ClfAPTLH

7
l\'CERTA J\' (Jt;A,'\TITIL\
PROHAH/L/TY
IJISTRI HCT/0,\'S. /

A\'f) EXPECTATI(J~'S

/ ~ 1 ,% "( / .!% ....""í ..f ~ ,11/ .-,,• ...; ,1 "')" -' .-'/_: / / / ,.( / .,.,, , , / ' .F Á / ~ / A, ,- / /
1 .,,. / / , ,.:,,...,,,. , / / / , , , • 1 / , l / ;, ,r l _, /' I/ ,, t / f ,.4 ,-

1/"',VAf\_.,. -'/ .-'-,. .... , .... ~ ., ~ .,-, , / f, " r',J)? ";/ 1/,." ... , . . P,,.
 CHAPTER
7
UNCERTAIN QUANTITIES,
PROBABILITY
DISTRIB UTI ONS,
AND EXPECTATIONS
The diagrams of rnany business decision problerns contain event forks represent-
ing the possible values of an uncertain quantity such as the amount of sorne prod-
uct that could be sold during the next year or the number of defectives that will
be produced in the next run of sorne rnachine. Since there is a possible event
corresponding to every possible value of the uncertain quantity, such forks often
have a very large number of branches, and when they do, they give rise to some
problems that we must now examine.
First of all, the mere description of such a fork presents a problem. A
fan Iike the one in Figure 2.2 (page 35) will serve to show the place of the fo rk
in the diagrarn .of the decision problem, but it offers no place to record the prob-
abilities assigned to its branches. In principle this problem can be solved by lisr-
ing the branches rather than diagramming them, but frequently th e nurnber of
branches is so great that even this device becomes very awkward. An eve n nwrc'
serious problem arises when we come to assessment of the probabilities for a li the
branches on the fork, since no decision maker can possibly sit down and think
out separately the probability he wants to assign to each of a thousand or fl: n
thousand possible values of the uncertain quantity. Ancl finally, supposing th:1r
the as~essment problem has somehow been solved, a serious computational pn)b·
lem anses w~en we try to cvaluate the decision makcr 's prcfercncc l)r m:1thL't11:11i-
c~I expectat1on for the unccrtain monetary value rcprcscnted by an cvt:nt fl) r~
with thousands of branchcs.
 7 UNCER TAIN QUANTITIES
223

All these problems will be d lt . 1 . .

. ea w1t 1 m th1s chapter and the next, but not
exactly m the order we have listed ti1 p ·
. em. ostponmg the problem of asscssment
untll the next chapter we shall d ¡ · h · ·
, ea w1t purely mecha111cal problems 111 the
present chapter.
l. In Section 7.1 we define certain terms that are neecled for discussion
of uncertain quantities and show how a whole set of probabilities assigned to the
possible values of an uncertain quantity can be described by a graph .
2. In Section 7.2 we define various "summary measures" which describe
particular aspects of such a set of probabilities and which are frequently useful
either in assessing the probabilities or in using them after they have bee'n assessed .
3. In Section 7.3 we discuss certain problems that arise when the deci-
sion maker has assigned probabilities to the possible values of some " underly-
ing" uncertain quantity such as customer demand but is really interested in sorne
function of this uncertain quantity such as contribution to overhead and profit.
4. In Section 7.4 we face the computational problems that arise when
nonzero probability has been assigned to so many possible values of an uncertain
quantity that it is not practica! to take account of each of these probabilities in-
dividually, and we show how adequate approximations to exact results can be
obtained either by hand or with the aid of a digital computer.
5. Finally, in Section 7.5 we discuss a short-cut method for computing
expectations of functions which are of a certain special but very common type.
The present chapter consists almost entirely of definitions and rules,
with almost no examples of their use in analyzing decision problems. For this
reason it may appear to the reader that we are introducing more new concepts
than can possibly be really needed, but in actual fact every one of these concepts
will prove essential to the analysis of practica! decision problems.
The text and exercises of this chapter are designed to be studied in the
following order:

