TOD333 Probability and Distributions Lecture

Lecture course • TOD333: Logistics and Transport Management • Amrut Mody School of Management, Ahmedabad University • Monsoon 2022
Introduction andand
Probability mathematics review
distributions
Bhargav Adhvaryu Ahmedabad

Professor of Urban Science
Amrut Mody School of Management University
Bhargav Adhvaryu Probability and distributions 1 of 67
This document is for use ONLY by the students who attend this lecture and should NOT be circulated and used outside this group of students.
Lecture outline
1. Introduction
2. Random variable and its probability distribution
3. Some probability distributions
4. Approximations of some probability distributions
5. Joint probability distribution
Introduction Random variable & its PD Some probability distributions PD approximations Joint probability distribution
Why study probability?
• A random variable is a variable that can take different values according to chance.
• Studying probability allows us to quantify the chance of what values will a particular
random variable take.
• In other words, we are able to quantify the “variability” of the random variable to make
better informed decisions in real life.
• It has application in several fields, eg insurance (actuarial studies), business risk
analysis, shopping behaviour of customer, pathology, epidemiology, weather forecast,
sports and gaming strategies, analysing political strategies, etc
Definition of probability
• Mathematically, probability is defined as the limit of the relative frequency.
where,
≜ is a symbol for “by definition”
𝒙 is the outcome
𝐏𝐫 is the symbol for probability (alternative symbol, 𝑷)
𝒔 is the number of times a desired outcome (success) occurs (ie, its frequency)
𝒏 is the number of times the trial is repeated
Definition of probability
Example of an experiment
• Let us define an experiment as tossing a fair coin (10 times).
• Say the desired outcome (𝒙) of interest is heads (appearing on the face of the coin).
Trial № Heads Cumulative of Cumulative Graph after several number of trials
(𝒏) heads relative
appearing frequency
(𝒔) (𝒔/𝒏)
1 X 0 0.00
2  1 0.50
3 X 1 0.33
4 X 1 0.25
5  2 0.40
6  3 0.50
7 X 3 0.43
8  4 0.50
𝒔 𝑠
9  5 0.55 𝐏𝐫 𝒙 ≜ 𝐥𝐢𝐦 0 ≤ ≤ 1 ∴ 0 ≤ Pr 𝑥 ≤ 1
𝒏→ 𝒏 𝑛
10 X 5 0.50
Approaches to probability
The classical approach (a priori)
• Also known as “a priori” probability, because we can calculate the probability of the
outcome without conducting an experiment.
• In other words, statements are based on logical reasoning (even before experiment has
taken place)!
• Classical probability can be defined as:
where,
𝒔 is the desired outcome (success)
𝒏 is all possible outcomes (all of which are equally likely).
Also, if 𝒇 is the undesired outcome (failure), then 𝒔 + 𝒇 = 𝒏
The classical approach
Using the above equation…
• What is probability of heads (𝑯) appearing in one toss of a fair coin?
𝑯 𝟏
𝐏𝐫 𝑯 = = = 𝟎. 𝟓
𝑯, 𝑻 𝟐
• What is probability of obtaining three in one roll of a fair die?
𝟑 𝟏
𝐏𝐫 𝟑 = = ≅ 𝟎. 𝟏𝟔𝟕
𝟏, 𝟐, 𝟑, 𝟒, 𝟓, 𝟔 𝟔
• What is probability of obtaining a total of 7 in one roll of two fair dice?
𝟏 − 𝟔, 𝟐 − 𝟓, 𝟑 − 𝟒, 𝟒 − 𝟑, 𝟓 − 𝟐, 𝟔 − 𝟏 𝟏
𝐏𝐫 𝟕 = = ≅ 𝟎. 𝟏𝟔𝟕
𝟑𝟔 𝟔
• Similarly, what are 𝐏𝐫(𝟐), 𝐏𝐫(𝟏𝟎), 𝐚𝐧𝐝 𝐏𝐫(𝟏𝟐) in one roll of a two fair dice?
• 𝟏⁄𝟑𝟔 , 𝟑⁄𝟑𝟔 , 𝐚𝐧𝐝 𝟏⁄𝟑𝟔 , respectively
• Note that all above probabilities are a priori, ie you can estimate them without conducting
the experiment!
The relative frequency approach (a posteriori)
• What is the probability that…
• …you will a lottery tomorrow?
• …the earth will be hit by a comet tomorrow?
• It will be reasonable to assume that in such cases both outcomes are not equally likely.
• How do we measure probabilities when outcomes are not equally likely?
• The answer is that there cannot be an absolutely accurate, theoretical way to do so.
• In practice, this can be estimated by looking at past data of similar occurrences, and then
estimating the probability based on the observed relative frequency.
The relative frequency approach (a posteriori)
• What is the probability that a household in the income range Rs. 1.0 – 1.5 lakh per month
will own at least 2 cars ?
• Say 2000 households in this income range are surveyed. The survey showed 480 HHs
have at least 2 cars, then the probability (or proportion) is:
𝐏𝐫 𝑯𝟐 𝒄𝒂𝒓 = 𝟒𝟖𝟎⁄𝟐𝟎𝟎𝟎 = 𝟐𝟒%
• What is the probability of an Indian test cricketer scoring a century on debut?
• As on 5-Jul-2022, there were 302 test cricketers who have played for India, of which
16 have made a century on debut.
𝐏𝐫 𝑻𝒆𝒔𝒕𝟏𝟎𝟎 𝒐𝒏 𝒅𝒆𝒃𝒖𝒕 = 𝟏𝟔⁄𝟑𝟎𝟐 ≅ 𝟓. 𝟑%
• Mathematically, the relative frequency approaches the ‘true’ probability as the № of
repetitions/trials becomes larger
• Fewer the № of past observations/occurrences/records lesser will be the accuracy.
The subjective approach
• Can be defined as probability derived from an individual's personal judgment about
whether a specific outcome is likely to occur. Subjective probabilities contain no formal
calculations and only reflect the subject's opinions and similar experiences.
(Source: http://www.investopedia.com/terms/s/subjective_probability.asp)
• As the name suggests, probability is estimated based on “gut feeling” or “instinct” or

