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**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

(π

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

(π

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

√

2π

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

√

2π

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

(σ

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

116

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 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

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Comparing Two Population Proportions . . . . . . . . . . . . . . 2 Sampling Distributions . . . . . . . 3 The Randomized Block Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Analysis of Variance 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Comparing Two Population Means . . . . . . . . . . . . 7 Reporting Results of Statistical Tests: P-Value . . . . . . . . . . . . . . . 4 Testing a Population Proportion . . . . . . . . . . . . . . . . . . . . . . . . 2 A Large-Sample Statistical Test . . . . . . . . . . . 2 One Way ANOVA: Completely Randomized Experimental Design . . . . 3 Small-Sample Inferences About a Population Mean . . . . . . . . . . . 3 Testing a Population Mean . . . . . . . . . . 7 Comparing Two Population Variances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Two Quantitative Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Two Binomial Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Student’s t Distribution . . . . . . . . 8 Small-Sample Tests of Hypothesis 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Small-Sample Inferences About the Diﬀerence Between Two Means: Independent Samples . . . . .5 Sampling Distributions 1 The Central Limit Theorem (CLT) . . . . . . 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 . . . . . . . . . . . . . . . . . . . . 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Inferences About a Population Variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Single Binomial Population . . . . . . . . . . . . . . . . . . 2 Point Estimators and Their Properties 3 Single Quantitative Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Small-Sample Inferences About the Diﬀerence Between Two Means: Paired Samples . . . . . . . . 7 Large-Sample Tests of Hypothesis 1 Elements of a Statistical Test . . . . . . . . . . . . . . 6 Large Sample Estimation 1 Introduction . . . . . .

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

A market analyst wants to know the eﬀectiveness of a new diet. Is there any relationship between your GPA and employment opportunities. How fuel eﬃcient a certain car model is? 4. If you answer all questions on a (T. or possible side eﬀects. 3.F) (or multiple choice) examination completely randomly.Chapter 1 Data Analysis Chapter Content. wants to know if a new drug is superior to already existing drugs. What is the eﬀect of package designs on sales. 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. what are your chances of passing? 6. 2. 5. 5 . A pharmaceutical Co.

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. Inferential Statistics: deals with procedures used to make inferences (predictions) about a population parameter from information contained in a sample. How to pick the stocks to invest in? I. A collection of numbers (data)) Knowledge: Useful data Population: set of all measurements of interest (e. (iii) Collection and analysis of data (gathering and summarizing data). weight of freshman students) Descriptive Statistics: deals with procedures used to summarize the information contained in a set of measurements. height. (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. Objective. Types of data: qualitative vs quantitative OR discrete vs continuous Descriptive statistics Graphical vs numerical methods 6 .7. decisions) about certain characteristics of a population based on information contained in a sample.g. How many individuals you need to sample for your inferences to be acceptable? What is meant by the margin of error? 8. How to interpret polls.g. (v) A measure of “goodness” or reliability for the procedure. major. (ii) a design of the experiment or sampling procedure. (better statement) To make inferences (predictions. all registered voters. 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. What is the eﬀect of market strategy on market share? 9.

6 18.3 19. 7 .9 7.8 Data 24.03 6 25.5 19.04) 1.4 23.0-25.2 Graphical Methods Frequency and relative frequency distributions (Histograms): Example Weight 20.2 12.0-29.0-13.12) 5/25 (. (Most of the time between 7 and 13.) -The more data one has the larger is the number of classes.20) 7/25 (.4 12.03 2 9.24) 3/25 (.28) 6/25 (.2 20. freq.9 28.6 9. Method: Construct a statistical graph called a “histogram” (or frequency distribution) Weight Loss Data class boundtally class aries freq.06 5 21.8 15.8 9.8 13.7 16.12) 1/25 (.6 5.0-17.1 Loss 15.4 14.3 8.4 16.5 15.0-21.8 22.07 4 17.1 17. f /n 3/25 (.0 11.05 3 13. f 1 5.0-9.00 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 20.9 Objective: Provide a useful summary of the available information.0 1 Totals 25 rel.

3log10 (n).It occurs naturally in practical applications .0 (why?) 6 Graphs: Graph the frequency and relative frequency distributions. Normal distribution (Bell shape) 2. max − min . Exercise. Proceed as above Possible shapes of frequency distributions 1. k w= Note: w = 28.Formulas: k = 1 + 3. Comment on the usefulness of each including k = 6. But we used w = 29−5 = 4.87.Pie-Charts . Steps in Constructing a Frequency Distribution (Histogram) 1. Locate class boundaries 4.Cheating with Charts 8 . Uniform 4. Determine the class width 3. Poisson (discrete variables) Important -The normal distribution is the most popular. most useful.6−5.Bar Charts . Repeat the above example using 12 and 4 classes respectively.It lends itself easily to more in depth analysis Other Graphical Methods -Statistical Table: Comparing diﬀerent populations .Line Charts . Exponential 3. easiest to handle .4 6 = 3. Binomial. Determine the number of classes 2.

2. Sample mean 2. x2 . 75) then x = 90 + 95 + 80 + 60 + 75 = 400 x x = n = 400 = 80. 80. Sample mode Measures of Dispersion (Variability) Range Mean Absolute Deviation (MAD) Sample Variance Sample Standard Deviation 1. Sample Median The median of a sample (data set) is the middle number when the measurements are arranged in ascending order. 18.3 Numerical methods Measures of Central Tendency 1. · · · . 19) x = 20 + 18 + 22 + 29 + 21 + 19 = 129 x x = n = 129 = 21. 21. Sample median 3. Sample Mean (arithmetic average) x = x = x1 +x2 +···+xn n x n or Example 1: Given a sample of 5 test grades (90. 3. xn ) where n = sample size xi = value of the ith observation in the sample 1. 4. Note: If n is odd. 29. 95. 60. the median is the middle number 9 . 22. Measures of Central Tendency Given a sample of measurements (x1 .5 6 2. I. 5 Example 2: Let x = age of a randomly selected student sample: (20.

Example: Sample: (9. 7. 9. 7. 7. 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). 2. 14). 7). the median is the average of the middle two numbers. 7. 14 Step 2: med = 9. 2. Example 1: Sample (9. 3. 9. Mode The mode is the value of x (observation) that occurs with the greatest frequency. 11.If n is even. n = 5 Step 1: arrange in ascending order 2. 14). 2. 7. 11. 11. 7. 14. 6. 6. n = 6 Step 1: 2. 14 Step 2: med = 7+9 = 8. Example 2: Sample (9. mode = 7 10 . 2. 11. 11.

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

Sample Standard Deviation. 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. 75. 85. Measures of Variability Given: a sample of size n sample: (x1 . Sample Variance. · · · .smallest measurement or Range = max .II.min = 95-65 = 30 2. Range: Range = largest measurement . xn ) 1. x2 . s (x − x)2 n−1 12 . 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. s2 s2 = 4. 65. 70.min Example 1: Sample (90. 95) Range = max .

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 = 11.83 Shortcut Formula for Calculating s2 and s s2 = ( x) x2 − n n−1 2 s= ( x) x2 − n n−1 √ s2 ). 2 (or s = Example: Same sample 13 .

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. xN } Population mean: µ = Population variance: xi N x Sample Variance: s2 = (xi −x)2 n−1 σ2 = (xi − µ)2 N 14 .83.x x2 90 8100 85 7225 65 4225 75 5625 70 4900 95 9025 Totals 480 39. x2 . Graphical Interpretation of the Variance: Finite Populations Let N = population size. s = 2 2 ( x) n 2 2 Numerical methods(Summary) Data: {x1 .100 x − 39. · · · . 400 700 = = = 140 5 5 √ √ s2 = 140 = 11. 100 − 38. x2 . 100 − (480) 6 s = = n−1 5 39. · · · . Data: {x1 .

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

3(n + 1) = .25(n + 1) = .75 2.5(11 − 10) = 10. Lower Quartile (25th percentile) Example. Deﬁnition. Data: 2.1 Special Cases.75 (S2) Q3 = 14 + . 20.5 (S2) median: Q2 = 10 + . Upper Quartile (75th percentile) Example.7 (S2) 30th percentile = 5 + .75(17 − 14) = 16. IQ = Q3 − Q1 Exercise.25(8 − 5) = 5 + . 8.) = 4 Percentiles Using percentiles is useful if data is badly skewed. 5. Let x1 . . 10.25 (S2) Q1 = 5 + . (S1) position = .5(9) = 4. 1. (S1) position = . .75(9) = 6. (i) Find the 30th percentile. 16 .1 = 7. xn be a set of measurements arranged in increasing order. 14. 17. Median (50th percentile) Example.v. Let 0 < p < 100. The pth percentile is a number x such that p% of all measurements fall below the pth percentile and (100 − p)% fall above it. Find the interquartile (IQ) in the above example.7(8 − 5) = 5 + 2. (S1) position = . . Example. x2 .75(n + 1) = . .75 = 5.3(9) = 2.25 Interquartiles. Solution. (S1) position = . 11.5(n + 1) = .5 3.25(9) = 2.(iii) Approximation: s range 4 s x (iv) Coeﬃcient of variation (c.

