Objectives

Chapter 5 In this chapter, you learn:

„ The properties of a probability distribution.

Discrete Probability
„ How to calculate the expected value and variance
Distributions
of a probability distribution.

„ How to calculate probabilities from binomial and

Poisson distributions.

„ How to use the binomial and Poisson distributions

to solve business problems.
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Definitions Types Of Variables

„ Discrete variables produce outcomes that Types Of

come from a counting process (e.g. number of Variables
classes you are taking).

Ch. 5 Discrete Continuous Ch. 6

„ Continuous variables produce outcomes that Variable Variable
come from a measurement (e.g. your annual
salary, or your weight).

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 Probability Distribution For A
Discrete Variables Discrete Variable
„ A probability distribution for a discrete variable is a
„ Can only assume a countable number of mutually exclusive list of all possible numerical outcomes
values.
for that variable and a probability of occurrence associated
Examples: with each outcome.
Interruptions Per Day In Probability
Computer Network
„ Roll a die twice
Let X be the number of times 4 occurs 0 0.35
(then X could be 0, 1, or 2 times). 1 0.25
2 0.20
3 0.10
„ Toss a coin 5 times.
Let X be the number of heads 4 0.05
(then X = 0, 1, 2, 3, 4, or 5). 5 0.05
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Probability Distributions Are Expected Value Of Discrete Variables,

Often Represented Graphically Measuring Center
„ Expected Value (or mean) of a discrete
P(X)
variable (Weighted Average):
N

0.4
P E(X) ¦ x P( X i xi )
i 1

0.3 Interruptions Per Day In Probability

Computer Network (xi) P(X = xi) xiP(X = xi)
0.2 0 0.35 (0)(0.35) = 0.00
1 0.25 (1)(0.25) = 0.25
0.1 2 0.20 (2)(0.20) = 0.40
3 0.10 (3)(0.10) = 0.30
0 1 2 3 4 5 X 4 0.05 (4)(0.05) = 0.20
5 0.05 (5)(0.05) = 0.25
1.00 μ = E(X) = 1.40

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 Discrete Variables: Discrete Variables: Measuring Dispersion
Measuring Dispersion (continued)
„ Variance of a discrete variable. N
σ ¦ [x i  E(X)]2 P(X xi )
N
i 1
σ2 ¦ [x i  E(X)]2 P(X xi )
i 1 Interruptions Per
Day In Computer Probability
Network (xi) P(X = xi) [xi – E(X)]2 [xi – E(X)]2P(X = xi)
„ Standard Deviation of a discrete variable.
0 0.35 (0 – 1.4)2 = 1.96 (1.96)(0.35) = 0.686
N 1 0.25 (1 – 1.4)2 = 0.16 (0.16)(0.25) = 0.040
2 2
σ σ ¦ [x i  E(X)] P(X xi ) 2 0.20 (2 – 1.4)2 = 0.36 (0.36)(0.20) = 0.072
i 1 3 0.10 (3 – 1.4)2 = 2.56 (2.56)(0.10) = 0.256
where: 4 0.05 (4 – 1.4)2 = 6.76 (6.76)(0.05) = 0.338
E(X) = Expected value of the discrete variable X 5 0.05 (5 – 1.4)2 = 12.96 (12.96)(0.05) = 0.648
xi = the ith outcome of X
P(X=xi) = Probability of the ith occurrence of X σ2 = 2.04, σ = 1.4283

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Binomial Probability Distribution

Probability Distributions
„ A fixed number of observations, n.
„ e.g., 15 tosses of a coin; ten light bulbs taken from a warehouse.
Probability
„ Each observation is classified into one of two mutually
Distributions
exclusive & collectively exhaustive categories.
„ e.g., head or tail in each toss of a coin; defective or not defective light
Ch. 5 Discrete Continuous Ch. 6
bulb.
Probability Probability
Distributions Distributions „ The probability of being classified as the event of
interest, π, is constant from observation to observation.
„ Probability of getting a tail is the same each time we toss the coin.
Binomial Normal „ Since the two categories are mutually exclusive and collectively
exhaustive, when the probability of the event of interest is π, the
Poisson probability of the event of interest not occurring is 1 – π.
„ The value of any observation is independent of the value
of any other observation.

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 The Binomial Distribution
Possible Applications for the
Binomial Distribution Counting Techniques

„ A manufacturing plant labels items as „ Suppose the event of interest is obtaining heads on the
either defective or acceptable. toss of a fair coin. You are to toss the coin three times.
In how many ways can you get two heads?
„ A firm bidding for contracts will either get a
contract or not. „ Possible ways: HHT, HTH, THH, so there are three
ways you can getting two heads.
„ A marketing research firm receives survey
responses of “yes I will buy” or “no I will „ This situation is fairly simple. We need to be able to
not.” count the number of ways for more complicated
situations.
„ New job applicants either accept the offer
or reject it.
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Counting Techniques Counting Techniques

Rule of Combinations Rule of Combinations

„ The number of combinations of selecting x „ How many possible 3 scoop combinations could you
objects out of n objects is: create at an ice cream parlor if you have 31 flavors to
select from and no flavor can be used more than once
in the 3 scoops?
n! „ The total choices is n = 31, and we select X = 3.
n Cx
x! (n  x)!
31! 31! 31 x 30 x 29 x 28!
31 C3 31 x 5 x 29 4,495
where: 3!(31  3)! 3!28! 3 x 2 x 1 x 28!
n! =(n)(n - 1)(n - 2) . . . (2)(1)
x! = (X)(X - 1)(X - 2) . . . (2)(1)
0! = 1 (by definition)