“belief” or “guesstimate”, rather than any theoretical or empirical grounds.
• Most serious scientific work would reject such an approach.
• However, it may be used with caution when outcomes are not equally likely, and no past
data is available.
• Experts and/or highly experienced people in the field must be involved.
Random variable and its probability distribution

Introduction
• As noted earlier, a random variable is a variable that can take different values according
to chance.
• Usually, a random variable is denoted by a capital letter and the values it can take by
lower case letters.
• Eg: 𝑿 = traffic volume on a certain road per hour
𝒙 = 𝟎, 𝟏, 𝟐, 𝟑, … , 𝒏
• Random variables can be discrete or continuous:
• Discrete: 5 trucks, 20 people, 10 schools, 42 cars, etc
• Continuous: 7.55 m, 150.87 kg, etc

Introducing key terms (1)
• A random variable 𝑿 is associated with a probability distribution, which gives the
probability of all the outcomes (𝒙𝟏 , 𝒙𝟐, 𝒙𝟑,…, 𝒙𝒏 ) of the random variable.
• A probability distribution specifies probabilities of values 𝒙 or probabilities of intervals
such as 𝒂 < 𝒙 < 𝒃.
• Probabilities have a value between 0 and 1.
• In case of a discrete random variable, probabilities 𝐏𝐫(𝑿 = 𝒙) are positive and sum to unity.
The function 𝒇 𝒙 = 𝐏𝐫(𝑿 = 𝒙) that gives the probabilities for each real value of 𝒙 is called
the probability mass function (pmf).
• Examples of discrete distributions are binomial and Poisson distributions.

• In case of a continuous random variable, probabilities of intervals are given by the
probability density function (pdf).
• The probability of an interval (𝒂, 𝒃) is the area below the graph of the pdf curve above this
interval.
• Note that mathematically the 𝐏𝐫(𝑿 = 𝒙) for a continuous variable is ZERO! [please see this
video for more explanation]
• The total probability of the interval (−∞, +∞) is unity.
• Examples of continuous distributions are normal and exponential distributions.
• Uniform distribution can be applied to both discrete and continuous variables

• In both discrete and continuous random variables, the cumulative distribution function
(cdf) for each real number 𝒙 gives the sum of probability of a value up to and including
𝐏𝐫(𝒙), ie 𝑭 𝒙 = 𝐏𝐫(𝑿 ≤ 𝒙).
• The probabilities denoted as 𝐏𝐫 𝑿 = 𝒙 or simply 𝐏𝐫 𝒙 and can be expressed in terms of a
table, a bar chart, or a formula.
• Please see these videos (video 1 and video 2) which further explains pmf, pdf, and cdf.