0-29.0-25.019 6 5 21.023 3 6 25.587 729 6.0 27 1 Totals 25 Example: (weight loss data) x2 f 147 605 1. The sample z-score for a measurement x is z= x−x s 2. sample variance and sample standard deviation of the grouped data in the weight loss example.809 xf 21 55 105 114 69 27 391 Let k = number of classes. xg = xf n s2 = g x2 f − ( xf )2 /n n−1 where the summation is over the number of classes k.0-21.011 5 3 13. freq.5 Sample Mean and Variance For Grouped Data Weight Loss Data class boundaries mid-pt.0-13.575 2.166 1. The population z-score for a measurement x is 17 .07 3 2 9. 6 z-score 1.015 7 4 17. Exercise: Use the grouped data formulas to calculate the sample mean. Compare with the raw data results.0-9.0-17. Formulas. x f 1 5.

s2 = .79 (i) Show that x = . 1. these data represent the early morning readings for the 25 days sampled. (ii) Find the range.5 ppm (parts per million).82 . R. s = 6.84 .71 . (Fluoride Problem) The regulation board of health in a particular state specify that the ﬂuoride level must not exceed 1.89 .88 . s. ﬁnd the width. Review Exercises: Data Analysis Please show all work.77 . s = . substitution.97 .83 .0065.z= x−µ σ Example.94 . of each class interval. No credit for a correct ﬁnal answer without a valid argument.89 . how many standard deviations. Suppose your score is 85.85 .75 . Use the formula. answer method whenever possible. (i.66 z= s 6 standard deviations above average.e. What is your relative standing.84 . w. above (below) the mean your score is)? Answer.86 .78 . 18 .81 . (iv) Locate class boundaries (v) Construct the frequency and relative frequency distributions for the data.97 .0803.83 . A set of grades has x = 75.05 .8588.76 .94 . Although ﬂuoride levels are measured more than once per day.93 . The 25 measurements below represent the ﬂuoride level for a sample of 25 days.85 . Show your work graphically in all relevant questions. (iii) Using k = 7 classes.92 1. . 85 − 75 x−x = = 1.

Q1 and Q3 .001. class frequency. s = 2.85-. Given the following data set (weight loss per week) (9. 8. 24.80. (x) Repeat (i)-(ix) for the data set (21. 2.90-.75. (Vertical axis must be clearly labeled) 2. ss . f xf x2 f 40 -504 50 -606 60-7010 70-8015 80-9010 90-100 5 Totals 19 . 3. (vi) Find the sample variance using the deﬁning formula. (iii) Find the sample mode. 24). Answers: x = 5.70-. 5.00-1. (iv) Find the sample range.85. (ix) Find the ﬁrst and third quartiles. 16.75-.7.95-1.25.588. (v) Find the mean absolute diﬀerence.95. (vii) Find the sample variance using the short-cut formula. Grades for 50 students from a previous MAT test are summarized below.class frequency . 5) (i) Find the sample mean.05 Totals relative frequency (vi) Graph the frequency and relative frequency distributions and state your conclusions. med =5.90. mode =5 range = 7. Q − 3 = 8. MAD=2. (ii) Find the sample median. 6. 15.80-. (viii) Find the sample standard deviation.5. 4.

Suppose that the relative frequency distribution is bell-shaped. s = 14. (4 pts. Refer to the data in the ﬂuoride problem. Answers: Σxf = 3610.475.58. Σx2 f = 18. 5. (i) Find the sample mean and standard deviation for the raw data. (iii) Compare the answers in (i) and (ii). Refer to the raw data in the ﬂuoride problem. T F (v) Numerical descriptive measures computed from sample measurements are called parameters. Σx2 f = 270. (ii) ﬁnd the percentage of measurements fall in the interval (µ + 2σ. Answers: Σxf = 21. the mean is larger than the median. 34) (ii) Approximately what percentage of measurements fall in the interval (µ. 4. T F (iv) The variance is equal to the square of the standard deviation. (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. x = 72. T F (i) The median is insensitive to extreme values.0745. Assume the standard deviation is known to be 4 and that the frequency distribution is known to be bell-shaped.2. T F (iii) For a positively skewed frequency distribution. T F (ii) The mean is insensitive to extreme values. (ii) Graph the frequency distribution. ∞) 7. Using the empirical rule (i) ﬁnd the interval around the mean that contains 99. sg = . 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. (i) Approximately what percentage of measurements fall in the interval (22. 250. (Circle your choice).6% of measurements.) Answer by True of False . Suppose that the mean of a population is 30. xg =. (ii) Find the sample mean and standard deviation for the grouped data. s2 = 196. 20 . T F (vi) The number of students attending a Mathematics lecture on any given day is a discrete variable.

T F (viii) Although we may have a large mass of data. T F (x) A statistic is a number that describes a population characteristic. 21 .T F (vii) The median is a better measure of central tendency than the mean when a distribution is badly skewed. 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 (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.

inspecting an assembly line. polling. Conceptually.Chapter 2 Probability Contents. or set of all possible outcomes for an experiment Notation. throw a die. Sample space : S 22 . counting arrivals at emergency room. a population could be generated by repeating an experiment indeﬁnitely. 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. 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. etc. Population: Set of all possible observations.

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

Deﬁnition The probability of any event A is equal to the sum of the probabilities of the sample points in A. 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 . We refer to P (Ei ) as the probability of the Ei . Determine the simple events that constitute an event 5. 6 and P (Ei ) = 1/5. E2 . .nA = frequency of the event A nA = relative frequency of A n P (A) nA n if n is large enough. Example.. . In tabular form. . . P (A) = limn→∞ nn . It is known that P (Ei) = 1/20. i = 7. . . Add up the simple events’ probabilities to obtain the probability of the event 24 . A (In fact. Assign probabilities to simple events 4. 8.75 Steps in calculating probabilities of events 1. i = 1. . 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. Deﬁne the experiment 2. . . i ≥ 6}. 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. .) Conceptual Deﬁnition of Probability Consider a random experiment whose sample space is S with sample points E1 . Let S = {E1 . . 9 and P (E10 ) = 2/20. . E10 }. List all simple events 3.

assigns the same probability P (Ei ) = 1/N for all Ei . HT.Example Calculate the probability of observing one H in a toss of two fair coins. (i) List all the sample points in the sample space Solution: S = {HHH. at most one head. however. (iii) In some cases probabilities can be a measure of belief (subjective probability). one can estimate probabilities. The assignment. Then P (A ∩ B) P (A|B) = P (B) 25 . (iv) Typically. then use the laws of probability to calculate the probabilities of compound events. . T H} P (A) = 0. . P(H)=. should make sense.5 in a toss of a fair coin).5. (ii) At the conceptual level we assign probabilities to events. 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).g. This measure of belief should however satisfy the axioms. . (e. In this case. Solution. Toss a fair coin 3 times. one cannot measure probabilities. T H.5 Interpretations of Probability (i) In real world applications one observes (measures) relative frequencies. EN }. Equally Likely Outcomes The equally likely probability P deﬁned on a ﬁnite sample space S = {E1 . Example. we would like to assign probabilities to simple events directly. T T } A = {HT. However. · · · T T T } (Complete this) (ii) Find the probability of observing exactly two heads. . 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. P(T)=. S = {HH.

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

or P (A) = P (A|B)P (B) + P (A|B c )P (B c ).323. Then P (A) = P (A ∩ B) + P (A ∩ B c ) .(v) Are A and B independent? Are C and D independent? (vi) Find P (A ∩ B) and P (A ∪ B).005) (.995) 95 294 . (i) The events of interest here are B. Law of total probability Let the B. (ii) Bayes’ Law is important in several ﬁelds of applications. P (B) and P (B c ) are called prior probabilities.95)(. and (ii) P (B|A) and P (B c |A) are called posterior (revised) probabilities. the test also yields a “false positive” results for 1 percent of healthy persons tested. then. with probability 0. present. if a healthy person is tested. A laboratory blood test is 95 percent eﬀective in detecting a certain disease when it is. However. P (D|E) = = = = 27 . Then P (B|A) = P (AB) P (A|B)P (B) = . P (A) P (A|B)P (B) + P (A|B c )P (B c ) Remarks.005) + (. 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 (E) P (E|D)P (D) P (E|D)P (D) + P (E|D c )P (D c) (. B c be complementary events and let A denote an arbitrary event. B c be complementary events and let A denote an arbitrary event. Bayes’ Law Let the B. Example 1.95)(. in fact.5 percent of the population actually has the disease. the test result will imply he or she has the disease.) If 0.01. B c . (That is.01)(.

there are n possible outcomes of experiment 2. for each outcome of experiment 1. Generalized basic principle of counting 28 . Examples.048. (i) Toss two coins: mn = 2 × 2 = 4 (ii) Throw two dice: mn = 6 × 6 = 36 (iii) A small community consists of 10 men. Then if experiment 1 can result in any one of m possible outcomes and if. we see.576 9 10 40 1012 15 10 64 1019 Note that 230 109 = one billion. A RECALL: P (A) = nn . 240 1012 = one thousand billion.Thus only 32 percent of those persons whose test results are positive actually have the disease. that there are 10 × 3 = 30 possible choices. each of whom has 3 sons. so for some applications we need to ﬁnd n. nA where n and nA are the number of points in S and A respectively. Basic principle of counting: mn rule Suppose that two experiments are to be performed. 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. 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. from the basic principle. 250 1015 = one trillion. If one man and one of his sons are to be chosen as father and son of the year. then together there are mn possible outcomes of the two experiments.

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. In how many diﬀerent ways can you select 3 balls? Solution: Note that n = 10. (iv) In (iii). and if for each of the possible outcomes of the ﬁrst two experiments there are n3 possible outcomes of the third experiment. is to be chosen. 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. A subcommittee of 4.If r experiments that are to be performed are such that the ﬁrst one may result in any of n1 possible outcomes. 760. Examples (i) There are 5 routes available between A and B. (ii) A college planning committee consists of 3 freshmen. (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. 5 juniors. and 7 between C and D. 624. r = 3. What is the total number of available routes between A and D? Solution: The total number of available routes is mnt = 5.. then there are a total of n1 · n2 · · · nr possible outcomes of the r experiments. consisting of 1 individual from each class. Answer: There are 3! = 6 arrangements or permutations. and 2 seniors. List all arrangements. 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 if. 000 possible license plates. 000 possible license plates.4. 7! 29 . . . b and c. 4 between B and C.7 = 140. (ii) A box contains 10 balls. 4 sophomores. Number of diﬀerent ways is 10 · 9 · 8 = 10! = 720. and if for each of these n1 possible outcomes there are n2 possible outcomes of the second experiment. Balls are selected without replacement one at a time.

