameters. y.0 75 0. 99 .8 110 1.6 91 0.9 105 1. 1. 2.2 92 0.

3. The random components of any two observed y values are independent. Use the computational formulas to provide a data summary. y) around the regression line. s2 = SSE n−2 Remarks. y = y/n SSxx = (x − x)2 = x2 − ( x)2 /n SSyy = (y − y)2 = y 2 − ( y)2/n SSxy = (x − x)(y − y) = xy − ( x)( ˆ β1 = SSxy /SSxx ˆ ˆ β0 = y − β1 x. 100 . β1 and σ 2 . has a normal distribution with mean 0 and variance σ 2 . To estimate σ 2 y)/n ˆ SSE = SSyy − β1 SSxy = SSyy − (SSxy )2 /SSxx . Can you say that x and y are linearly related? Answer. (ii) s2 provides a measure of spread of points (x.v. x = x/n. Objective: Estimate β0 . that is min (y − y )2 ˆ Computational Formulas. 3 Least Squares Prediction Equation The least squares prediction equation is sometimes called the estimated regression equation or the prediction equation. 4. Ad Sales example Question 1. Do a scatter diagram. ˆ (i) β1 : is the slope of the estimated regression equation. ˆ ˆ y = β0 + β1 x ˆ This equation is obtained by using the method of least squares. The r. Question 2.

Answer. Data Summary.9 SSxx = .444 SSxy = 23.34 SSyy = 1600. x = 0.9 101 .94. y = 95.

8 y2 10.100 14.201 8.00 0.0 63.0 81.81 1.0 110 1.7 90 0.5 xy 924.025 y2 93.724 8.36 0.8 − y)2/n = 93. 569 − (9.8 92 0.9 115.9 (9.100 6.34 10 (959)2 = 1600. y = x2 − ( xy − ( y2 − ( y/n = 95.0 156.49 0.569 x= x/n = 0.649 5.9 xy 121.444 y)/n = 924.6 110.Optional material Month 1 2 3 4 5 6 7 8 9 10 Sum Ad Sales Calculations x y x2 1.94.21 x y x2 9.6 93.3 120 1.2 73.44 0.00 1.400 8.0 65.625 8.94 y = 95.0 93 1.69 0.4)(959) = 23.0 45.28 − x)( = .64 1.9 10 102 .64 1.4 959 9.8 82 0.28 x = 0.2 101 1.4)2 10 SSxx = SSxy = SSyy = x)2 /n = 9.464 12.281 11.6 75 0.9 91 0.1 105 1.

0.57)(1.06 so the mean sales volume is $990.49.Question 3.9 − (52. Question 6.e. and β1 . Predict the mean sales volume E(y|x) for a given expenditure level of $10. Estimate the parameters β0 . be different. 600. This equation is also called the estimated regression equation or prediction line.5676 52.06.49 + 52.444 ˆ ˆ0 = y − β1 x = 95. Answer. 000 (i. y = 46. the bound on the error of estimation will. y.49 + 52.97 .57)(1. Answer. Predict sales volume.34 = 52.57 . x = 1. E(y|x) = 46.5676)(.57x = 46. Answer. ˆ SSE = SSyy − β1 SSxy = 1.9 − (52. Therefore s2 = SSE 373. Answer. 000. Remark. Answer.34) = 373. Question 7. for a given expenditure level of $10.0). β Question 4. ˆ β1 = SSxy /SSxx = 23.57x ˆ Remark. Find the least squares line for the data.97 = = 46. 600.94) 46. In Question 6 and Question 7 we obtained the same estimate. however.0) = 99.0) = 99. 600.57x = 46.49 + (52. x = 1. 4 Inferences Concerning the Slope Parameter of interest: β1 ˆ Point estimator: β1 103 .49 + (52. Estimate σ 2 .49 + 52. ˆ ˆ y = β0 + β1 x = 46.5676)(23. ˆ So sales volume is $990.75 n−2 8 Question 5.

