ECN 652: Quantitative Methods

Handout # 4

Discrete Probability Distribution

Prof. M. B. Ranathilaka and

Dr. T. Vinayagathasan
Department of Economics and Statistics
University of Peradeniya

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics 1

 The Binomial Distribution
• Binomial distribution is one of the simplest and most
frequently used discrete probability distribution.
• It describes the distribution of probability where there are
only two mutually exclusive outcomes for each trail of an
experiment.
• A Binomial Random Variable
– n identical trials
– Two outcomes: Success or Failure
 P(S) = p;
 P(F) = q or P(F) = 1 – p
– Trials are independent
– x is the number of Successes in n trials
Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics 2
 The Binomial Distribution
Example:
• A Binomial Random Variable
– n identical trials → Flip a coin 3 times
– Two outcomes: Success or Failure → Heads or Tails
– P(S) = p; P(F) = q = 1 – p → P(H) =0.5; P(F) = 1-0.5 =0.5
– Trials are independent
– x is the number of S’s in n trials
• Binomial distribution is applied on the experiments which
can give only two outcomes. In binomial probability, if
probability of success is p, then probability of failure
is (1−p).
• In a binomial experiment, for x number of successes in n
trials, where p is the probability of success and q is the
probability of failure
Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics 3
 The Binomial Distribution
• The Binomial Probability Distribution
 p = P(S) on a single trial
 q=1–p
 n = number of trials
 x = number of successes, then…
𝑃 𝑋 = 𝐶𝑥𝑛 𝑝 𝑥 𝑞 (𝑛−𝑥)
𝑛!
Counting rule =
𝑥!(𝑛−𝑥)!
 𝑛! = 𝑛 𝑛 − 1 𝑛 − 2 … … (2)(1)
 0! = 1
 n! (“n” factorial)

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics 4

 The Binomial Distribution
• The Binomial Probability Distribution
P X = C𝑥𝑛 𝑝 𝑥 𝑞 (𝑛−𝑥)
𝑛!
Where, C𝑥𝑛 =
𝑥!(𝑛−𝑥)!
C𝑥𝑛 : the number of ways of getting the desired results
𝑝 𝑥 : the probability of getting the required number of successes
𝑞 (𝑛−𝑥) : the probability of getting the required number of failures

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics 5

 Example: The Binomial Distribution
• Let X be a binomial random variable. Use the formula to
calculate the following probabilities
 P(x =2), if n= 8 and p = 0.1
 P(x =5), if n= 9 and p = 0.5
 P(x =9), if n= 10 and p = 0.95
P X = 2 = C𝑥𝑛 𝑝 𝑥 𝑞 (𝑛−𝑥) = C28 0.12 0.9(8−2) = C28 0.12 0.96
8!
= 0.12 0.96
2!(8−2)!

(8∗7∗6∗5∗4∗3∗2∗1)
= ∗ 0.12 ∗ 0.96
(2∗1)(6∗5∗4∗3∗2∗1)

= 28 ∗ 0.01 ∗ 0.531441
= 0.14880348

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Example: The Binomial Distribution
• Let X be a binomial random variable. Use the formula to
calculate the following probabilities
 P(x =5), if n= 9 and p = 0.5
P X = 5 = C𝑥𝑛 𝑝 𝑥 𝑞 (𝑛−𝑥) = C59 0.55 0.5(9−5) = C59 0.55 0.54
9!
= 0.55 0.54
5!(9−5)!

(9∗8∗7∗6∗5∗4∗3∗2∗1)
= ∗ 0.55 ∗ 0.54
(5∗4∗3∗2∗1)(4∗3∗2∗1)
362880
= ∗ 0.59
2880

= 126 ∗ 0.001953125
= 0.24609375

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Example: The Binomial Distribution
• Let X be a binomial random variable. Use the formula to
calculate the following probabilities
 P(x =9), if n= 10 and p = 0.95
P X = 2 = C𝑥𝑛 𝑝 𝑥 𝑞 (𝑛−𝑥) = C910 0.959 0.05(10−9) = C910 0.959 0.051
10!
= 0.959 0.051
9!(10−9)!

(10∗9∗8∗7∗6∗5∗4∗3∗2∗1)
= ∗ 0.959 ∗ 0.051
(9∗8∗7∗6∗5∗4∗3∗2∗1)(1)

= 10 ∗ 0.63025 ∗ 0.05
= 0.315125

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

Example: It is estimated that a dice is trailed 30 times, number 2
will occur 8 times. If the dice is thrown 12 times, Find,
a. The probability that 2 occur exactly twice.
b. The Expected value of 2 occur.
c. The variance of 2 occur.
n=12, P=8/30, X=2

P  x   Cxn P x q ( n  x ) E ( X )  np V ( X )  npq
2 (12  2) 8 8 22
 8   22  E ( X )  12  E ( X )  12  
P  x  2   C212     30 30 30
 30   30 
2 (10)
E ( X )  3.204 E ( X )  2.348
12!  8   22 
P  x  2     
2!(12  2)!  30   30 
12 1110!  8   22 
2 (10)