1 Section 7.1.1 and Exercise 7.1.

2 Sections 7.1.2-7.1.3 and 7.1.5 and Exercise 7.2.

3 Section 7 .1.4 and Exercises 7.3-7.4.

4 Section 7.2.1 and Exercise 7.5.

5 Sections 7.2.2- 7.2.4 and Exercise 7.6.
6 Sections 7 .2.5- 7.2.6 and Exercise 7 .7.

7 Sections 7.3.1 - 7.3.2 and Exercise 7.8a and b.

8 Sections 7.3.3- 7.3.5 and Exercises 7.8c- 7.10.

9 Sections 7.4.1 - 7.4.3 and Exercise 7 .11.

10 Sections 7.4.4- 7.4.6 and Exercise 7. 12.
224 ASSESSMENT OF PREFERENCES ANO PROBABILITIES
7

11 Sections 7.4.7- 7.4.8 and Exercise 7.13.

12 Section 7.5.I; review Exercise 7.8d.
13 Sections 7.5.2- 7.5.4; review Exercises 7.9c and 7.10c.
14 Section 7.5.5; review Exercise 7.13e.
15 Section 7 .6.

CONTENTS OF CHAPTER 7

l.
Probability Distributions, Mass
Functions, and Cumulative Functions
1 Definitions
2 Exact Graphs of Mass and Cumulative Functions
3 Smooth Graphs of Mass and Cumulative Functions
4 Relations between the Shapes of Mass and Cumulative Functions
5 Notation

2.
Summary Measures of a
Probability Distribution
1 Modes of a Distribution
2 Median of a Distribution
3 Fractiles of a Distribution
4 Identification of Fractiles by Use of a Smooth Graph
5 Mean of a Distribution or Expectation of an Uncertain Quantity
6 Relations among Mean, Median, and Mode
7 Variance and Standard Deviation of a Distribution

3.
Functions of an Uncertain Quantity
1 An Example
2 Definition of a Function of a UQ
3 Distribution of a Function of a Discrete UQ
4 Expectation of a Function of a Discrete UQ
5 Summary

4.
Approximation of an Expectation
1 An Example of Approximatc Computation
2 Alternatíve Dcscriplion or thc Mcthocl of Computntion
3 Groupcd Approximations lo Probability DistributÍllIIS
 7.1.1
UNCER T AIN QUANTITIES
225

4 Equiprobable Groups
5 Bracket Medians
6 Construction of Grou dA • . .
. pe pprox1mat10ns Usrng Bracket Medians
7 S1ze of Groups and Accuracy of Approximation
8 U se of a Digital Computer

5.
Expectations of Linear Functions
1 A Common Error
2 Expectation of a Linear Function
3 Functions Linear over the Range of a UQ
4 A Common Variant of the Common Error
5 Use of Expectations in the Analysis of Decision Problems

6.
Summary
1 Definitions and Notation
2 Graphs
3 Summary Measures of a Distribution
4 Functions of a UQ
5 Grouped Approximations
6 Linear Functions

Appendix
Description of Computer Program Smooth

7.1
PROBABILITY DISTRIBUTIONS,
MASS FUNCTIONS, AND CUMULATIVE FUNCTIONS

7.1.1
Definitions
The reader will find it essential to keep the following definiti ons of tec hnical
terms absolutely clear in his mind. We first di stinguish between what wc shall
calI possible and impossible values of an «uncertain quantity», or UQ for short .
■ Any value which an uncertain quantity cannot have because of the way
in which its value will be measured will be called an « impossihle value»
of the UQ and wiH be automatically assumed to have zero prnba bility.
Any vaJue that is not exdudcd for this rcason will be called a « possibk
value» of the UQ, whethcr or not it ha s zcro probability in the dec ision
maker's judgment.
r

226 ASSESSMENT OF PREFERENCES AND PROBABILITIES ?.J.J

Event
FIGURE 7.1
Event Fork Representing the UQ "Number of Units Demanded Tomorrow"