Example of a probability distribution
• Let us take an example of a random variable 𝑿 = people arriving at a canteen counter in
10 minute intervals (slots)
f*((x- μ)^2) Download the file DATA-ICE-PD-
x (people)
a
Frequency (f)
b
xf
c=ab d
Mean
CANTEEN.XLSX from the cloud drive
1 2 2 73.1852 𝟒𝟑𝟎
2 3 6 76.4827 𝝁= = 𝟕. 𝟎𝟒𝟗𝟐 for the raw dataset and find the mean
3 4 12 65.5834
𝟔𝟏
and standard deviation of the X.
4 5 20 46.4875
5 6 30 25.1948
6
7
7
8
42
56
7.7055
0.0193
Standard deviation
8 7 56 6.3284
9 6 54 22.8342
∑𝒏𝒊 𝟏 𝒇 𝒙 − 𝝁 𝟐
𝝈=
10
11
4
3
40
33
34.8293
46.8269
𝒏
12 2 24 49.0212
𝟔𝟑𝟔.𝟖𝟓
13 2 26 70.8245 𝝈=
14 1 14 48.3139 𝟔𝟏
15 1 15 63.2155
𝝈 = 𝟑. 𝟐𝟑𝟏𝟏
Totals 61 430 636.8525

The mean and variance of a probability distribution
• The mean of a probability distribution is known as the expected value as it provides an
indication of an outcome that is most likely or expected to occur.
• It is denoted by the notation 𝑬(𝑿)
• In other words, the expected value (or the mean) of the distribution is the summation of
the product of all possible outcomes and the probability of their occurrence as specified
by their distribution.

The mean and variance of a probability distribution
For discrete random variables Q: Now calculate the mean and SD for the
Mean 𝝁 = 𝑬 𝑿 = ∑[𝒙 · 𝐏𝐫(𝒙)] above example using these formulas?
Variance 𝝈𝟐 = 𝑽𝒂𝒓 𝑿 = ∑[(𝒙 − 𝝁)𝟐 · 𝐏𝐫(𝒙)]
which simplifies to 𝝈𝟐 = ∑ 𝒙𝟐 · 𝐏𝐫(𝒙) − 𝝁𝟐
For continuous random variables
Mean 𝝁 = 𝑬 𝑿 = 𝒙 · 𝐏𝐫 𝒙 𝒅𝒙
Variance 𝝈𝟐 = 𝑽𝒂𝒓 𝑿 = (𝒙 − 𝝁)𝟐 · 𝐏𝐫(𝒙)𝒅𝒙
which simplifies to 𝝈𝟐 = 𝒙𝟐 · 𝐏𝐫(𝒙)𝒅𝒙 − 𝝁𝟐


Example of a probability distribution (continued)
x (people) Frequency (f) xf f*((x- μ)^2) Pr(x) xPr(x) cum.f cum. Pr(x) (x- µ ) ^2 * Pr(x)
a b c =ab d e=b/ Σ(b) f=ae g h i
1 2 2 73.1852 0.0328 0.0328 2 0.0328 1.1998
2 3 6 76.4827 0.0492 0.0984 5 0.0820 1.2538
3 4 12 65.5834 0.0656 0.1967 9 0.1475 1.0751
4 5 20 46.4875 0.0820 0.3279 14 0.2295 0.7621
5 6 30 25.1948 0.0984 0.4918 20 0.3279 0.4130
6 7 42 7.7055 0.1148 0.6885 27 0.4426 0.1263
7 8 56 0.0193 0.1311 0.9180 35 0.5738 0.0003
8 7 56 6.3284 0.1148 0.9180 42 0.6885 0.1037
9 6 54 22.8342 0.0984 0.8852 48 0.7869 0.3743
10 4 40 34.8293 0.0656 0.6557 52 0.8525 0.5710
11 3 33 46.8269 0.0492 0.5410 55 0.9016 0.7677
12 2 24 49.0212 0.0328 0.3934 57 0.9344 0.8036
13 2 26 70.8245 0.0328 0.4262 59 0.9672 1.1611
14 1 14 48.3139 0.0164 0.2295 60 0.9836 0.7920
15 1 15 63.2155 0.0164 0.2459 61 1.0000 1.0363
Totals 61 430 636.8525 1.0000 7.0492 10.4402
𝝁=𝑬 𝑿 = 𝒙 · 𝑷𝒓 𝒙 = 𝟕. 𝟎𝟒𝟗𝟐 𝝈𝟐 = 𝑽𝒂𝒓 𝑿 = ∑(𝒙 − 𝝁)𝟐 · 𝐏𝐫(𝒙) = 𝟏𝟎. 𝟒𝟒𝟎𝟐 and 𝝈 = 𝟑. 𝟐𝟑𝟏𝟏

Areas under the probability curve
• As noted before, a continuous random variable takes on various values with probability
specified by its probability density function [pdf].
• In case of pdf, the area under the curve gives the probability of the variables under
question.
The notation 𝑷 𝒙 is an alternative notation of 𝐏𝐫 𝒙 .