12 6. y.57 − 0 β1 − 0 √ = t= √ = 5.444 s/ SSxx RR: ( critical value: t.n−2 Graph: Decision: Conclusion: Question 8. H0 : β1 = 0 (no linear relationship) Ha : β1 = 0 (there is linear relationship) T. and sales volume.S. : ˆ 52. H0 : β1 = β10 (no linear relationship) Ha : β1 = β10 (there is linear relationship) T.Estimator mean: µβ1 = β1 ˆ √ Estimator standard error: σβˆ1 = σ/ SSxx Test.84/ .n−2 or t < −tα/2. : ˆ β1 − β10 t= √ s/ SSxx RR: Reject H0 if t > tα/2.S. y.306) Reject H0 if t > 2. Answer.306 Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to indicate a linear relation ship between advertising expenditure.025. Answer. 104 . x.n−2 √ SSxx Question 9.306 or t < −2. Determine whether there is evidence to indicate a linear relationship between advertising expenditure. Test. Confidence interval for β1 : s ˆ β1 ± tα/2. x.8 = 2. and sales volume. Find a 95% confidence interval for β1 .

84 52.n−2 s2 [1 + ˆ 1 (xp − x)2 + ] n SSxx 7 Coefficient of Correlation In a previous section we tested for a linear relationship between x and y. r= SSxy SSxx SSyy Remarks. Now we examine how strong a linear relationship between x and y is.90. 105 .n−2 s2 [ ˆ 1 (xp − x)2 ] + n SSxx 6 Predicting y for a Given x The prediction interval (PI) for a particular value of y given x = xp is given by y ± tα/2.444 52.n−2 √ SSxx 6. (i) −1 ≤ r ≤ 1. We call this measure coefficient of correlation between y and x.57 = (28.24) 5 by Estimating E(y|x) For a Given x The confidence interval (CI) for the expected (mean) value of y given x = xp is given y ± tα/2.s ˆ β1 ± tα/2.306 √ .57 ± 2. 76.57 ± 23.

77 SSyy r 2 = is called the coefficient of determination 8 Analysis of Variance Notation: T SS := SSyy = (y − y)2 (Total SS of deviations). Use ANOVA table to test for a significant linear relationship between sales and advertising expenditure. By what percentage is the sum of squares of deviations of y about the ˆ mean (SSyy ) is reduced by using y rather than y as a predictor of y? Answer. SSyy − SSE r2 = = 0. 106 .9) = 0. Give the ANOVA table for the AD sales example.34 0. r= SSxy SSxx SSyy = 23. Answer. Find the coefficient of correlation. y SSR = (ˆ − y)2 (SS of deviations due to regression or explained deviations) ˆ SSE = (y − y )2 (SS of deviations for the error or unexplained deviations) T SS = SSR + SSE Question 12. Answer. r.88 Coefficient of determination Algebraic manipulations show that r2 = SSyy − SSE SSyy Question 11. 600.444(1. ˆ (iii) r > 0 indicates a positive correlation (β1 > 0) ˆ (iv) r < 0 indicates a negative correlation (β1 < 0) ˆ (v) r = 0 indicates no correlation (β1 = 0) Question 10.(ii) The population coefficient of correlation is ρ. Question 13.882 = 0.

25 0. MTB> Plot C1 C2.S. H0 : β1 = 0 (no linear relationship) Ha : β1 = 0 (there is linear relationship) T.600.900 ANOVA Table MS MSR=SSR/(1) MSE=SSE/(n-2) Source df SS Reg. MTB> Regress C1 1 C2.25 RR: ( critical value: F.005.69) Reject H0 if F > 14.927 26.Source Reg.747 9 1. : Gives a scatter diagram.69 (OR: Reject H0 if α > p-value) Graph: Decision: Reject H0 Conclusion: At 0. Error Totals ANOVA Table df SS MS F p-value 1 1. y.5% significance level there is sufficient statistical evidence to indicate a linear relationship between advertising expenditure. 9 Computer Printouts for Regression Analysis Store y in C1 and x in C2.226.8 = 14.1. and sales volume. Test. 1 SSR Error n-2 SSE Totals n-1 TSS F MSR/MSE p-value Answer.927 1. Computer output for Ad sales example: More generally we obtain: 107 .973 46.0001 8 373.: F = M SR M SE = 26. x.226.