If a retailer is analyzing a decision problem in which profit depends on demand

for a prepackaged product, and if the retailer would force anyone demanding a
fraction of one unit to convert his demand into a demand for either no unit or
one unit, then we shall say that 2.7, for example, is an impossible value of the UQ
"number of units demanded tomorrow"; but we shall say that 1 million is a pos-
sible value of this UQ even if the decision maker feels absolutely sure that de-
mand cannot exceed 5. If a production manager has instructed an operator to
measure the diameter of pieces turned out on a certain lathe to the nearest
hundredth (of an inch), then we shall say that 1 /3 and .237 are impossible values
of the UQ "diameter of the next piece turned out"; but we shall say that 15.00
is a possible value of this UQ even if the blueprint calls for 25 .50 and the produc-
tion manager feels sure this operator would never deviate from specifications by
more than .03.
With this distinction between possible and impossible values of a UQ in
mind, we can proceed to our next definition .
■ An uncertain quantity will be called «discrete» if its possible va lues
can be listed.
The UQ "number of units demanded tomorrow" in the example described
above is discrete because its possible values can be listed as o. 1, 2. etc. The UQ
"diameter of next piece produced" is discretc beca use its possiblc va lues are .OO.
.01 , .02, etc. 1
Suppose now that a rctailer has assigncd thc probabilities shown t) ll tht'
event fork in Figure 7.1 and in Column 2 ofTable 7.1 to the possibk va lues ot' rlw
1
Discrctc UQ 's are thc only UQ 's that wc shall study ¡11 this intrnductory t,· xt. W,· sh;dl
cncountcr sorne dccísíon pro blcms that invol vc UQ 's wh idi a re 1w 1 dis,· rct,'. ,:.i,: .. th,·
fractíon dcfcctivc thal a machinc wo uld gcn,·rntc ¡11 a n " inl init,· 1111111 tw r" of cri;ils ti ui
wc shall find tlrnt in ali such prohlcms wc rnn gel <.'.!ü:<.'llcnt apprn xiana tii)II S c, 1 ,•.\,,, t
answcrs by trcating thc UQ a.1· lj' it wcri: di serete .
7.1.1 UNCERTAIN QUANTITIES 227

TABLE 7.1
" Probability Distribution of the UQ
Number of Units Demanded Tomorrow"
1 2 3
Number Probability of
Demanded Demandfor:
d d dar less
o o o
1 .2 .2
2 .4 .6
3 .2 .8
4 .1 .9
5 .1 1.0
6 and up o 1.0
1.0

discrete UQ " number of units demanded tomorrow". In order to have a con-

venient name for a complete list of probabilities like the one in Column 2 of
Table 7.1 , we next agree that:
■ A list showing for each possible value of a discrete UQ the probability
that the UQ will have exactly that value will be said to define the «mass
function» of the UQ.

(When we refer to "the" probability of an event as we do in this definition, we

mean, of course, the probability as assessed by sorne particular decision maker.
The shorter phrase is always to be taken as an abbreviation, not as a suggestion
that an event can have an inherent probability which is something other than the
result of sorne particular person's decision.)
In sorne situations we will be interested in the probabilities, not of events
such as "demand for exactly 3 units", but of events such as " demand for 3 units
or less" , and the probabilities of ali possible events of this sort are shown for our
example in Column 3 ofTable 7.1. These probabilities were computed from the
entries in Column 2 by using a rule first stated in Section 6.1.2 : the probability
that sorne eme or another of a set of mutually exclusive events will occur is the
sum of the probabilities of the individual events. Thus the probability of "1 or
less" is the sum of the probabilities of "exactly O" and "exactly l ", and so forth .
Probabilities of events like "dernand for 1 or less" are known as «cumulative»
probabilities because they can be cornputed by cumulating the probabilities of
events like "demand for l ", whether or not they are in fact so computed in a
particular prÓblem.
It is also possible to compute the probabilities of the individual values
of a UQ from a complete set of cumulative probabilities. lf, for example, we
had been given the probabilities in Column 3 of Table 7 .1 rather than those in
Column 2, we could have computed the probabilities in Column 2 by making use
of the fact that the probability of " demand for 3" is the differcnce between the
228 ASSESSMENT OF PREFERE NCE S A ND PROBA BILITI ES 7././

probability of "demand for 3 or less" and the probability of "dcmand fo r 2 nr

less", and so forth.
We shall use the term «probability distribution» to denote a complete
set of consistent probability assignments in either the form of a mass func tion or
any other form which makes it possible to compute the mass function .
One technical point about cumulative probabilities deserves a rema rk .
Even if an event such as "demand for 2.7 units" is impossible, an event such as
"demand for 2.7 units or less" is not impossible, nor will its probability orcl ina rily
be zero-its probability will be equal to the probability of "demand for 2 uníts or
less" . With this observation in mind, we give the following definiti on :
■ A list from which it is possible toread the probability that a discrete UQ
will be less than or equal to any given number, positive or negative, will
be said to define the «cumulative function» of the UQ.

