You are on page 1of 24

# MBAN

## Lifei (Fay) Sheng

Email: fay.sheng@sauder.ubc.ca
Rules of Probability
Chain rule:
𝑃 𝐴𝐵𝐶 = 𝑃[𝐴] × 𝑃[𝐵|𝐴] × 𝑃[𝐶|𝐴𝐵]
Bayes’ rule:
𝑃[𝐴|𝐵] × 𝑃[𝐵]
𝑃𝐵𝐴 =
𝑃[𝐴]
Law of total probability:

𝑃𝐵 = 𝑃[𝐵|𝐴𝑖 ] × 𝑃[ 𝐴𝑖 ]
𝑖

## University of British Columbia LIFEI SHENG 2

Ex: Witness reliability: Imagine after a robbery the thief
jumped into a taxi and disappeared. An eyewitness on the
crime scene is telling the police that the cab is yellow. In
order to make sure that this testimony is worth something
the assistant DA makes a Bayesian analysis of the situation.
After some research he comes up with the following
information:
 In that particular city 80% of taxis are black and 20% of taxis
are yellow.
 Eyewitness are not always reliable and from past experience it
is expected that an eyewitness is 80% accurate. He will identify
the color of a taxi accurately (yellow or black) 8 out 10 times.
What is the probability that the testimony is reliable? 50%

## University of British Columbia LIFEI SHENG 3

Random Variable (RV)
Def 1: A random variable (RV) is a numerical
outcome of a random phenomenon.
Def 2: A random variable (RV) is the set of
possible outcomes and the probabilities associated
with them.
Eg: the face we get when rolling a dice; height;
weight; age, etc.

## University of British Columbia LIFEI SHENG 4

Random Variable
Discrete Random variable
 If it only takes a finite or countable list of
values.
 Eg: the outcome of rolling a dice or tossing a

coin
Continuous Random variable
 If it can take any values between two values.

## University of British Columbia LIFEI SHENG 5

Distribution
Discrete Random Variable and Probability
 Eg: Throw a dice; the number you get is a discrete
random variable:
Probability
1, w.p. 1/6
2, w.p. 1/6 (Probability
1/6
mass)
X= 3, w.p. 1/6 x
1 2 3 4 5 6
4, w.p. 1/6
Cumulative 1
5, w.p. 1/6 probability 2/3
5/6

1/2
6, w.p. 1/6
1/6
1/3 P(X≤x)

1 2 3 4 5 6 x

## P{X ≤ x} is a function of x, called the cumulative distribution

function (CDF)
University of British Columbia LIFEI SHENG 6
Distribution
Continuous Random Variable and Probability
 Eg: The time between two customers’ arrivals is a
continuous random variable
Probability
density
function f (x)
(PDF)
0 x
Cumulative distribution
1
function (CDF)
x
P(X ≤ x) =
-∞ f (s) ds
0 x

## University of British Columbia LIFEI SHENG 7

Expectation
Mean/Expectation (denoted as 𝐸[𝑋] or 𝜇)
 average outcome or expected value
𝑛
 𝐸𝑋 = 𝑖=1 𝑥𝑖 𝑃[𝑋 = 𝑥𝑖 ] if 𝑋 is discrete R.V
+∞
 𝐸𝑋 = −∞
𝑥𝑓 𝑥 𝑑𝑥 if 𝑋 is continuous R.V

## University of British Columbia LIFEI SHENG 8

Variance and Standard Deviation
Variance (denoted as 𝑉𝑎𝑟(𝑋) or 𝜎 2 )
 spread of the outcomes
𝑛 2
 𝑉𝑎𝑟 𝑋 = (𝑥
𝑖=1 𝑖 −𝐸[𝑋]) 𝑃[𝑋 = 𝑥𝑖 ] if 𝑋 is
discrete R.V
+∞
 𝑉𝑎𝑟 𝑋 = −∞
(𝑥 − 𝐸[𝑋])2 𝑓 𝑥 𝑑𝑥 if 𝑋 is
continuous R.V
Standard deviation (denoted as 𝑆𝐷(𝑋) or 𝜎)
 𝑆𝐷(𝑋) = 𝑉𝑎𝑟(𝑋)

## University of British Columbia LIFEI SHENG 9

Expectation and Variance Properties
Assume 𝑎 and 𝑏 are constants; 𝑋 and 𝑌 are
random variables.
(1)Linear Transformation: 𝑎 + 𝑏𝑋
𝐸 𝑎 + 𝑏𝑋 = 𝑎 + 𝑏𝐸 𝑋
𝑉𝑎𝑟 𝑎 + 𝑏𝑋 = 𝑏 2 𝑉𝑎𝑟 𝑋
𝑆𝐷 𝑎 + 𝑏𝑋 = |𝑏|𝑆𝐷(𝑋)

## University of British Columbia LIFEI SHENG 10

Expectation and Variance Properties
Assume 𝑎 and 𝑏 are constants; 𝑋 and 𝑌 are
random variables.
(2) Linear combination of two independent random
variables: 𝑎𝑋 + 𝑏𝑌
𝐸 𝑎𝑋 + 𝑏𝑌 = 𝑎𝐸(𝑋) + 𝑏𝐸 𝑌
𝑉𝑎𝑟 𝑎𝑋 + 𝑏𝑌 = 𝑎2 𝑉𝑎𝑟 𝑋 + 𝑏 2 𝑉𝑎𝑟 𝑌
𝑆𝐷 𝑎𝑋 + 𝑏𝑌 = 𝑎2 𝑉𝑎𝑟 𝑋 + 𝑏 2 𝑉𝑎𝑟 𝑌
In particular, 𝑎 = 1 and 𝑏 = 1 or −1