P  x  2     
2 110!  30   30 
P  x  2   0.2107
Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics
 Exercise Questions
1. The probability of winning a match for team A is 0.6. Find the
probability of winning 3 matches out of 5.
2. If a committee has 7 members, find the probability of having
more female members than male members given that the
probability of having a male or a female member is equal.
3. Saman is taking part in four competitions. If the probability of
him winning any competition is 0.3, find the probability of him
winning at least one competition.
4. If a coin is tossed thrice, find the probability of a getting head at
least two times.
5. If only 55 percent kids can secure A grade in a paper, find the
probability of at most 22 out of 1010 kids getting A grade in that
paper.
Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics
 Poisson Distributions
• A Poisson probability distribution is useful for
describing the number of events that will occur
during a specific interval of time or in a specific
distance, area, or volume. Examples of such random
variables are:
• The number of traffic accidents at a particular
intersection
• The number of house fire claims per month that are
received by an insurance company

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Characteristics of a Poisson Distribution
• The experiment consists of counting the number of
events that will occur during a specific interval of
time or in a specific distance, area, or volume.

• The probability that an event occurs in a given time,

distance, area, or volume is the same.

• Each event is independent of all other events. For

example, the number of people who arrive in the first
hour is independent of the number who arrive in any
other hour.

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
• The probability distribution, mean, and variance of a Poisson
random variable are given as follows:
x 
e
P X  
where:
x!
λ= the mean number of events in the time, distance, volume, or area
e = the base of the natural logarithm (e = 2.71828)

If x is the variable, If X ∼ Po(λ) then µ = λ

• 𝜎= 𝜆
• 𝜎2 = 𝜆

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
• Examples Births in a hospital occur randomly at an average rate of 1.8
births per hour. What is the probability of observing 4 births in a given
hour at the hospital?
Let X = No. of births in a given hour
(i) Events occur randomly
(ii) Mean rate λ = 1.8 ⇒ X ∼ Po(1.8)
We can now use the formula to calculate the probability of observing
exactly 4 births in a given hour

e−λ λx
P X = 4 =
x!
e−1.8 1.84
=
4!
2.71828−1.8 1.84
=
4×3×2×1
= 0.0723

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
Examples: Births in a hospital occur randomly at an average rate of 1.8
births per hour. What is the probability of observing 4 births in a given
hour at the hospital?
• What about the probability of observing more than or equal to 2
births in a given hour at the hospital? We want
P(X ≥ 2) = P(X = 2) + P(X = 3) + . . . 4

i.e. an infinite number of probabilities to calculate but

P(X ≥ 2) = P(X = 2) + P(X = 3) + . . .
= 1 − P(X < 2)
= 1 − [P X = 0 + P X = 1 ]
e−1.8 1.80 e−1.8 1.81
=1− +
0! 1!
= 1 − (0.16529 + 0.29753)
= 0.537

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
Example: The average number of traffic accident in a highway is two per
week. Assume that the number of accident follows a poisson distribution
with λ = 2.
• Find the probability of number of no traffic accident on the highway.

 xe
P  x 
x!
2
20 (2.71828)
P  x  0 
0!
P  x  0   0.1353
• Find the probability of less than three accident on the highway during
a two weeks period (λ = 2).

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
Example: Suppose that life insurance company insures the lives
of 5000 men age 42, according to study result shows that
probability of all considered 42 age men will die in a given year
to be 0.001. Find probability that company will have to pay
exactly for 4 person during a given year (𝑥 = 4).
𝜆 = 5000 × 0.001 = 5

 e
x
P  x 
x!
4 4
5 (2.71828)
P  x  4 
4!
P  x  4   0.175

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable
Example: Now suppose we know that in hospital A births occur
randomly at an average rate of 2.3 births per hour and in hospital B
births occur randomly at an average rate of 3.1 births per hour.
What is the probability that we observe 7 births in total from the two
hospitals in a given 1 hour period?

To answer this question we can use the following rule

• If X ∼ P(λ1) on 1 unit interval,
• and Y ∼ P(λ2) on 1 unit interval,
• then X + Y ∼ P(λ1 + λ2) on 1 unit interval.

So if we let
• X = Number of births in a given hour at hospital A and
• Y = Number of births in a given hour at hospital B
• Then X ∼ Po(2.3), Y ∼ Po(3.1) and X + Y ∼ Po(5.4) ⇒

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Poisson Random Variable: Example
 x e
P( x  x) 
x!
(5.4) 7 (2.71828) 5.4
P( x  y  7) 
7  6  5  4  3  2 1
(133,893.521)
P( x  y  7) 
5, 040  (2.71828)5.4
133,893.521
P( x  y  7) 
1,115,884
P( x  y  7)  0.11999

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics

 Exercise Question
1. A life insurance salesman sells on the average 3 life insurance
policies per week. Use Poisson's law to calculate the probability
that in a given week he will sell
i. Some policies
ii. 2 or more policies but less than 5 policies.
iii. Assuming that there are 5 working days per week, what is the
probability that in a given day he will sell one policy?
2. Vehicles pass through a junction on a busy road at an average
rate of 300 per hour.
i. Find the probability that none passes in a given minute.
ii. What is the expected number passing in two minutes?
iii. Find the probability that this expected number actually pass
through in a given two-minute period.

Prof. M. B. Ranathilaka & Dr. T. Vinayagathasan, Dept. of Econ. & Statistics