The list actually needs to contain only as many entries as there are values of the
UQ with nonzero individual probability, since it is only at these values of the
UQ that the value of the cumulative function actually changes. In the example
ofTable 7.1 , the entries in Column 3 suffice to show that the probability assigned
to "demand for 3½ or less" is .8.

7.1.2
Exact Graphs of Mass and
Cumulative Functions
A mass or cumula ti ve function can be much móre readily apprehended intuitively
if it is presented in the form of a graph rather than a list, and we shall see later
that graphs are often also very useful in the actual assessment of mass or cumula-
tive functions.
Graphing a mass function presents no real problems at all, as can be
seen by looking at the graph in Figure 7.2A of the mass function in Column 2 of
Table 7. l. The horizontal axis shows the possible values of the UQ "number of
units demanded"; the height of the bar above each value, when referred to the
vertical axis, shows the probability that the UQ is equal to that value.
In graphing a cumulative function, we must remember that such a func-
tion has a meaningful value in between as well as at the possible values of the
UQ ; with this fact in mind it is easy to see that Figure 7.2B is a correct represen-
tation of the cumula ti ve function defined by Column 3 of Table 7.1. The height
of the graph above any value on the horizontal axis, possible or impossibk.
shows the probability that the UQ is equal to that value or less ; at the poin t~
where there is a vertical jump in the graph, a heavy clot indica tes where the gr:1ph
is to be read. The reader should noticc, and cxplain to himself why :
1 There is a jump in the cumulative function at cach value of the UQ for
which the mass function shows nonzcro probahility.
7.1.3 UNCER T AIN QU ANTITIES 229

4
A
2::-
j .2
o
..D
1 .1
o 1 1
-
o 2 3 4 5 6 7 8
d, numbe r demonded

10

.9
1
B
.8

"'Q) . 7

o 5

:.g _4
..D
o
et .3

.2 r

.l

o
1

1
1

o 2 3 4 5 6 7 8
d, numbe r demonded
FIGURE 7.2
Probability Distribution of the UQ "Number of Units Demanded Tomorrow"

2 The height of each jump in the cumulative function is equal to the height
of the corresponding bar in the mass function.

7.1.3
Smooth Graphs of Mass and
Cumulative Functions
Graphs like those in Figure 7.2 become very tedious to draw when nonzero prob-
ability has been assigned to a large number of values of the UQ, and thcrefore we
shall in ali such cases use "smooth" graphs that are easier to draw even though
they cannot be read correctly without first remcrnbering which are the possible
values of the. UQ.
Taking another hypothetical probability distribution of demand for
some commodity as our example, we show exact graphs of its mass and cumula-
tive functions in Figure 7.3 with smooth graphs of thcsc sume functions sup~r-
230 ASS ESSM EN T OF PR EFE R EN CES A ND P RO BABILJTrEs
7.J.3

-
.08
I
/ -- . . . I'\.
-

"
0 .06
:¡¡ /
/
/
Í\
\
"I"-...
A
- -
-8 .04
r--.. , -
e 1
CL
/ r--...,~ -
.02 -
/ ~
o ~I 1 1 1 ri---r--,___
o 5 10 15 20 25 30
De mand x