30 . 2 3 5 Random Sampling Deﬁnition. Remarks. Concept of Probability.2. 1. Consider a chance experiment: Toss of a coin. How many diﬀerent committees are possible? Solution: There are 20 3 = 20! 3!17! = 20. Example. (n−r)! Combinations For r ≤ n.(which is equal to n! ). 475. Even though probability (chance) involves the notion of change.1 = 1140 possible committees. (ii) From a group of 5 men and 7 women. For instance = 20. In this case the sampling process is called simple random sampling.19. we say the random sample provides an honest representation of the population. Examples (i) A committee of 3 is to be formed from a group of 20 people. the laws governing the change may themselves remain ﬁxed as time passes. (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 . 6 Modeling Uncertainty The purpose of modeling uncertainty (randomness) is to discover the laws of change. (iii) Tables of random numbers may be used to select random samples. (i) If n is large. 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. 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). how many diﬀerent committees consisting of 2 men and 3 women can be formed? Solution: 5 7 = 350 possible committees.18 3.

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

and 3.1. C. 3.08 1.00 C D (i) Using the deﬁnitions. Suppose that S = {1. The following probability table gives the intersection probabilities for four events A. ﬁnd P (A).31 . Refer to problem 3. P (6) = . C and D: A . P (2) = .1.2. P (D). 4. 6} such that P (1) = .3.1. 3. P (C). and answer questions (i)-(viii). (ii) Find the probability of the complement of A. (i) Find the probability of the event A = {4. 6}.55 B 0. 32 .2. 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). (ix) Refer to problem 2. 5.P(3)=. B. 5.06 . (iv) Find the probability of the event C = {odd}. 4. An experiment consists of throwing a fair die.. (iv) Compare problems 2. P (B).2. (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. 2. 5. (iii) Find the probability of the event B = {even}. P(4)=. P (5) = . P (D|A) and P (C|B). P (C|A). (i) List all the elements in the sample space. B.

is more believable? Why? No credit if answer is not justiﬁed. 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. · · ·} (ii) Find the probability of selecting a black ball. Second report: The chances of rain are today 30%. First report: The chances of rain are today 30%. (iii) Find P (A ∩ B). both today and tomorrow 20%. are A and B mutually exclusive? independent? 7. what is the probability that it is white? black? (ii) If two balls are selected without replacement.) 8. 33 .3. (iii) Find the probability of selecting one black and one red ball. 6. (i) Find the sample space S (Hint: there is 10 sample points). (Hint: Let A and B be the events of rain today and rain tomorrow. tomorrow 40%. P (A) = .6. and green (g). if any.4.4. (v) Are B and C independent events? Justify your answer. (i) If a ball is selected at random. (viii) Are C and D mutually exclusive events? Justify your answer. and P (B) = . Which of the two reports.2. P (A) = . a black (b).5.65. orange (o). P (A) = . white (w). Suppose that the following two weather forecasts were reported on two local TV stations for the same period. either today or tomorrow 60%.(ii) Find P (B c ). and P (B) = . (vi) Are B and C mutually exclusive events? Justify your answer. tomorrow 40%. A box contains four black and six white balls. and P (B) = . (iv) Find P (A ∪ B). Use the laws of probability to justify your answers to the following questions: (i) If P (A ∪ B) = . Three balls are to be selected at random. both today and tomorrow 10%. S = {bwr. (vii) Are C and D independent events? Justify your answer. red (r). are A and B mutually exclusive? independent? (ii) If P (A ∪ B) = . either today or tomorrow 60%. are A and B mutually exclusive? independent? (iii) If P (A ∪ B) = .7. 9.5. A box contains ﬁve balls.

the event may not occur at all in 10 trials. T F (i) An event is a speciﬁc collection of simple events. 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.9. T F (x) If a random experiment has 5 possible outcomes. (Circle your choice). T F (viii) The probability of an elementary event can never be larger than one half. T F (ii) The probability of an event can sometimes be negative. T F (v) A random sample of n observations from a population is not likely to provide a good estimate of a parameter. Answer by True of False . then the probability of each outcome is 1/5. 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 (iv) The sum of the probabilities of all simple events in the sample space may be less than 1 depending on circumstances. then they are also dependent. 34 . 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. T F (vii) The probability of an event can sometimes be larger than one.(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 (ix) Although the probability of an event occurring is . T F (iii) If A and B are mutually exclusive events.

T HH. The relevant question is to ﬁnd the probability of each these events. HHT. T T T } Let the variable of interest. be the number of heads observed then relevant events would be {X = 0} = {T T T } {X = 1} = {HT T. T T H. T T H} {X = 2} = {HHT.Chapter 3 Random Variables and Discrete Distributions Contents. T HT. then S = {HHH. HT H. T HH} {X = 3} = {HHH}. 35 . X. 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). Toss a coin 3 times. Example. HT H. HT T. Note that X takes integer values even though the sample space consists of H’s and T’s. T HT.

) Discrete Distributions The probability distribution of a discrete r.40 0. X.60 0.30 0. Y ..variable: it takes a numerical value Notation: We use X. weight.v. and (ii) x p(x) = 1 where the summation is over all possible values of x. X is discrete (qualitative data) 36 .50 -0. Discrete distributions in tabulated form Example.20 Remarks. A random variable (r.20 x p(x) 0 1 2 0.30 0. (i) Discrete distributions arise when the r.v.v.v. Deﬁnition. assigns a ﬁnite or countably inﬁnite number of possible values (e.) is a rule that assigns a numerical value to each possible outcome of a random experiment. Interpretation: -random: the value of the r.s. Which of the following deﬁnes a probability distribution? x p(x) 0 1 2 0. (e. height. toss a coin. to represent r.v. etc. has a continuum of possible values. assigns a probability p(x) for each possible x such that (i) 0 ≤ p(x) ≤ 1.v.10 x p(x) -1 1 2 0.The variable X transforms the problem of calculating probabilities from that of set theory to calculus.) A Continuous r.g.v. etc.g. price. throw a die. etc. A Discrete r. is unknown until the outcome is observed .50 0.

we describe a random experiment (population) by using random variables. (ii) In Probability we described a random experiment (population) in terms of events and probabilities of events. (i) In data analysis we described a set of data (sample) by dividing it into classes and calculating relative frequencies. and probability distribution functions.v.1 The expected value of a discrete rv X is denoted by µ and is deﬁned to be µ= x xp(x). Deﬁnition 2. (iii) Here.2 If X is a rv with mean µ. (or simply σ) is deﬁned by σ= Shortcut Formula σ= x2 p(x) − µ2 V (X) = (x − µ)2 p(x) 37 . Notation: The expected value of X is also denoted by µ = E[X]. X is continuous (quantitative data) Remarks. Shortcut Formula x2 p(x) − µ2 σ2 = (x − µ)2 p(x) Deﬁnition 2. then the variance of X is deﬁned by σ2 = x 2 Notation: Sometimes we use σ 2 = V (X) (or σX ). then the standard deviation of X. denoted by σX . 2 Expected Value and Variance Deﬁnition 2. or sometimes µX to emphasize its dependence on X.(ii) Continuous distributions arise when the r.3 If X is a rv with mean µ.

633 = . Find (i) P (X ≤ 4) = . σ = npq Example: Bernoulli. 1. Mean: µ = np √ Variance: σ 2 = npq. .3 Discrete Distributions Binomial.4.834 − . n) x where q = 1 − p.834 (iii) P (X > 4) = 1 − P (X ≤ 4) = 1 − . Example. 1. X is said to have a binomial distribution with parameters n and p if p(x) = n x n−x p q (x = 0.633 = .v. and (iv) the experimenter is interested in the rv X that counts the number of successes observed in n trials. . . Suppose X has a binomial distribution with n = 10. σ = pq Binomial Tables. A r. (ii) each trial results in one of two possible outcomes.7 38 .201 Exercise: Answer the same question with p = 0. The binomial experiment (distribution) arises in following situation: (i) the underlying experiment consists of n independent and identical trials. Cumulative probabilities are given in the table. A rv X is said to have a Bernoulli distribution with parameter p if Formula: p(x) = px (1 − p)1−x x = 0. Tabulated form: x p(x) 0 1 1-p p Mean: µ = p √ Variance: σ 2 = pq. a success or a failure. .367 (iv) P (X = 5) = P (X ≤ 5) − P (X ≤ 4) = . (iii) the probability of a success in a single trial is equal to p and remains the same throughout the experiment. p = .633 (ii) P (X < 6) = P (X ≤ 5) = .

.1. 1. Using the binomial distribution. examples include number of arrivals at an emergency room. Suppose the number of typographical errors on a single page of your book has a Poisson distribution with parameter λ = 1/2. Solution. Suppose that the probability that an item produced by a certain machine will be defective is 0.7358 which is close to the exact answer. The hypergeometric distribution arises when one selects a random sample of size n. . .5 0. Letting X denote the number of errors on a single page. Mean: µ = λ √ Variance: σ 2 = λ. preferably with np ≤ 7. The Poisson distribution provides good approximations to binomial probabilities when n is large and µ = np is small.Poisson. from a ﬁnite population of size N divided into two classes consisting 39 . Solution.1)0 (0. . number of items demanded from an inventory. Hypergeometric. without replacement. x = 0. we have λ = np = 1 e−1 + e−1 0. A rv X is said to have a Poisson distribution with parameter λ > 0 if p(x) = e−λ λx /x!. we have P (X ≥ 1) = 1 − P (X = 0) = 1 − e−0.9)10 + (0. Find the probability that a sample of of 10 items will contain at most 1 defective item.71828 Example. σ = λ Note: e 2.7361 0 1 Using Poisson approximation. Calculate the probability that there is at least one error on this page. 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.395 Rule of Thumb. number of items in a batch of a random size.1)1 (0. Graph.9)9 = 0. the desired probability is P (X ≤ 1) = p(0) + p(1) = 10 10 (0. Example.