943. and SSxy = −16. (Answer: r = −. (Answer: y = 3 − x) ˆ (iv) Plot the regression equation on the same graph as (i). answer method whenever possible.600.Predictor Constant x s=6.7% Source Reg. (iii) Find the regression equation for the data.5 + 52.747 9 1. y = 15. x2 = 16.486 9. Use the formula. 1. Show your work graphically in all relevant questions.973 46. substitution.70 52. Does the line appear to provide a good fit for the data points? (v) Compute SSE and s2 .12 R-sq=76.927 26.889) 108 . No credit for a correct final answer without a valid argument.000 0.837 The regression equation is y=46. y 2 = 63.900 Review Exercises: Linear Regression Please show all work. r 2 = .000 R-sq(adj)=73. SSxx = 16. (Answer: s2 = 2/3) (vi) Estimate the expected value of y when x = −1 (vii) Find the correlation coefficient r and find r 2 . and indicate whether x and y appear linearly related. SSyy = 18.000 8 373.226. Given the following data set x -3 -1 1 1 2 y 6 4 3 1 1 (i) Plot the scatter diagram.927 1. (ii) Show that x = 0.6% P 0.885 4.57 10.6 x Coef Stdev t-ratio 46.226.25 0.26 5. Error Totals Analysis of Variance df SS MS F p-value 1 1.

85) (iii) Find r 2 and interpret it value. The Regress Minitab’s command has been applied to data on family income.1. SSyy = 2. 236. and last year’s energy consumption.73 + 1.000 0.054 39. X. X.(Answer: r = . and the estimated regression equation. and SSxy = 886. A study of middle to upper-level managers is undertaken to investigate the relationship between salary level. SSxx = 485. Y .036 0.75.25 0. from a random sample of 25 families. The income data are in thousands of dollars and the energy consumption are in millions of BTU. r. and years of work experience.826x) ˆ (ii) Find the correlation coefficient. Predictor Constant X s= Analysis of Coef 82. 1 SSR MSR=SSR/(1) MSR/MSE Error n-2 SSE MSE=SSE/(n-2) Totals n-1 TSS p-value 2.05727 16.000 R-sq(adj)=91.94 0. (Answer: y = 16.6% 109 . 3.0% Variance stdev t-ratio P 2.The regression equation is ˆ ˆ y = β0 + β1 x Predictor Constant x s= √ MSE Coef ˆ β0 ˆ β1 Stdev σβˆ0 σβˆ1 R − sq = r 2 t-ratio TS: t TS: t P p-value p-value R-sq(adj) Analysis of Variance Source df SS MS F Reg.Y .93051 R-sq=92. ˆ ˆ (i) Find β0 .8.85. β1 . It is further assumed that the relationship is linear. yi = 763. A portion of a linear regression computer printout is shown below. A random sample sample of 20 managers is chosen with the following results (in thousands of dollars): xi = 235.

ˆ ˆ (ii) Find β0 . T F (iv) r = 1 implies no linear correlation between x and y. we always predict the same value of y regardless of the value of x. (iii) Do the data present sufficient evidence to indicate that Y and X are linearly related? Test by using α = 0. T F (v) We always estimate the value of a parameter and predict the value of a random variable. T F (i) The correlation coefficient r shows the degree of association between x and y. Answer by True of False . (iv) Determine a point estimate for last year’s mean energy consumption of all families with an annual income of $40. and σ 2 .000. T F (vii) It is necessary to assume that the response y of a probability model has a normal distribution if we are to estimate the parameters β0 . T F (ii) The coefficient of determination r 2 shows the percentage change in y resulting form one-unit change in x. T F (iii) The last step in a simple regression analysis is drawing a scatter diagram.Source Regression Error Total DF SS 23 8291 MS F P 7626. T F (vi) If β1 = 1. 110 . β1 . 4.6 264.000 (i) Complete all missing entries in the table. and the estimated regression equation.01. (Circle your choice).02 0. β1 .

2. Assumptions. Analysis of Variance 4. 2 A Multiple Linear Model Model. 111 .Chapter 11 Multiple Linear Regression Contents. has a normal distribution with mean 0 and variance σ 2 . Introduction: Example 2. : random error due to other factors not included in the model. 1. Multiple Linear Model 3. Y = β0 + β1 X1 + β2 X2 + β3 X3 + where xi : independent variables (predictors) y: dependent variable (response) βi : unknown parameters. 3. E( ) := µ = 0. Computer Printouts 1 Introduction: Example Multiple linear regression is a statistical technique used predict (forecast) the value of a variable from multiple known related variables. V ar( ) := σ 2 = σ 2 . 1.