1.0 .-==,---

.9
~
.8
/
/ ~

s
.7
"'
1 B
º.6
º .5
" jJ
~
:.o
_g .4
o
!1
l--J

et
.3 / -

.2 J
.l
jJ
~
k:1---'
o
o 5 10 15 20 25 30
Demand x
FIGURE 7.3
Exact and Smooth Graphs of a Distribution

posed. 2 Comparing the two graphs of the mass functi o n, the reader wi·11 s·ee that
. .. t .. ph at anY
the smooth graph (a) g1ves exactly the same p robab1hty as the e~ac gi '1 , hi.:n
possi ble value of th e UQ, but (b) is mea ningless at a ny im pnsstbk va hic.: . T .
. ·11 , ,thatt 1t,
compa nn g the two graphs of th c cumulati vc function, t hc rende r wi st: c .t
11 1
smooth gra ph (a) again givcs cxactly thc samc probability as thc cxact grap '

2 Bcca usc th c vert ica l scal es f'or th c 11111ss t'un e ti o ns in thesc two gra phs nrc ''.'.'. 1 ,h th.: snntl'
,,r ,11,·
as th c vert ica l sea lo:s f'o r th c cu 11111l 11 1i vc t'u11c1io 11s, thc jum ps in thc ••~a.: t ¡;•:','·. ,., 11 .¡ 11 1~
· c fu
c u111u 1atrv · 11ct 1·0 11 a n • prn po r1 11. ' 11t s• o 1· 111.: .:,,, , ,s i
· H111I rnth c r th n11 cq u11I to th .: he1¡;
ba rs in th c exael grnph o t' th e mnss fu 11e tio11 .
 7.J.4 UNCERTAIN QUANTITIES 231

every possible value of the UQ , but (b) overstates the probab1hty

.. . .
at any 11nposs1-
ble value between the two ends of the curve.

7.1.4
Relations between the Shapes of
Mass and Cumulative Functions
By comparing the two smooth graphs in Figure 7.3, the reader can readily ob-
serve that the upward slope of the cumulative function is great at those values of
the UQ at which the height of the mass function is great, that the slope of the
cumulative function is small where the height of the mass function is small, and
that the slope of the cumulative function is O (the graph is flat) where the height
of the mass function is O. Then by thinking about the implications of the two
remarks at the end of Section 7 .1.2, the reader can convince himself that these
same relations must hold in any case where (1) the possible values of a UQ are
evenly spaced out on the horizontal axis, and (2) the probabilities of these values
are all very small and change gradually from one value to the next. And with a
little more thought, the reader can convince himself that the relation can actually
be stated in the following stronger form :

■ If (1) the possible values of a UQ are evenly spaced out, and (2) the prob-
abilities of these values are all very small and change gradually from one
value to the next, then the slope of a smooth graph of the cumulative
function at any particular value ofthe UQ will be almost exactly propor-
tional to the height of the mass function at that value.

Smooth graphs are useful and will be used only when the two conditions
of this basic proposition are satisfied; and the reader should convince himself
that under these conditions the basic proposition implies the following particular
conclusions concerning smooth graphs:

1 A smooth graph of the cumulative function of a UQ will never slope

downward.
2 If a smooth graph of the mass function of a UQ has only one peak or
«local maximum>> like the curve in Figure 7.3A, a smooth graph of its
cumulative function will be S-shaped like the curve in Figure 7.3B- i.e ..
the direction in which it curves will reverse once and only once. A
cumulative function with many reversa]s of curvature corresponds to a
mass function with many local maxima and minima.

3 lf the left end of a smooth graph of the mass function of a UQ rises

gradua11 from o the slope of a smooth graph of the cumulative function
will be Oyat the o~tset and increase gradually; and similarly for tht: right
ends. A cumulative function whose smooth graph rnns into the hori-
 ASS
ESSMENT OF PREFERENCES AND PROBABI LITIEs ?
232 . /.4

ontal axis at a sharp angle corresponds to a m ass fu nction Wh

z a large 1.ump at the le ften d , an d s1m1
. ·1a rly for the .Ose
smoo th gr aph has · nght
ends.