## University of British Columbia LIFEI SHENG 11

Expectation and Variance Properties
Assume 𝑎 and 𝑏 are constants; X and Y are random
variables.
(3) Linear combination of two dependent random
variables: 𝑎𝑋 + 𝑏𝑌
𝐸 𝑎𝑋 + 𝑏𝑌 = 𝑎𝐸(𝑋) + 𝑏𝐸 𝑌
𝑉𝑎𝑟 𝑎𝑋 + 𝑏𝑌 = 𝑎2 𝑉𝑎𝑟 𝑋 + 𝑏 2 𝑉𝑎𝑟 𝑌
+2𝑎𝑏𝑆𝐷 𝑋 𝑆𝐷 𝑌 𝑟
where 𝑟 is the correlation between X and Y.

## University of British Columbia LIFEI SHENG 12

Coefficient of variation (CV)
CV provides another way to quantify variability
Standard Deviation
CV 
Mean

## University of British Columbia LIFEI SHENG 13

Commonly-used Random Variable
Bernoulli trial
 There are only two possible outcomes.
 Eg: 0 or 1; head or tail; success or fail; Yes or No, etc
 The probability of a success is 𝑝 and it’s the same
for every trial.
 The trials are independent.
𝑝, 𝑖𝑓 𝑥 = 1
𝑃(𝑋 = 𝑥) =
1 − 𝑝, 𝑖𝑓 𝑥 = 0

## University of British Columbia LIFEI SHENG 14

Commonly-used Random Variable
Binomial Random Variable 𝐵(𝑛, 𝑝)
 The number of successes in 𝑛 independent
Bernoulli trials.
 Discrete: takes value from 0,1, … , 𝑛
𝑛!
 𝑃 𝑋=𝑥 = 𝑝𝑘 (1 − 𝑝)𝑛−𝑘 , 𝑝 is the
𝑘! 𝑛−𝑘 !
probability of success
 Expectation: 𝜇 = 𝑛𝑝
 Variance: 𝜎 2 = 𝑛𝑝(1 − 𝑝)
University of British Columbia LIFEI SHENG 15
Commonly-used Random Variable
Poisson Random Variable 𝑃𝑜(𝜆)
 The counts of events that occur randomly in a

## given interval of time

 Discrete: takes value from 0,1,2 …
𝜆𝑥
 𝑃 𝑋=𝑥 = 𝑒 −𝜆
𝑥!
 Expectation: 𝜇 = 𝜆
 Variance: 𝜎 2 = 𝜆

## University of British Columbia LIFEI SHENG 16

Commonly-used Random Variable
Uniform Random Variable 𝑈[𝑎, 𝑏]
 Continuous
 All intervals of the same
length has equal probability
𝑎+𝑏
 Expectation: 𝜇 =
2
(𝑏−𝑎)2
 Variance: 𝜎 2 =
12

## University of British Columbia LIFEI SHENG 17

Commonly-used Random Variable
Exponential Random Variable 𝐸𝑥𝑝(𝜆)
Inter-arrival time a

probability
 Continuous
 Expectation: 𝜇 = 1/𝜆
Cumulative distribution function:
2 2
 Variance: 𝜎 = 1/𝜆 Prob{a<=t} = 1 - e–t

0 Time t
 The coefficient of
Inter-arrival time a
variation is always 1 Probability density function:
 e–t

0 Time t
University of British Columbia LIFEI SHENG 18
Commonly-used Random Variable
Normal Random Variable (IMPORTANT)
 Aka: Guassian RV
 Continuous
 Bell-shape
 𝑁(𝜇, 𝜎)

## University of British Columbia LIFEI SHENG 19

Table: Important discrete and continuous distributions

## University of British Columbia LIFEI SHENG 20

Ex1: Let 𝑋 be uniformly distributed over (0, 1). Calculate
𝐸[𝑋 3 ].

## Let 𝑌 = 𝑋 3 . We first compute the CDF and PDF of 𝑌

CDF: 𝐹 𝑦 = 𝑃 𝑌 ≤ 𝑦 = 𝑃 𝑋 3 ≤ 𝑦 = 𝑦1/3
′ 1 −2/3
PDF: 𝑓 𝑦 = 𝐹 𝑦 = 𝑦
3
1 1 1 −2/3 1
Thus, 𝐸 𝑦 = 0
𝑦𝑓 𝑦 𝑑𝑦 = 0
𝑦 𝑦 𝑑𝑦 =
3 4

## University of British Columbia LIFEI SHENG 21

Ex2: Calculate the expected sum obtained when three fair
21
dice are rolled.
2

∞ 𝑡𝑥 −𝜆𝑥 𝑑𝑥
Ex3: (a) Compute 𝜙 𝑡 = 0
𝑒 𝜆 𝑒 when 𝑡 < 𝜆
(b) Compute 𝜙′ 𝑡 and 𝜙′′ 𝑡

𝜆 𝜆 𝜆
𝜙 𝑡 = ; 𝜙′ 𝑡 = ; 𝜙 ′′ 𝑡 = −2
𝜆 −𝑡 (𝜆 −𝑡)2 (𝜆 −𝑡)3

## University of British Columbia LIFEI SHENG 22

Themes from Today
Be familiar with the concepts and terminologies
Differentiation and integration will show up in
probability course, and will also occasionally
show up in supply chain management course.
 We have seen how to use integration to compute
CDF, expectation and variance of a continuous
random variable.
The courses are unlikely to involve a heavy use
of calculus in assignments

Thank You!