Example of a probability distribution (continued)
How to use the probability distribution?

• Calculate 𝐏𝐫(𝐱 < 𝟒) : 𝐏𝐫(𝟏) + 𝐏𝐫(𝟐) + 𝐏𝐫(𝟑) = 𝟎. 𝟏𝟒𝟕𝟓
• Calculate 𝐏𝐫(𝐱 ≤ 𝟒) : 𝐏𝐫(𝟏) + 𝐏𝐫(𝟐) + 𝐏𝐫(𝟑) + 𝐏𝐫(𝟒) = 𝟎. 𝟐𝟐𝟗𝟓
• Calculate 𝐏𝐫(𝟑 < 𝐱 < 𝟖) : 𝐏𝐫(𝟒) + 𝐏𝐫(𝟓) + 𝐏𝐫(𝟔) + 𝐏𝐫(𝟕) = 𝟎. 𝟒𝟐𝟔𝟐
• Calculate 𝐏𝐫(𝟑 ≤ 𝐱 ≤ 𝟖) : 𝐏𝐫(𝟑) + 𝐏𝐫(𝟒) + 𝐏𝐫(𝟓) + 𝐏𝐫(𝟕) + 𝐏𝐫(𝟖) = 𝟎. 𝟔𝟎𝟔𝟔
Some important probability distributions

Background (1)
• Assume that a vessel contains 10 marbles, of which 4 are red and 6 are blue.
• If 2 draws are made (without replacing the drawn marble), then after the 1st draw, what
is the probability that the second marble drawn is red?
• Clearly, this probability depends very much on the colour of the first marble. This is
known as conditional probability denoted as 𝐏𝐫(𝑨|𝑩)).
• If the first marble drawn was red, then the probability of next marble to be drawn being
red would be:
𝑷𝒓(𝑹|𝑹)= 𝟑⁄𝟗 = 𝟑𝟑%

1st draw
• If the first marble drawn was blue, then the probability of next marble to be drawn being
red would be: 1st draw
𝐏𝐫 𝑩 𝑹 = 𝟒⁄𝟗 = 44%

Background (2)
• With the same example, let us find the probability of obtaining 2 red and 1 blue, if 3
marbles are drawn one after the other (without replacement).
Compound String Attempt

Probability
event event A1 A2 A3
RRB 𝟒 𝟑 𝟔 0.10
𝟏𝟎 𝟗 𝟖
Two red, one
blue marbles RBR 𝟒 𝟔 𝟑 0.10
𝟏𝟎 𝟗 𝟖
(2R1B)
BRR 𝟔 𝟒 𝟑 0.10
𝟏𝟎 𝟗 𝟖
TOTAL 0.30
𝐏𝐫 𝟐𝑹𝟏𝑩 = 𝟎. 𝟑𝟎 = 𝟑𝟎%

Background (3)
• Now let us revise the parameters of the example with 1,00,000 marbles, of which 40,000
are red and 60,000 are blue.
• A random sample of 3 marbles is drawn (without replacement) - what then are the
probabilities of obtaining:
𝐏𝐫 𝒙 = 𝟎 𝒓𝒆𝒅 , 𝐏𝐫(𝒙 = 𝟏 𝒓𝒆𝒅), 𝐏𝐫(𝒙 = 𝟐 𝒓𝒆𝒅, 𝐚𝐧𝐝 𝐏𝐫(𝒙 = 𝟑 𝒓𝒆𝒅) marbles?
No red marbles

The binomial distribution
• To cut down this tedious task we can use binomial distribution as an approximation.
• The binomial probability of exactly 𝒙 items in a sample is given as:
{𝑓𝑜𝑟 0 ≤ 𝑥 ≤ 𝑛}
where,
If you wish to revise your probability concepts, then
𝒑 = probability of success please refer these two standard text books:
1. Hogg, Tanis, & Zimmerman (2020). Probability and
𝒒 = probability of failure (ie, 𝟏 − 𝒑) statistical inference (9th ed.). Pearson
𝒏 = the number of trials undertaken 2. Ross, S. (2019). A first course on probability (9th
ed.). Pearson