7.1.5
Notation
Subsequent discussion of probability distributions of uncertain quantities wiJl be
very greatly facilitated by the use of some shorthand notation.
I. Any probability will be denoted by a capital P followed by paren.
theses enclosing the name of the event whose probability is in question . Thus
P(red) will denote the probability that a ball is red, P( defective) will denote the
probability that a manufactured part is defective, and so forth.
2. Any uncertain quantity will be denoted by a Ietter with a tilde (pro-
nounce til'deh) over it; thus we may use d to denote the UQ " tomorrow's de-
mand" or r to denote the UQ " number of defectives in this uninspected lot".
3. We have already seen that to each possible value of a UQ there corre·
sponds a possible event; thus if .x denotes demand, x = 4 denotes the event "de-
mand for 4" . Consequently we may write
P(x = 4): the probability that the UQ x has the value 4.

The symbol < means "less than", > means "greater than" ~ and >, mean re-
' " 1/
spectively "less than or equal to" and "greater than or equa1 to". Thus,

P(x ~ 4): the probability that the UQ x has a value Iess than or
equal to 4, or more briefly, the probability that x has
a value equal to 4 or less.

The following relations between the "tails" of ad'1st n·b u t·10n w1·11 g1ve
· anexa
· mplc
of the use of this notation.

P(x < 4) + P(x = 4) + P(x > 4) = l.

P(x ~ 4) = 1 - P(x > 4 ).

P(x < 4) = 1 _ P(x ~ 4).

4. We shalJ often need ·1 s b 1 1.

·fi d . . e ym O w 11ch denotes an ind ividual tiu t un·
spec1 e va1ue of a UQ, and for ti118 • . ..
t d . ·h u· . . . pu, pose we shall use th c sa me k tter wc.· u:,c.
o enote t e Q ,tself but w,thout ti t'I1 1 11
of the c umu/ativc r t' f . ic_ e c. Thus thc hori zontal axi s t ) t' :1 gr:1P_
. . une ion o tic1 UQ x may be hb ·11 . 1 -,· 1 . 1 ·¡ . 1 . , ·c r t1 -
cal axi s 1s Jabclled P( - ~ ) . < e e ( s1111p y .,\ w 11 t I l í.
x " x • Wc can wntc
P( x ~ X) = 1 - P(x > X)
bccause thí s rclutíon helween th . t· .1. . . . . ..
1 1 11 •
Vt1 lu c X éJ lld not Jºust ro . ti ; . 1e .iiso thed1stnl
.. '
1·
)l( 1011 1() ( s /1) 1' .1 11 )'
·11 · til ,t1
p ;11 ~
, le vi1 11e 4 used 11 ·1 . .
· our prl'v 1u11s 1ll11s trn ti1Hl.
 7.2.3 UNCERT AIN QU ANTITIES
233

7.2
SUMMARY MEASURES OF A
PROBABILITY DISTRIBUTION

7.2.1
Modes of a Distribution
When greater probability is assigned to some one value of a discrete UQ than to
the values just to either side of it, the value with the greater probability is called a
«mode» of the distribution. lf there is only one such value, it is called " the"
mode of the distribution. The mode of the distribution in Figure 7 .2 is 2.
A smooth graph of the mass function of a discrete UQ will have a local
maximum at each mode, and if the possible values of the UQ are evenly spaced,
the cumulative function will have greater slope at a mode than at neighboring
values of the UQ-there will be a reversal of curvature at each mode. The distri-
bution graphed in Figure 7 .3 has only one mode, namely the value 10.
Most distributions encountered in business decision problerns have only
one mode and are called «unimodal» . Distributions with two modes are some-
times of considerable interest; they are called «bimodal».

\ 7.2.2
Median of a Distribution
Roughly speaking, the «median» of a distribution is the value of the UQ which
"cuts the distribution in half" in the sense that the probability that the UQ will
have a value less than the median and the probability that the UQ will have a
value greater than the median are both approxirnately 1 /2. The median is pre-
cisely defined by the following procedure for identifying it on an exact graph of
the cumulative function of the UQ.
■ To identify the median of the distribution of a UQ, e~ter an_exact graph
of the cumulative function of the UQ at .5 on the vertical axis, read over
to the graph, and then read down to find the median on the horizontal
axis. 3
As shown in Figure 7.4, the median of the distribution of Figure 7.3 is 12.