The random components of any two observed y values are independent. y x1 x2 x3 1 y1 x11 x21 x31 2 y2 x12 x22 x32 ··· ··· ··· ··· ··· n yn x1n x2n x3n Minitab Printout The regression equation is ˆ ˆ ˆ ˆ y = β0 + β1 x1 + β2 x2 + β3 x3 Predictor Constant x1 x2 x3 s= √ MSE Coef ˆ β0 ˆ β1 ˆ β2 ˆ β3 Stdev σβˆ0 σβˆ1 σβˆ2 σβˆ3 R2 = r 2 t-ratio TS: t TS: t TS: t TS: t P p-value p-value p-value p-value R2 (adj) Source Reg.4. Error Totals df 3 n−4 n−1 Analysis of Variance SS MS F SSR MSR=SSR/(3) MSR/MSE SSE MSE=SSE/(n-4) TSS p-value 112 . 3 Least Squares Prediction Equation Estimated Regression Equation ˆ ˆ ˆ ˆ y = β0 + β1 x1 + β2 x2 + β3 x3 ˆ This equation is obtained by using the method of least squares Multiple Regression Data Obser.

Source x1 x2 x3

df 1 1 1

SS SSx1 x1 SSx2 x2 SSx3 x3

Unusual observations (ignore)

113

MINITAB. Use REGRESS command to regress y stored in C1 on the 3 predictor variables stored in C2 − C4. MTB> Regress C1 3 C2-C4; SUBC> Predict x1 x2 x3. The subcommand PREDICT in Minitab, followed by fixed values of x1 , x2 , and x3 calculates the estimated value of y (Fit), its estimated standard error (Stdev.Fit), a 95% ˆ CI for E(y), and a 95% PI for y. Example. A county assessor wishes to develop a model to relate the market value, y, of single-family residences in a community to the variables: x1 : living area in thousands of square feet; x2 : number of floors; x3 : number of bedrooms; x4 : number of baths. Observations were recorded for 29 randomly selected single-family homes from residences recently sold at fair market value. The resulting prediction equation will then be used for assessing the values of single family residences in the county to establish the amount each homeowner owes in property taxes. A Minitab printout is given below: MTB> Regress C1 4 C2-C5; SUBC> Predict 1.0 1 3 2; SUBC> Predict 1.4 2 3 2.5. The regression equation is y = −16.6 + 7.84x1 − 34.4x2 − 7.99x3 + 54.9x4 Predictor Coef. Stdev t-ratio Constant −16.58 18.88 −0.88 x1 7.839 1.234 6.35 x2 −34.39 11.15 −3.09 −7.990 8.249 −0.97 x3 54.93 13.52 4.06 x4 s = 16.58 R2 = 88.2%

P 0.389 0.000 0.005 0.342 0.000

R2 (adj) = 86.2%

114

Source Reg. Error Totals

df 4 24 28

Analysis of Variance SS MS F p-value 49359 12340 44.88 0.000 6599 275 55958

Source x1 x2 x3 x4

df 1 1 1 1

SS 44444 59 321 4536

Fit Stdev.Fit 113.32 5.80 137.75 5.48

95%C.I. 95%P.I. (101.34, 125.30) (77.05, 149.59) (126.44, 149.07) (101.70, 173.81)

115

Do the data provide sufficient evidence to indicate that the model contributes information for the prediction of y? Test using α = 0. What is the prediction equation ? The regression equation is y = −16. Reject H0 if α > p − value Graph: Decision: Reject H0 Conclusion: At 5% significance level there is sufficient statistical evidence to indicate that the model contributes information for the prediction of y. What type of model has been chosen to fit the data? Multiple linear regression model. CI: (101.05. ˆ ˆ ˆ ˆ y = β0 + β1 x1 + β2 x2 + β3 x2 x2 ˆ 1 116 .000 DR.34.84x1 − 34. x3 = 3.59) Non-Linear Models Example. Q3.Q1. Q4.99x3 + 54.9x4 Q2.05.S. and x4 = 2. Give a 95% CI for E(y) and PI for y when x1 = 10. 125. 149.30) PI: (77. x2 = 1. Test: H0 : model not useful Ha : model is useful T. : p-value=0.4x2 − 7.6 + 7.

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