The binomial distribution
• Using the above formula, we can calculate binomial probabilities as follows:
𝒏! 𝟑!
𝐏𝐫 𝒙 == 𝒑𝒙 𝒒𝒏 𝒙 = 𝟎. 𝟒𝒙 𝟎. 𝟔𝟑 𝒙
𝒙! (𝒏 − 𝒙)! 𝒙! (𝟑 − 𝒙)!
where (in this case),
𝒑 = 𝟒𝟎𝟎𝟎𝟎⁄𝟏𝟎𝟎𝟎𝟎𝟎 = 𝟎. 𝟒
𝒒 = 𝟏 − 𝒑 = 𝟎. 𝟔
𝒙 Description Probability
𝟑!
0 0 red marbles 𝐏𝐫 𝒙 = 𝟎. 𝟒𝟎 𝟎. 𝟔𝟑 𝟎
= 0.216
𝟎! (𝟑 − 𝟎)!
𝟑!
1 1 red marble 𝐏𝐫 𝒙 = 𝟎. 𝟒𝟏 𝟎. 𝟔𝟑 𝟏
= 0.432
𝟏! (𝟑 − 𝟏)!
𝟑!
2 2 red marbles 𝐏𝐫 𝒙 = 𝟎. 𝟒𝟐 𝟎. 𝟔𝟑 𝟐
= 0.288
𝟐! (𝟑 − 𝟐)!
𝟑!
3 3 red marbles 𝐏𝐫 𝒙 = 𝟎. 𝟒𝟑 𝟎. 𝟔𝟑 𝟑
= 0.064
𝟐! (𝟑 − 𝟐)!
Total 1.000

The binomial distribution – in-class example
• The binomial distribution can be used when the value of 𝒑 remains virtually unchanged
during the time sample is being taken.
• When population is very large, it implies 𝒑 never changes!
• The mean and standard deviation of binomial distribution is given as:
• Mean 𝝁 = 𝒏𝒑
• SD 𝝈 = 𝒏𝒑𝒒
• For the example of three draws (see slide # 23):
• Mean 𝝁 = 𝒏𝒑 = 𝟑 × 𝟎. 𝟒 = 𝟏. 𝟐 red marbles
• SD 𝝈 = 𝒏𝒑𝒒 = 𝟑 × 𝟎. 𝟒 × 𝟎. 𝟔 = 𝟎. 𝟖𝟓 red marbles

• An experiment which has only two outcomes, usually termed as “success” and “failure”
are known as “Bernoulli trial” (after the Swiss mathematician Jacob Bernoulli, 1655–
1705).
• When there ares multiple “Bernoulli trials” then it is termed as a binomial experiment
• Key properties of binomial experiments are:
• There are 𝒏 trials, where 𝒏 is a constant (ie, there must be a fixed number of 𝒏
identical repetitions of the experiment).
• The 𝒏 trials are independent (ie, the outcome of a trial does not influence the outcome
of a successive trial).
• The probability of success 𝒑 is the same for each trial.
• It is an example of discrete distribution.

Q: What is the probability of obtaining 6 heads if a fair coin is tossed ten times?
A: The random variable 𝑿 here is obtaining heads. The only other outcome is tail. The
probability of success is same for each trial and the 10 trials are independent, ie an outcome
in one trial does not affect the outcome of the subsequent trial. Given this, we can stay that
this experiment satisfies assumptions of Bernoulli trials, and therefore 𝑿 is a binomial
random variable. 𝒏!
𝒃 𝒙; 𝒏, 𝒑 = 𝒃 𝟔; 𝟏𝟎, 𝟎. 𝟓 = 𝐏𝐫 𝒙 = 𝟔 = 𝒑𝒙 𝒒𝒏 𝒙
𝒙! (𝒏 − 𝒙)!
𝟏𝟎!
= 𝟎. 𝟓𝟔 𝟎. 𝟓𝟏𝟎 𝟔
𝟔! (𝟏𝟎 − 𝟔)!
= 0.2051 = 20.5%
Syntax for binomial probabilities in MS Excel 2013 or higher:
=BINOM.DIST(6,10,0.5,FALSE) = 0.2051  BINOM.DIST(x,n,p,pmf)[x=6]
=BINOM.DIST(6,10,0.5,TRUE) = 0.8281  BINOM.DIST(x,n,p,cdf)[x≤6]