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 Binomial Distribution Formula Example:
Calculating a Binomial Probability
n! x x
P(X=x |n,π) π (1-π)n What is the probability of one success in five
x! (n  x )! observations if the probability of an event of
interest is 0.1?
P(X=x|n,π) = probability that X = x events of x = 1, n = 5, and π = 0.1
interest, given n and π Example: Flip a coin four
times, let x = # heads: n!
x = number of “events of interest” in sample, P(X 1 | 5,0.1) S x (1  S ) n  x
(x = 0, 1, 2, ..., n) n=4 x! (n  x)!
n = sample size (number of trials π = 0.5
5!
or observations) 1 - π = (1 - 0.5) = 0.5 (0.1)1 (1  0.1) 51
1!(5  1)!
π = probability of “event of interest” X = 0, 1, 2, 3, 4
1 – π = probability of not having an (5)(0.1)(0.9) 4
event of interest 0.32805

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The Binomial Distribution Excel, JMP, & Minitab Can Be Used To

Example Calculate Binomial Probabilities

Suppose the probability of an invoice payment being

late is 0.10. What is the probability of 1 late invoice
payment in a group of 4 invoices?
x = 1, n = 4, and π = 0.10

n!
P(X 1 | 4, 0.10) S x (1  S) n  x
x! (n  x)!
4!
(0.10)1 (1  0.10) 41
1!(4  1)!
(4)(0.10)(0.729)
0.2916

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 The Binomial Distribution Binomial Distribution
Shape Characteristics
„ The shape of the
P(X=x|5, 0.1) „ Mean: μ E(X) nS
binomial distribution .6
depends on the values .4
of π and n. .2
„ Variance and Standard Deviation:
„ Here, n = 5 and π = 0.1. 0
0 1 2 3 4 5 x
σ2 nS (1 - S )
P(X=x|5, 0.5)
.6
.4
σ nS (1 - S )
„ Here, n = 5 and π = 0.5. .2 Where n = sample size
0 π = probability of the event of interest for any trial
0 1 2 3 4 5 x (1 – π) = probability of no event of interest for any trial

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The Binomial Distribution The Poisson Distribution

Characteristics Definitions

Examples „ You use the Poisson distribution when you

P(X=x|5, 0.1)
μ nπ (5)(.1) 0.5 .6 are interested in the number of times an event
.4 occurs in a given area of opportunity.
.2
σ nπ (1 - π ) (5)(.1)(1 .1) „ An area of opportunity is a continuous unit or
0
0.6708 0 1 2 3 4 5 x interval of time, volume, or such area in which
more than one occurrence of an event can
P(X=x|5, 0.5) occur.
μ nπ (5)(.5) 2.5 .6
.4 „ The number of scratches in a car’s paint.
σ nπ (1 - π ) (5)(.5)(1 .5) .2 „ The number of mosquito bites on a person.
0
„ The number of computer crashes in a day
1.118 0 1 2 3 4 5 x

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 The Poisson Distribution
Poisson Distribution Formula
„ Apply the Poisson Distribution when:
„ You are interested in counting the number of times a
particular event occurs in a given area of opportunity. An
area of opportunity is defined by time, length, surface area, e O Ox
and so forth. P( X x | O)
„ The probability that an event occurs in a given area of x!
opportunity is the same for all the areas of opportunity.
„ The number of events that occur in one area of opportunity where:
is independent of the number of events that occur in any
other area of opportunity. x = number of events in an area of opportunity
O = expected number of events
„ The probability that two or more events will occur in an area
of opportunity approaches zero as the area of opportunity e = base of the natural logarithm system (2.71828...)
becomes smaller.
„ The average number of events per unit is O (lambda).

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Poisson Distribution The Poisson Distribution Example

Characteristics
The mean number of customers who arrive per minute
at a bank during the noon-to-1pm hour is 3.0. What is
„ Mean: μ λ the probability that 2 customers arrive in a given
minute?

„ Variance and Standard Deviation: x = 2, λ = 3.0

σ2 λ
eO O x e 3.0 3.0 2
P(X 2|3.0)
x! 2!
σ λ 9
2.71828 3 ( 2 )
where O = expected number of events.
0.2240

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Excel & Minitab & JMP Can Automate
Poisson Probability Calculations Graph of Poisson Probabilities
The mean number of customers who arrive per minute
at a bank during the noon-to-1pm hour is 3.0.
Graphically:
λ = 3.0
O = 0.50
O=
X 0.50
0 0.6065
1 0.3033
2 0.0758
3 0.0126
4 0.0016
5 0.0002
6 0.0000
P(X = 2 | O=0.50) = 0.0758
7 0.0000

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Poisson Distribution Shape Chapter Summary

In this chapter we covered:
„ The shape of the Poisson Distribution
depends on the parameter O: „ The properties of a probability distribution.
O = 0.50 O = 3.00 „ Computing the expected value and variance of a
probability distribution.
„ Computing probabilities from binomial and Poisson
distributions.
„ Using the binomial and Poisson distributions to
solve business problems.

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