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

1π1 + 0. that is (π1 . π2 ) and π1 + π2 = 1 Matrix multiplication gives π1 = 0.9 0. π2 ) = (1/3.2 0. suppose that customer behavior is not changed over time.8π2 π1 + π2 = 1 0. 2/3) 0. 000 B2 buyers will be 300. then 1 1 0 0 π 1 = (π1 . and i πi = 1.3/3.1 0. Question 2.Brand 1 Brand 2 Brand 1 90/100 10/100 Brand 2 40/200 160/200 So P = 0.2 0. Two weeks from now: exercise.8 = (1.9π1 + 0. 000(1.1 0.1 0.2 0. 000.9 0.2π2 π2 = 0.8 41 . 2/3).9 0.7/3) B1 buyers will be 300.3/3) = 130. π2 ) = (π1 .7/3) = 170. 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 = (1/3.8 Question 1. Determine whether each brand will eventually retain a constant share of the market. 000(1. π2 ) = (π1 . 1. If 1/3 of all customers purchased B1 this week. π2 )P 1 1 π 1 = (π1 . Solution: We need to solve π = πP .

On any particular day Rebecca is either cheerful (c) or gloomy (g). class at a university (vi) The rate of interest paid by your local bank on a given day 2. No credit for a correct ﬁnal answer without a valid argument. 1/3) Brand 1 will eventually capture two thirds of the market (200. What restrictions do we place on the probabilities associated with a particular probability distribution? 42 . Complete this problem.3 P = 0. 000) customers. (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. This can be obtained by solving π = πP .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. π2 ) = (2/3. Use the formula.One equation is redundant. π1 ). If she is cheerful today then she will be cheerful tomorrow with probability 0. Show your work graphically in all relevant questions. where π = (π0 .4. we get 0. a chair) (iv) The number of emergency cases arriving at a city hospital (v) The number of sophomores in a randomly selected Math. and π0 + π1 = 1. Review Exercises: Discrete Distributions and π1 + π2 = 1 Please show all work.2π2 which gives (π1 .6 0. (i) What is the transition matrix P ? Solution: 0. substitution. Identify the following as discrete or continuous random variables. 1. answer method whenever possible.g. Choose the ﬁrst and the third. Example 2. If she is gloomy today then she will be gloomy tomorrow with probability 0. Exercise.1π1 = 0.7 0.7.

1 43 .3. (i) x p(x) -1 0 1 .2 (ii) x p(x) -2 1 4 .5 .5 -.2 6 . Indicate whether or not the following are valid probability distributions.1 .2 . If they are not.6 .2 (ii) x -1 1 p(x) .6 .2 . indicate which of the restrictions has been violated.6 3.1 3.

05 . i. P (X > 3). (ii) Calculate the standard deviation of X.4 .e. (iii) Find the probability that X is greater than or equal to 3.45 . i. σ = 4. i.4 . the variance of X.1 (i) Calculate the expected value of X. A random variable X has the following probability distribution: x p(x) 1 2 . (ii) Find the probability that X is greater than 3. A discrete random variable X has the following probability distribution: x p(x) 10 15 20 25 .58. σ 2 .10 3 4 5 . (vi) Graph the probability distribution for X.3 .1 44 .e. σ 2 . Answers: µ = 17.2 . E(X) = µ. σ 2 = 21. and the standard deviation of X.e. calculate the expected value of X.2 . For each of the following probability distributions.3 3 4 . (v) Find the probability that X is an odd number. (iv) Find the probability that X is less than or equal to 2. σ. P (X ≤ 2). 5. 6. P (X ≥ 3).15 .25 (i) Verify that X has a valid probability distribution. E(X) = µ. (ii) Calculate the variance of X. σ. (i) x p(x) 1 2 .4.

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

Consider a binomial distribution with n = 5 and p = .8. Consider a binomial distribution with n = 25 and p = . Calculate (i) 5! (ii) 10! (iii) 7! 3!4! 4.6. 8. (i) Find the expected value E(X) = µ (ii) Find the standard deviation σ 7. P (1). and p = . 000 prospects over the coming year. (i) Find P (0) and P (2) using the formula. (i) What is the expected value of X. the annual number of sales. 3. (v) Find P (X < 12) using the table. A sales organization makes one sale for every 200 prospects that it contacts. (i) Use the formula to ﬁnd P (0). The organization plans to contact 100. (ii) What is the standard deviation of X. 2. (ii) Find P (X ≤ 2) using the formula.5. · · · . Consider a binomial distribution with n = 4 and p = . 5. (vii) Find P (X ≥ 8) using the table.6. P (4). (ii) Graph the probability distribution found in (i) (iii) Repeat (i) and (ii) when n = 4.1.6. Give the formula for the binomial probability distribution. and p = .2. (iv) Repeat (i) and (ii) when n = 4. Consider a binomial distribution with n = 500 and p = . List the properties for a binomial experiment. (iv) Find P (X ≤ 2) using the table. 46 . (i) Find the expected value E(X) = µ (ii) Find the standard deviation σ (iii) Find P (0) and P (2) using the table. (iii) Find the expected value E(X) = µ (iv) Find the standard deviation σ 6. (vi) Find P (X > 13) using the table.

Answer by True of False . 47 . (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. (vii) Determining the weekly pay rate per employee in a given company. T F (i) In a binomial experiment each trial is independent of the other trials.3 9. (vi) Determining the number of words typed before a typist makes an error. Answers: µ = 500. (Use the empirical rule). σ = 22.(iii) Within what limits would you expect X to fall with 95% probability. (Circle your choice). Identify the binomial experiment in the following group of statements. 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. 10.

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

(ii) P (Z > z0 ) = . −∞ < x < ∞. z0 = 2. Properties Mean: E[X] = µ Variance: V (X) = σ 2 Graph: Bell shaped. .9974 Examples. σ 2π where −∞ < µ < ∞.: 49 .33.025. (iv) P (Z > z0 ) = . z0 = 1. .28. . Examples. z0 = 1.10. Area under graph = 1.05. z0 = 1.10. −∞ < z < ∞. (vi) P (Z ≤ z0 ) = .v. z0 = 2. .025. Values of P (0 ≤ Z ≤ z) are tabulated in the appendix. (i) P (0 ≤ Z ≤ 1) = . 2π Graph. Find z0 such that (i) P (Z > z0 ) = .05. Tabulated Values. Critical Values: zα of the standard normal distribution are given by P (Z ≥ zα ) = α which is in the tail of the distribution.9544 (iv) P (−3 ≤ Z ≤ 3) = . (iii) P (Z > z0 ) = .01.58.96.645. (v) P (Z > z0 ) = .pdf of Z: 1 2 f (z) = √ e−z /2 . 0 < σ < ∞ .005.6826 (iii) P (−2 ≤ Z ≤ 2) = . (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 .01.3413 (ii) P (−1 ≤ Z ≤ 1) = .005. Standardizing a normal r.

then z= Therefore P (X < 1) = P (Z < −1.75) = 1 − 3. ﬁnd (i) P (2 < X < 5).Z-score: Z= OR (simply) Z= Conversely.2 50 . If this type of washer is guaranteed for 1 year. X − µX σX X −µ σ X = µ + σZ .1 = −1. (iii) P (X > 9) = P (Z > 2.4772 = .0) = 0. and (iii) P (X > 9).1 years and standard deviation of 1.5 − 0.75 1.33 < Z < 0.67) = . (ii) P (X > 0). what fraction of original sales will require replacement? Solution Let X be the length of life of an automatic washer selected at random.0228 Exercise Refer to the above example. (ii) P (X > 0) = P (Z > −1) = P (Z < 1) = . Example The length of life of a certain type of automatic washer is approximately normally distributed.3779.2 years.8413. with a mean of 3. ﬁnd P (X < −3). Example If X is a normal rv with parameters µ = 3 and σ 2 = 9. Solution (i) P (2 < X < 5) = P (−0.

40 (0.5 − 20 √ < √ < √ ) 10 10 10 P (−0.16 < Z < 0. c ≥ b Graph.1272.16) = . P (X = 20) = P (19.5)20 = .1268 20 3 Uniform: U[a.e. Mean: µ = (a + b)/2 51 . np ≥ 5 and n(1 − p) ≥ 5.a ≤ c ≤ b .Exercise: Complete the solution of this problem. i. c−a . The exact result is P (X = 20) = (ii) Exercise. c ≤ a . The approximation can be improved using correction factors. When and how to use the normal approximation: 1. Solution Note that np = 20 and np(1 − p) = 10. Example. 2. σ = (b − a)/ 12 CDF: (Area between a and c) P (X ≤ c) = 0. (i) Find the probability that X = 20. Large n.5) = P( X − 20 20. P (X ≤ c) = b−a P (X ≤ c) = 1.5 < X < 20. Let X be the number of times that a fair coin. (ii) Find P (10 ≤ X ≤ 20). Use the normal approximation.5)20 (0. ﬂipped 40.b] 1 a<x<b b−a = 0 elsewhere Formula: f (x) = √ Variance: σ 2 = (b − a)2 /12. Normal Approximation to the Binomial Distribution. lands heads.5 − 20 19.