7.2.3
Fractiles of a Oistribution
. . el Roughly speaking, thc « k fractilc»
Let k denote any fract10n between 0 ctn 1· . . . .
, . . . . _ _ UQ which divides thc d1stnbutwn 111 such n
0 f a d1stnbut1on 1s the value of t 1
1e

. j
.. • • r mcdi, 111 s by id c11tifyi11~ <>11c va l11l' .ni". .1\w
t· d·Hd def1111llOII O
·This rul e <lifkrs from t 1c s .in ' . . , .·• ¡ ,.. scs wln;rc by th c s1H1nlard dcl\11111,111
. ·¡ · -1 in so inc sp 1;1; 1•1 ~, 1• ·
UQ as "thc" median ora <listn JUliOI · ., . in ·iddition to thc ,H1C s in¡¡k,d ,1u1 b y lhl'
the distr ibution would havc inany o lllcr ,nci1l,lllS '
rule.
 1.0 ,_____.....----

.9
~ ,_

.8
_r -- -- --

.7
Lr -

J
V)
V)
Q)

---

~
n
-► --- - - ~-------

~
--
1
1
1
r- ► -- ~ - - '""
1
1

.2 r- 1
1

~
1 1
1 1
1 1
.l

o - _f--
u t
1
1
1

±
o 5
.3 fract ile
J 10 \ 15
Med ian
20
Value x
25 30

FIGURE 7.4
Determination of a Median and a .3 Fractile

way that the probability that the UQ will have a value less than the k fractile is
approximately equal to k and the probability that the UQ will have a value
greater than the k fractile is approximately equal to (1 - k). The k fractile is
precisely defined by the following procedure for identifying it on an exact graph
of the cumulati ve function of the UQ:

■ To identify the k fractile of the distribution of a UQ, enter an exact

graph of the cumulative function of the UQ at k on the vertical axis,
read over to the graph, and then read down to find the k fractile on the
horizontal axis.

As shown in Figure 7.4, the .3 fractile (read: point three fractile) of the distribn-
tion of F igure 7 .3 is 9.

Notation If a UQ.is called x, the k fractile of its distribution will be ca lled xk,
and similarly for other UQ 's.

Special Fractiles Certain fractiles are commonly given sr ccial namcs. O ur

definitions ha ve already shown th at thc .5 fractilc is also ca llcd th<: medi a n of a
distribution. We shall frequ ently rcfer to thc .25 ami .75 fra cti les rcspcct ivt'ly as
the lower and uppcr « qu artilcs» of a di strih11t io n.
 7.2.4
ldentification of Fractiles
by Use of a Smooth Graph
We have defined the fractiles of a distribution with respect to an exact graph of
the cumulative function, but in most of our work we shall be using smooth graphs
and therefore the following rule will be useful.
■ To identify the k fractile of a distribution by use of a smooth rather than
an exact graph of the cumulative function , proceed as with the exact
graph except that if the value found on the horizontal axis is an impossi-
ble value for the UQ, the k fractile is the first possible value to the right.

By superposing a smooth graph on the exact graph in Figure 7.4, the reader can
verify for himself that this rule necessarily leads to the same value that would be
obtained by use of an exact graph.

7.2.5
Mean of a Distribution or Expectation
of an Uncertain Quantity
The <<mean>> of a proba bility distribution is defined by the following rule for
computation:
■ To compute the mean ofthe probability distribution of any discrete UQ,
(1) multiply each possible value of the UQ by the probability that the
UQ has that value, and (2) add these products.

In Table 7.2 we show that the mean of the distribution in Table 7.1 of the UQ
"demand" is 2.5.
TABLE 7.2
Computation of the Mean of a Distribution

d P(d = d) d X P(d = d)

o o o
1 .2 .2
2 .4 .8
3 .2 .6
4 .1 .4
5 .1 .5
6 and up o o
1.0 2. 5

The mean of a decision maker's probability distrihution for a n unca cai n

¡.uª~tity is also called his <<mathematical cxpectation>> for thc: un~crt nin quun-
{~b~tself. lfthe UQ "demand" is assigned th c prohahili~y di ~t ribution sh1..~wn in
Ob e 7.2, the decision ma ker's rnathcmatical cxpeda tHHl l<.)r d (: 1m uH.l 1s 2.5.
. d e f'rn1t10n,
serve that , b y 1ts ..