233 0. Specialize the above results to the Uniform [0.Exercise. as being the distribution of the amount of time until some speciﬁc event occurs. time until an arrival at emergency room. P (X > a) = e−λa Example 1.368 Example 2. etc.. 4 Exponential The exponential pdf often arises. If someone arrives immediately ahead of you at a public telephone booth.. . and (ii) between 10 and 20 minutes. 1] case. that a computer functions before breaking down is an exponential rv with λ = 1/100. The amount of time. ﬁnd the probability that you will have to wait (i) more than 10 minutes. (i) P (X > 10) = e−λa = e−1 (ii) P (10 < X < 20) = e−1 − e−2 0. 52 . in hours. x ≥ 0 = 0 elsewhere Properties Graph. σ = 1/λ CDF: P (X ≤ a) = 1 − e−λa . (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. Suppose that the length of a phone call in minutes is an exponential rv with parameter λ = 1/10. Solution Let X be the be the length of a phone call in minutes by the person ahead of you. Mean: µ = 1/λ Variance: σ 2 = 1/λ2. A rv X is said to have an exponential pdf with parameter λ > 0 if f (x) = λe−λx . Examples include time until a new car breaks down. in practice.

75 and z = −.75)) (iv) z = −1. The exponential rv has the memoryless property.6 ≤ Z ≤ 0)) (iii) z = .26 ≤ Z ≤ 1.75 (i.86)) (vi) z = −1.86 ≤ Z ≤ 1. P (−3.86)) (v) z = −1. Calculate the area under the standard normal curve between the following values.0708 (v) P (−z0 ≤ Z ≤ z0 ) = 0.0708 (iv) P (Z ≤ z0 ) = 0. P (0 ≤ Z ≤ 1. Show your work graphically in all relevant questions.6 (i.0 ≤ Z ≤ 1.e.e.0)) (viii) z = −3.26 and z = 1.0 (i.e.75 ≤ Z ≤ −.95 53 .e. substitution.99 (iii) P (Z ≥ z0 ) = 0.86 and z = 1. Let Z be a standard normal distribution. Memoryless Property FACT.6 (i.e. P (−1.0 ≤ Z ≤ 2.384 (ii) Exercise. P (. P (−2.0 ≤ Z ≤ 3.0 and z = 3. answer method whenever possible.68 (vi) P (−z0 ≤ Z ≤ z0 ) = 0. P (−1. Find z0 such that (i) P (Z ≥ z0 ) = 0. Review Exercises: Normal Distribution Please show all work.0)) (vii) z = −2.e. Converse The exponential distribution is the only continuous distribution with the memoryless property.0 (i.e.(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 . 1.6)) (ii) z = 0 and z = −1.86 (i.0 (i.0)) 2.0 and z = 2. (i) z = 0 and z = 1. P (−1.e.0 and z = 1. Use the formula. No credit for a correct ﬁnal answer without a valid argument.86 (i.05 (ii) P (Z ≥ z0 ) = 0. P (−1.

025 (iv) P (Z ≥ z0 ) = 0. 54 . The height of adult women in the United States is normally distributed with mean 64. T F (v) Because the normal distribution is symmetric half of the area under the curve lies below the 40th percentile.9966) 6. What is the probability a randomly selected battery will last between 110 and 120 hours.e. (ii) X falls between 6 and 14 (i. T F (iv) The standard normal distribution has its mean equal to zero and standard deviation equal to one. What percentage of women are shorter than Alice.10 (ii) P (Z ≥ z0 ) = 0. Let Z be a standard normal distribution. A normally distributed random variable X possesses a mean of µ = 10 and a standard deviation of σ = 5. P (10 ≤ X ≤ 12)). P (X ≤ 12)).01 (v) P (Z ≥ z0 ) = 0. (i) X falls between 10 and 12 (i. T F (iii) The standard normal distribution has its mean equal to one and standard deviation equal to zero. T F (i) The standard normal distribution has its mean and standard deviation equal to zero. (iv) X exceeds 10 (i.e. T F (ii) The standard normal distribution has its mean and standard deviation equal to one.e. 5.05 (iii) P (Z ≥ z0 ) = 0. Find the following probabilities. (iii) X is less than 12 (i.005 4. (Answer: . P (X ≥ 10)). P (6 ≤ X ≤ 14)). The lifetimes of batteries produced by a ﬁrm are normally distributed with a mean of 100 hours and a standard deviation of 10 hours.5 inches and standard deviation 2. 7.011) (ii) Alice is 71 inches tall.e. Find z0 such that (i) P (Z ≥ z0 ) = 0. Answer by True of False .4 inches.3. (i) Find the probability that a randomly chosen woman is larger than 70 inches tall. (Answer: . (Circle your choice).

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.

is Z= X − µX σX ˆ The sampling distribution of the sample proportion. 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.e.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. P . X. the CLT says The sampling distribution of the sample mean. 56 . (i) What is the distribution of X−µ ? σ Answer: It is a standard normal. i.

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

To test this theory a sample n = 400 is selected.30) III. p = . Suppose 130 individuals indicated preference for brand A.e.(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 . x = 130. np ≥ 5. 58 . DATA SUMMARY: n = 400. p = 130/400 = .325 ˆ ˆ (i) Find the mean and standard deviation of the sample proportion P .30.E. n provided n is large (i.023 n σX 1 −X 2 = Z= X 1 − X 2 − (µ1 − µ2 ) 2 σ1 n1 + 2 σ2 n2 provided n1 . Example. It is claimed that at least 30% of all adults favor brand A versus brand B.30 ˆ σp = ˆ ˆ (ii) Find P (P > 0. Comparing two Sample Means E(X 1 − X 2 ) = µ1 − µ2 2 2 σ1 σ2 + n1 n2 pq = . and nq ≥ 5). Answer: µp = p = . n2 ≥ 30.ˆ σP = S.

ˆ ˆ P1 − P2 − (p1 − p2 ) p1 q1 2 + pnq2 n1 2 Review Exercises: Sampling Distributions Please show all work. Suppose a random sample of 49 families is taken and a sample mean is calculated. (vi) Find P (X ≥ 23)). 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. answer method whenever possible. (Answer: µ = 20. and type of distribution). Use the formula. (i) Describe the sampling distribution of X (i.2) (ii) Find the z-score of x = 22 (Answer: 1. 2.e. (Include the mean µx . σx = 1.6) (iii) Find P (X ≥ 22) = (iv) Find P (20 ≤ X ≤ 22)). Show your work graphically in all relevant questions. Let X be the sample average. (v) Find P (16 ≤ X ≤ 19)). A normally distributed random variable X possesses a mean of µ = 20 and a standard deviation of σ = 5. substitution. standard deviation σx . 1. 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)). σx ). X. 59 . No credit for a correct ﬁnal answer without a valid argument. describe the distribution of X and give µx . (i) Describe the sampling distribution of the sample mean. A random sample of n = 16 observations is to be selected.IV.

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

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

x. Margin of Error. 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. Large sample (n ≥ 30) 2.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. ( or Bound on the Error of Estimation) σ B = zα/2 √ n Assumptions.) for µ: σ x ± zα/2 √ n Conﬁdence level: (1 − α)100% which is the probability that the interval estimator contains the parameter. 1. θ. s Other information: α Point estimator: x Estimator mean: µx = µ √ Standard error: SE(x) = σ/ n (also denoted as σx ) Conﬁdence Interval (C. Sample is randomly selected 62 .I.

6 ± 1. The margin of error decreases.90 OR W = 12.90 Question 6.6. Sample size: (zα/2 )2 σ 2 n B2 63 . Find a 90% conﬁdence interval for µ.6 ± 0. s = 4. Question 1. Give a 95% bound on the error of estimation (also known as the margin of error).96 √ n 225 Question 3. the sample size.? The width of the CI is σ W = 2zα/2 √ n W = 2(0. 4. If n.645 √ 225 11. is increased what happens to the width of the CI? what happens to the margin of error? The width of the CI decreases.15. 12. µ. We are interested in estimating the mean number of unoccupied seats per ﬂight.45 = (11. A random sample of n = 225 ﬂights shows that the sample mean is 11.1.15 = 0. Interpret the CI found in Question 3. What is the point estimate of µ ( Do not give the margin of error)? x = 11.1 11. for a major airline.1.Example 1. Question 5. σ x ± zα/2 √ n 4. What is the width of the CI found in Question 3. The interval contains µ with probability 0.05) Question 4.1 σ = 0.5357 B = zα/2 √ = 1. OR If repeated sampling is used.90.6 and the standard deviation is 4.05 − 11.45) = 0.6 Question 2. then 90% of CI constructed would contain µ. x = 11. Data summary: n = 225.

3 to 13. x. p = n (x here is the number of successes). (round up) Exercise 1. σ is sometimes approximated by R where R is the 4 range.I.582 (. 4 Single Binomial Population Parameter of interest: p Sample data: n.4/4 = .0252 So n = 107.05. Example 2. R = 13.05. Suppose you want to construct a 99% CI for µ so that W = 0.) 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. You are told that preliminary data shows a range from 13. Now B = W/2 = 0.where σ is estimated by s.01. B = zα/2 pq ˆˆ n 64 .7. Therefore n (zα/2 )2 σ 2 B2 2.05/2 = 0. ˆ x Other information: α Point estimator: p ˆ Estimator mean: µp = p ˆ Standard error: σp = ˆ pq n Conﬁdence Interval (C. 0.1.50 . Use α = 0.025.4. Note: In the absence of data.3 = . Data summary: α = . Find the sample size necessary to reduce W in the ﬂight example to . Margin of Error.6.7 − 13. so σ .1)2 = = 106. What sample size should you choose? A.

Question 6.531 ± 1.531)(0.645 (0.90. q Therefore we have a large sample size. OR If repeated sampling is used.037) = 0. ˆ x 484 Question 1. The interval contains p with probability 0.531 n 484 B = zα/2 pq ˆˆ (0.531. Data summary: n = 484. 0. What is the width of the CI found in Question 3. Sample is randomly selected Example 3. 1. Large sample (np ≥ 5.494.074 n Question 5.469) = 227 which is ≥ 5. Do we have a large sample size? nˆ = 484(0.Assumptions.037 = (0.531 ± 0. Interpret the CI found in Question 3.531)(0. A random sample of n = 484 voters in a community produced x = 257 voters in favor of candidate A.469) 484 0. If n. x = 257. What is the point estimate of p and its margin of error? p= ˆ x 257 = = 0.469) = 1. Question 2. is increased what happens to the width of the CI? what happens to the margin of error? 65 . Find a 90% conﬁdence interval for p.044 n 484 Question 3.531) = 257 which is ≥ 5.568) Question 4. p ± zα/2 ˆ pq ˆˆ n 0. p nˆ = 484(0.? The width of the CI is W = 2zα/2 pq ˆˆ = 2(0. the sample size.96 = 0. nq ≥ 5) 2. then 90% of CI constructed would contain p. p = n = 257 = 0.

0152 So n = 3.35.25. Find the sample ˆ size necessary so that α = 0.5 or simply pq = 0. p = 0.05.05. 5 Two Quantitative Populations Parameter of interest: µ1 − µ2 Sample data: Sample 1: n1 . Exercise 3. 2 B Note: In the absence of data. s1 Sample 2: n2 .28 0. n pˆ (zα/2 )2 (ˆq) . Data summary: α = .65) = = 3.The width of the CI decreases. x1 .015. (round up) Exercise 2. 884. You are told that preliminary data shows a p = 0. (x1 − x2 ) ± zα/2 2 2 σ1 σ2 + n1 n2 66 . Suppose that no preliminary estimate of p is available. Suppose you want to provide an accurate estimate of customers preferring one brand of coﬀee over another. x2 . Find the new sample ˆ size. Sample size.015 ˆ n pˆ (zα/2 )2 (ˆq ) 2 B (1. You need to construct a 95% CI for p so that B = 0.05.01. The margin of error decreases. choose p = q = 0. ˆ ˆ ˆˆ Example 4. What sample size should you choose ˆ ? Use α = 0. 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.96)2 (0. B = 0. Use α = 0. 885.35.35)(0. Suppose that no preliminary estimate of p is available.

Samples are randomly selected 3. n1 q1 ≥ 5. (n1 p1 ≥ 5. p1 = n1 ˆ 1 Sample 2: n2 . x1 . Samples are independent Sample size. Samples are randomly and independently selected Sample size. x2 . ˆ (ˆ1 − p2 ) ± zα/2 p Assumptions. Large samples ( n1 ≥ 30.Assumptions. p ˆ ˆˆ (zα/2 )2 (ˆ1 q1 + p2 q2 ) n 2 B For unkown parameters: n (zα/2 )2 (0. 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.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 . 2 2 (zα/2 )2 (σ1 + σ2 ) n B2 6 Two Binomial Populations Parameter of interest: p1 − p2 x Sample 1: n1 . n2 ≥ 30) 2. n2 p2 ≥ 5. n2 q2 ≥ 5) 2. 1. Large samples. 1.

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

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

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

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. 2) θ < θ0 . H0 : Innocent Ha : Guilty α = P rob{sending an innocent person to jail} β = P rob{letting a guilty person go free} Example 2. σθ Test: Null hypothesis (H0 ) : θ = θ0 Alternative hypothesis (Ha ): 1) θ > θ0 . 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 . 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. θ.

: 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 Test: H0 : µ = µ 0 Ha : 1) µ > µ0 .S. s2 = 25. α = 0. 2) µ < µ0 . µ0 = 20.Conclusion: At 100α% signiﬁcance level there is (in)suﬃcient statistical evidence to ··· . s Other information: µ0 = target value. 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. Sample data : n = 36.05 H0 : µ = 20 (µ is not larger than 20) 72 . Assumptions: Large sample + others (to be speciﬁed in each case). 3) µ = µ0 T. 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. x.

3) p = p0 T. : 21 − 20 x − µ0 √ √ = = 1. 2) p < p0 . : 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 ” .2 z= s/ n 5/ 36 Critical value: zα = 1.645 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.S. Exercise: Test the claim that weight loss is not equal to 19. 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 .645 RR: Reject H0 if z > 1.S.Ha : µ > 20 (µ is larger than 20) T. Assumptions: 73 .5.

: (x1 − x2 ) − D0 z= 2 σ1 σ2 + n2 n1 2 RR: 1) Reject H0 if z > zα 2) Reject H0 if z < −zα 74 . x = 26.10 for sample data: n = 200. Exercise Is the large sample assumption satisﬁed here ? 5 Comparing Two Population Means Parameter of interest: µ1 − µ2 Sample data: Sample 1: n1 .645 Graph: Dec: Do not reject H0 Conclusion: At 5% signiﬁcance level there is insuﬃcient statistical evidence to conclude that p > .10.13 − .41 p0 q0 /n (. s1 Sample 2: n2 .10)(.90)/200 RR: reject H0 if z > 1. ˆ x Now H0 : p = . x1 . 26 p = n = 200 = .1. 2) µ1 − µ2 < D0 . x2 . Test the hypothesis that p > . nq ≥ 5) 2.S. s2 Test: H 0 : µ 1 − µ 2 = D0 Ha : 1)µ1 − µ2 > D0 .10 TS: p − p0 ˆ . Large sample (np ≥ 5. Solution. Sample is randomly selected Example. 3) µ1 − µ2 = D0 T.10 z= = = 1.13.10 Ha : p > .

Exercise: Test the hypothesis that weight loss in the old diet program exceeds that of the new program. n2 ≥ 30) 2. x1 .5.05 H0 : µ 1 − µ 2 = 0 Ha : µ1 − µ2 = 0.14 z= 2 σ1 σ2 + n2 n1 2 Critical value: zα/2 = 1. Large samples ( n1 ≥ 30. Samples are randomly selected 3.96 RR: Reject H0 if z > 1. : (x1 − x2 ) − 0 = 2. Sample 2 : n2 = 36. Exercise: Test the claim that the diﬀerence in mean weight loss for the two programs is greater than 1. α = 0. 6 Comparing Two Population Proportions Parameter of interest: p1 − p2 x Sample 1: n1 . Test the hypothesis that weight loss in the two diet programs are diﬀerent. ˆ 1 75 . Sample 1 : n1 = 36. p1 = n1 .S.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.96 or z < −1. s2 = 24 (new) 2 D0 = 0. 1. s2 = 25 (old) 1 2. T. Samples are independent Example: (Comparing two weight loss programs) Refer to the weight loss example.3) Reject H0 if z > zα/2 or z < −zα/2 Graph: Decision: Conclusion: Assumptions: 1. x1 = 21. x2 = 18.

91. n2 p2 ≥ 5. 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.S. 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.645 Graph: Dec: reject H0 Conclusion: At 5% signiﬁcance level there is suﬃcient statistical evidence to conclude that p1 − p2 < 0. : 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. Solution: H 0 : p1 − p2 = 0 H a : p1 − p2 < 0 TS: z = −1. p2 = ˆ x2 . x2 . 76 .Sample 2: n2 . n1 q1 ≥ 5.91 RR: reject H0 if z < −1.

substitution. Show your work graphically in all relevant questions.e.76 p-value = 2(. answer method whenever possible.0392 (ii) Lower tailed test: H0 : θ = θ0 Ha : θ < θ0 TS: z = −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 .76 p-value = . Use the formula. Find the p-value in each case: (i) Upper tailed test: H0 : θ = θ0 Ha : θ > θ0 TS: z = 1.0314 (iii) Two tailed test: H0 : θ = θ0 Ha : θ = θ0 TS: z = 1. No credit for a correct ﬁnal answer without a valid argument. the statistical results are signiﬁcant.86 p-value = . i. Examples. The p-value for a test of a hypothesis is the smallest value of α for which the null hypothesis is rejected. 1.0392) = . The delivery time for a random sample of 64 77 . A local pizza parlor advertises that their average time for delivery of a pizza is within 30 minutes of receipt of the order.Exercise: Repeat as a two tailed test 7 Reporting Results of Statistical Tests: P-Value Deﬁnition.0784 Decision rule using p-value: (Important) Reject H0 for all α > p − value Review Exercises: Testing Hypothesis Please show all work.

T F (v) If. Graph: Dec: Conclusion: ((ii) Test the hypothesis that Ha : µ = 30. then β will increase. with a sample mean of 34 minutes and a standard deviation of 21 minutes. 2. Answer by True of False . H0 : Ha : T.R. (Answer: 1.orders were recorded. (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. (Circle your choice).52) R.05. for a given test. α is ﬁxed and the sample size is increased. 78 .

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

x. Sampled population is normal 2.015 (ii) Find t0. 3) µ = µ0 . (i) Find t0. (v) Critical values (tail probabilities) are obtained from the t table Examples. 2) µ < µ0 . 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 distribution (iii) More variable (ﬂat) than the normal distribution (iv) The distribution depends on the degrees of freedom.025.1. α Point estimator: x Estimator mean: µx = µ √ Estimated standard error: σx = s/ n Conﬁdence Interval for µ: s x ± t α . t converges to Z.n−1 or t α .355 (iii) Find t0. as n becomes larger.05. s Other information: µ0 = target value. Critical value: either tα.n−1 ( √ ) 2 n Test: H0 : µ = µ 0 Ha : 1) µ > µ0 .5 = 2.n−1 2 80 .056 3 Small-Sample Inferences About a Population Mean Parameter of interest: µ Sample data: n.005.26 = 2. Moreover.8 = 3.

S.: 21.T.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. Test the claim that weight loss is not equal to 19.05. T. Small sample (n < 30) 2.n−1 3) Reject H0 if t > t α .3 − 20 x − µ0 √ √ = = 1.24 = 1. 1. Sample is randomly selected 3.n−1 or t < −t α .n−1 2) Reject H0 if t < −tα. s2 = 25.711 H0 : µ = 20 Ha : µ > 20. x = 21.3. α = 0.3 t= s/ n 5/ 25 RR: Reject H0 if t > 1. Assumptions. 1. 4 Small-Sample Inferences About the Diﬀerence Between Two Means: Independent Samples Parameter of interest: µ1 − µ2 81 .5). : t = x−µ0 √ s/ n RR: 1) Reject H0 if t > tα. Sample data: n = 25.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 ” . Unknown variance Example For the sample data given below. Exercise. test the hypothesis that weight loss in a new diet program exceeds 20 pounds per ﬁrst month.S. µ0 = 20.e.05 Critical value: t0. Normal population 4. Ha : µ = 19. (i.5.

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

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

T.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. Construct a 99% conﬁdence interval for the diﬀerence in average wear for the two tire types. : (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. Normal population 2. the sampling distribution of S 2 depends on n.S. 1.4 = 2. Graph: Decision: Conclusion: Assumptions.025. 2 H0 : σ 2 = σ0 2 Ha : σ 2 = σ0 (two-tailed test).RR: Reject H0 if t > 2.776 or t < −2. 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. Exercise. Random sample Example: 86 .776 ( t. When a random sample of size n is drawn from a normal population with mean µ and standard deviation σ. 6 Inferences About a Population Variance Chi-square distribution.

(Investment Risk) Investment risk is generally measured by the volatility of possible outcomes of the investment.8%.8%. The most common method for measuring investment volatility is by computing the variance ( or standard deviation) of possible outcomes. x1 = 17. 1. T.21 1 2 Investment 2: n2 = 8.Use text 7 Comparing Two Population Variances F-distribution. Independent random samples Example. 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. x2 = 17.S. 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. s2 = 3. That is s2 F = 1 s2 2 Degrees of freedom (df): ν1 = n1 − 1. :F = s2 1 s2 2 where s2 is the larger sample variance. Graph: Decision: Conclusion: Assumptions. 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. Normal populations 2. 87 .14 Both populations are assumed to be normally distributed. ν2 = n2 − 1 Graph: Non-symmetrical and depends on df Critical values: using F tables Test. s2 = 7.

9 = 4.22 F = 2 = 2 s1 3.025. : s2 7. That is Ha : σ1 > σ2 . 2 2 Exercise.21 .n1 −1 = F.Q1: Do the data present suﬃcient evidence to indicate that the risks for investments 1 and 2 are unequal ? Solution.7. Do the upper tail test. 88 . 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.S. RR: Reject H0 if F > Fα/2 where Fα/2. T.n2 −1.14 = 2.

1.Chapter 9 Analysis of Variance Contents. Example. Four groups of sales people for a magazine sales agency were subjected to diﬀerent sales training programs. 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. 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. 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. Introduction 2. Test whether the means are equal or not. the number of trainees varied from program to program. 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. t =4 89 . Because there were some dropouts during the training program. One Way ANOVA: Completely Randomized Experimental Design 3.

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 75.83 µ3 n4 = 4 351 87.n−t i. H0 : µ 1 = µ 2 = µ 3 = µ 4 Ha : Not all means are equal M ST T.3. RR: Reject H0 if F > Fα.19 = 3. (vi) experimental unit: (trainee) 2 One Way ANOVA: Completely Randomized Experimental Design ANOVA Table df SS MS F p-value 3 712.75 µ4 n = 23 GT= 1779 (iv) ANOVA: ANalysis OF VAriance (v) N-Way ANOVA: studies N factors.77 where F is based on (t-1) and (n-t) df.67 78.77 19 1.13 90 .43 µ1 µ2 n3 = 6 425 70. Reject H0 if F > F0.S.e. : F = M SE = 3.196.5 3.6 63.0 22 1909.05.2 Source of error Treatments Error Totals Inferences about population means Test.6 237.t−1.

Assumptions. Sampled populations are normal 2. SST: sum of squares of total deviation between treatments. CM: correction for the mean 91 . Independent random samples 3. SSE: sum of squares of total deviation within treatments (error).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. 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. All t populations have equal variances Computations.

92 . 909.2 Ti2 ni − CM = 712.n−t s2 ( 1 1 + ) ni nj MINITAB MTB> aovoneway C1-C4. Estimate of the common variance: √ √ s = s2 = MSE = SSE n−t CI for µi : s T i ± tα/2. Exercise.6 237.8 CM = ( T SS = x2 − CM = 1.196.n−t √ ni CI for µi − µj : (T i − T j ) ± tα/2.6 63.GT: Grand Total. 196.6 Conﬁdence Intervals.5 3.6 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. Computational Formulas for TSS. 7792/23 = 137. Produce a Minitab output for the above example. 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 = 1.0 22 1909. 601.77 19 1.

That is larger supermarkets would be expected to have larger overall sales of the product than smaller supermarkets. A consumer preference study involving three diﬀerent package designs (treatments) was laid out in a randomized block design among four supermarkets (blocks). and each treatment appears once in every block. 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. The randomized block design eliminates the store-to-store variability. (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. (iii) An alternate design would be to use 12 supermarkets. Example. In this case the diﬀerence in sales could be due to more than just diﬀerences in package design. b = 4 blocks 93 . The data shown in Table 1. The treatment and block totals are t = 3 treatments. For computational purposes we rearrange the data so that Data Summary. (i) Provide a data summary. A randomized block design consists of b blocks. (ii) The three designs are assigned to each supermarket completely at random. The t treatments are randomly assigned to the units in each block.3 The Randomized Block Design Extends paired-diﬀerence design to more than two treatments. (i) In each supermarket (block) the ﬁrst entry represents the design (treatment) and the second entry represents the sales per week. Each design (treatment) would be randomly assigned to 4 supermarkets.

00 SSB = SSE = T SS − SST − SSB = 45. B3 = 32. T2 = 105. B4 = 44 Calculations for the training example produce xij )2 /n = 3. 745.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 = 39.33 CM = ( T SS = x2 − CM = 940.17 94 .50 Ti2 b 2 Bi t − CM = 547.67 ij SST = − CM = 348. B2 = 62. T3 = 68 B1 = 74.

000 3 348.00 15.00 116.MINITAB.17 273.58 36.67 95 .30 0.58 11 940.50 7.003 6 45.08 0.(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.

S. Sampled populations are normal 2. Assumptions.: F = M SB M SE = 15. RR: Reject H0 if F > Fα.3. Dependent random samples due to blocking 3. : F = M SE = 36. that is the data supports our decision to use supermarkets as blocks.30 where F is based on (b-1) and (n-t-b+1) df.005. Reject H0 if F > F0.n−t−b+1 i. blocking is desirable) T.5% signiﬁcance level there is suﬃcient statistical evidence to indicate a real diﬀerence in the mean sales for the four supermarkets. Solution to (iii) Test.09 where F is based on (t-1) and (n-t-b+1) df.e. RR: Reject H0 if F > Fα.6 = 12. H0 : µ 1 = µ 2 = µ 3 Ha : Not all means are equal M ST T. All t populations have equal variances Conﬁdence Intervals. Reject H0 if F > F0.t−1.e.05.92 Graph: Decision: Reject H0 Conclusion: At .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.2.6 = 5. Estimate of the common variance: √ √ SSE s = s2 = MSE = n−t−b+1 CI for µi − µj : 96 . Note that n − t − b + 1 = (t − 1)(b − 1).e.Solution to (ii) Test.S. H0 : Block means are equal Ha : Not all block means are equal (i.b−1. 1.n−t−b+1 i.

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

A Simple Linear probabilistic model 3. Example. Inferences concerning the slope 5. 1.( 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. Introduction: Example 2. Analysis of Variance 9.Chapter 10 Simple Linear Regression and Correlation Contents. Least squares prediction equation 4. In addition we wish to use the amount spent on advertising to predict the sales volume. Estimating E(y|x) for a given x 6. We wish to determine whether advertising is worthwhile. The data in the table below represent a sample of advertising expenditures.x. Computer Printouts 1 Introduction Linear regression is a statistical technique used to predict (forecast) the value of a variable from known related variables. Coeﬃcient of correlation 8. For the predictor variable x we use the the amount spent by the company on advertising during the month of interest. Predicting y for a given x 7. and the associated sales 98 . that is whether advertising is actually related to the ﬁrm’s sales volume.

Y = β0 + β1 X + where x: independent variable (predictor) y: dependent variable (response) β0 and β1 are unknown parameters.6 91 0. 1.9 105 1. Assumptions.3 90 0. V ar( ) := σ 2 = σ 2 .2 92 0. E( ) := µ = 0.0 120 1.8 110 1.7 82 0. (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$10.0 75 0. for 10 randomly selected months. : random error due to other factors not included in the model. y. 99 .000) 101 1.8 93 1.1 Deﬁnitions.volume.000) x(x$10. 2.

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

9 SSxx = . Data Summary.Answer. x = 0.94.9 101 .444 SSxy = 23.34 SSyy = 1600. y = 95.

8 − y)2/n = 93.81 1.36 0.9 10 102 .1 105 1.2 73.9 xy 121.0 63.44 0.444 y)/n = 924.28 x = 0.8 92 0.3 120 1.0 110 1.4 959 9.6 93.21 x y x2 9.6 110. y = x2 − ( xy − ( y2 − ( y/n = 95.0 93 1.2 101 1.9 (9.94 y = 95.625 8.100 6.8 82 0.9 91 0.4)(959) = 23.649 5.8 y2 10.0 45.0 65.724 8.5 xy 924.00 0.0 156.025 y2 93.7 90 0. 569 − (9.00 1.64 1.281 11.64 1.100 14.94.Optional material Month 1 2 3 4 5 6 7 8 9 10 Sum Ad Sales Calculations x y x2 1.569 x= x/n = 0.34 10 (959)2 = 1600.9 115.464 12.4)2 10 SSxx = SSxy = SSyy = x)2 /n = 9.201 8.28 − x)( = .6 75 0.0 81.49 0.400 8.69 0.

x = 1.0) = 99. y.49 + 52. 4 Inferences Concerning the Slope Parameter of interest: β1 ˆ Point estimator: β1 103 .e. x = 1.49 + 52.0) = 99.57 . ˆ SSE = SSyy − β1 SSxy = 1. In Question 6 and Question 7 we obtained the same estimate.9 − (52. Estimate the parameters β0 . Answer. Answer. for a given expenditure level of $10. however. and β1 . Estimate σ 2 . ˆ β1 = SSxy /SSxx = 23.06.49.34 = 52. y = 46.97 = = 46.34) = 373.57)(1.97 .49 + (52. 600.57x = 46.Question 3. E(y|x) = 46.57x ˆ Remark.5676 52. Remark. Predict the mean sales volume E(y|x) for a given expenditure level of $10.57x = 46. ˆ ˆ y = β0 + β1 x = 46. 600. Answer. Answer. be diﬀerent. This equation is also called the estimated regression equation or prediction line.49 + 52. Predict sales volume. Find the least squares line for the data. 000 (i. Question 7.9 − (52. 000.444 ˆ ˆ0 = y − β1 x = 95.49 + (52.5676)(.0. ˆ So sales volume is $990. Question 6.57)(1. β Question 4.75 n−2 8 Question 5.94) 46.5676)(23. 600. Therefore s2 = SSE 373.0).06 so the mean sales volume is $990. Answer. the bound on the error of estimation will.

306 or t < −2. H0 : β1 = 0 (no linear relationship) Ha : β1 = 0 (there is linear relationship) T.306 Graph: Decision: Reject H0 Conclusion: At 5% signiﬁcance level there is suﬃcient statistical evidence to indicate a linear relation ship between advertising expenditure. y. Answer. Answer. Conﬁdence interval for β1 : s ˆ β1 ± tα/2.84/ .57 − 0 β1 − 0 √ = t= √ = 5.n−2 or t < −tα/2. : ˆ 52.n−2 Graph: Decision: Conclusion: Question 8.n−2 √ SSxx Question 9.8 = 2.Estimator mean: µβ1 = β1 ˆ √ Estimator standard error: σβˆ1 = σ/ SSxx Test. : ˆ β1 − β10 t= √ s/ SSxx RR: Reject H0 if t > tα/2. y. x. Find a 95% conﬁdence interval for β1 . 104 .12 6.S.S. Determine whether there is evidence to indicate a linear relationship between advertising expenditure.444 s/ SSxx RR: ( critical value: t. and sales volume. Test. H0 : β1 = β10 (no linear relationship) Ha : β1 = β10 (there is linear relationship) T.306) Reject H0 if t > 2.025. and sales volume. x.

57 ± 2. (i) −1 ≤ r ≤ 1.84 52. Now we examine how strong a linear relationship between x and y is. 105 .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.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.n−2 √ SSxx 6.306 √ . r= SSxy SSxx SSyy Remarks.57 ± 23. We call this measure coeﬃcient of correlation between y and x.57 = (28. 76.444 52.s ˆ β1 ± tα/2.90.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.

Answer. SSyy − SSE r2 = = 0. 106 . Give the ANOVA table for the AD sales example. 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 12.9) = 0. Answer. Use ANOVA table to test for a signiﬁcant linear relationship between sales and advertising expenditure. 600.(ii) The population coeﬃcient of correlation is ρ. Find the coeﬃcient of correlation. r= SSxy SSxx SSyy = 23.88 Coeﬃcient of determination Algebraic manipulations show that r2 = SSyy − SSE SSyy Question 11.444(1. 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. 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. Question 13.882 = 0.77 SSyy r 2 = is called the coeﬃcient of determination 8 Analysis of Variance Notation: T SS := SSyy = (y − y)2 (Total SS of deviations).34 0. r.

x. MTB> Regress C1 1 C2. : Gives a scatter diagram. Test.973 46. and sales volume. 9 Computer Printouts for Regression Analysis Store y in C1 and x in C2.747 9 1.Source Reg.927 26.25 0. Error Totals ANOVA Table df SS MS F p-value 1 1.69 (OR: Reject H0 if α > p-value) Graph: Decision: Reject H0 Conclusion: At 0.0001 8 373.226.900 ANOVA Table MS MSR=SSR/(1) MSE=SSE/(n-2) Source df SS Reg.25 RR: ( critical value: F. H0 : β1 = 0 (no linear relationship) Ha : β1 = 0 (there is linear relationship) T. Computer output for Ad sales example: More generally we obtain: 107 .226.5% signiﬁcance level there is suﬃcient statistical evidence to indicate a linear relationship between advertising expenditure. y.1.600.8 = 14.927 1.69) Reject H0 if F > 14.S. MTB> Plot C1 C2.: F = M SR M SE = 26.005. 1 SSR Error n-2 SSE Totals n-1 TSS F MSR/MSE p-value Answer.

No credit for a correct ﬁnal answer without a valid argument. (Answer: y = 3 − x) ˆ (iv) Plot the regression equation on the same graph as (i).6 x Coef Stdev t-ratio 46. (ii) Show that x = 0. Show your work graphically in all relevant questions.000 8 373. (Answer: s2 = 2/3) (vi) Estimate the expected value of y when x = −1 (vii) Find the correlation coeﬃcient r and ﬁnd r 2 .26 5.747 9 1. SSxx = 16.000 0. (Answer: r = −.943.889) 108 . (iii) Find the regression equation for the data. SSyy = 18.973 46. y 2 = 63. substitution.900 Review Exercises: Linear Regression Please show all work. and SSxy = −16.6% P 0.5 + 52. 1. and indicate whether x and y appear linearly related. Use the formula. Does the line appear to provide a good ﬁt for the data points? (v) Compute SSE and s2 .Predictor Constant x s=6. r 2 = .927 26.600.927 1.226. Error Totals Analysis of Variance df SS MS F p-value 1 1. x2 = 16. Given the following data set x -3 -1 1 1 2 y 6 4 3 1 1 (i) Plot the scatter diagram. answer method whenever possible.226.70 52.7% Source Reg.486 9.25 0.000 R-sq(adj)=73.885 4.837 The regression equation is y=46.12 R-sq=76.57 10. y = 15.

3. It is further assumed that the relationship is linear.036 0. A random sample sample of 20 managers is chosen with the following results (in thousands of dollars): xi = 235.000 0.05727 16. Y .0% Variance stdev t-ratio P 2. β1 . r. SSyy = 2. and last year’s energy consumption.93051 R-sq=92. and the estimated regression equation. (Answer: y = 16.94 0. SSxx = 485. The Regress Minitab’s command has been applied to data on family income. 236. and years of work experience.73 + 1.Y .8.1.826x) ˆ (ii) Find the correlation coeﬃcient.85. A study of middle to upper-level managers is undertaken to investigate the relationship between salary level.25 0. ˆ ˆ (i) Find β0 .85) (iii) Find r 2 and interpret it value. A portion of a linear regression computer printout is shown below.000 R-sq(adj)=91.75. X.6% 109 . and SSxy = 886.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. yi = 763. Predictor Constant X s= Analysis of Coef 82. X. The income data are in thousands of dollars and the energy consumption are in millions of BTU. from a random sample of 25 families. 1 SSR MSR=SSR/(1) MSR/MSE Error n-2 SSE MSE=SSE/(n-2) Totals n-1 TSS p-value 2.(Answer: r = .054 39.

(Circle your choice). (iv) Determine a point estimate for last year’s mean energy consumption of all families with an annual income of $40. and the estimated regression equation.000 (i) Complete all missing entries in the table. (iii) Do the data present suﬃcient evidence to indicate that Y and X are linearly related? Test by using α = 0.Source Regression Error Total DF SS 23 8291 MS F P 7626. T F (i) The correlation coeﬃcient r shows the degree of association between x and y. T F (iii) The last step in a simple regression analysis is drawing a scatter diagram. T F (v) We always estimate the value of a parameter and predict the value of a random variable. we always predict the same value of y regardless of the value of x. ˆ ˆ (ii) Find β0 . T F (ii) The coeﬃcient of determination r 2 shows the percentage change in y resulting form one-unit change in x. 4. Answer by True of False . 110 . β1 . T F (vi) If β1 = 1.6 264.02 0. T F (iv) r = 1 implies no linear correlation between x and y.000. and σ 2 .01. 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 . β1 .

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

The random components of any two observed y values are independent. 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 . 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. 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%

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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)

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149.05. 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. : p-value=0.S. Test: H0 : model not useful Ha : model is useful T. Q3. Do the data provide suﬃcient evidence to indicate that the model contributes information for the prediction of y? Test using α = 0. Q4.59) Non-Linear Models Example. x3 = 3.4x2 − 7.84x1 − 34.99x3 + 54. What is the prediction equation ? The regression equation is y = −16.05. CI: (101. ˆ ˆ ˆ ˆ y = β0 + β1 x1 + β2 x2 + β3 x2 x2 ˆ 1 116 . x2 = 1. Give a 95% CI for E(y) and PI for y when x1 = 10.Q1. and x4 = 2. What type of model has been chosen to ﬁt the data? Multiple linear regression model.30) PI: (77.9x4 Q2. 125.000 DR.6 + 7.34.

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