• The above probabilities can also be calculated using the PQRS software as shown below.
Probability mass function (pmf)
𝐏𝐫 𝒙 = 𝟔 = 𝟎. 𝟐𝟎𝟓𝟏
Cumulative distribution function (cdf)
𝐏𝐫 𝒙 ≤ 𝟔 = 𝟎. 𝟖𝟐𝟖𝟏

• The above probabilities can also be calculated using mobile apps such as:

The binomial distribution – once more!
• Continuing with our experiment with 1,00,000 marbles, let us assume that now there are
only 120 red marbles (the remaining are blue).
• A random sample of 1000 marbles is drawn (without replacement).
• What then are the probabilities of obtaining:
𝐏𝐫 𝒙 = 𝟎 𝒓𝒆𝒅 , 𝐏𝐫(𝒙 = 𝟏 𝒓𝒆𝒅), 𝐏𝐫(𝒙 = 𝟐 𝒓𝒆𝒅, 𝐚𝐧𝐝 𝐏𝐫(𝒙 = 𝟑 𝒓𝒆𝒅) marbles?

The binomial distribution – once more!
• Using the binomial distribution formula, we can calculate binomial probabilities as
follows:
• In this case,
𝒑 = 𝟏𝟐𝟎⁄𝟏𝟎𝟎𝟎𝟎𝟎 = 𝟎. 𝟎𝟎𝟏𝟐
𝒒 = 𝟏 − 𝒑 = 𝟎. 𝟗𝟗𝟖𝟖
𝒙 = 𝟎, 𝟏, 𝟐, 𝐚𝐧𝐝 𝟑 red marbles 𝒂𝒏𝒅 𝒏 = 𝟏𝟎𝟎𝟎
𝒙 𝒏 𝒙 𝒙 𝟏𝟎𝟎𝟎 𝒙
• Clearly, another short-cut is required!
• The Poisson distribution can be used as an approximation of the binomial.


The Poisson distribution
• After the French mathematician Siméon Denis Poisson (1781–1840).
• The Poisson probability of event 𝒙 occurring over a given time/space interval is:
{𝑓𝑜𝑟 𝒙 ≥ 𝟎 𝐚𝐧𝐝 𝝀 > 𝟎}
where,
𝝀 = mean (ie, occurrence of an event over a give time/space interval)

The Poisson distribution
• Using the above formula, we can calculate Poisson probabilities as follows:
𝝀𝒙 𝐞𝐱𝐩(−𝝀)
𝒑𝒐𝒊 𝒙; 𝝀 = 𝐏𝐫 𝒙 =
𝒙!
where (in this case),
𝝀 = 𝒏𝒑 = 𝟏𝟎𝟎𝟎 × (𝟏𝟐𝟎/𝟏𝟎𝟎𝟎𝟎𝟎) = 𝟏. 𝟐
𝒙 Description Probability
𝟏. 𝟐𝟎 𝒆𝒙𝒑(−𝟏. 𝟐)
0 0 red marbles 𝐏𝐫 𝒙 = 𝟎 = = 0.3012
𝟎!
𝟏. 𝟐𝟏 𝒆𝒙𝒑(−𝟏. 𝟐)
1 1 red marble 𝐏𝐫 𝒙 = 𝟏 = = 0.3614
𝟏!
𝟏. 𝟐𝟐 𝒆𝒙𝒑(−𝟏. 𝟐)
2 2 red marbles 𝐏𝐫 𝒙 = 𝟐 = = 0.2169
𝟐!
𝟏. 𝟐𝟑 𝒆𝒙𝒑(−𝟏. 𝟐)
3 3 red marbles 𝐏𝐫 𝒙 = 𝟑 = = 0.0867
𝟑!
Total 1.000

The Poisson distribution – mean and SD
• Using Poisson as an approximation of binomial distribution works well when:
• 𝒑 → 𝟎 and 𝒏 → ∞
• As a thumb-rule, Poisson distribution can be used as an approximation of binomial
distribution when:
• 𝒑 ≤ 𝟎. 𝟎𝟓 and 𝒏 ≥ 𝟐𝟎
• The mean and standard deviation of Poisson distribution is given as:
• Mean = 𝝁 = 𝝀 = 𝒏𝒑
• SD = 𝝈 = 𝝀 = 𝒏𝒑

The Poisson distribution – assumptions
• The Poisson distribution is useful when dealing with number of occurrences of a
particular event over a specific time or space interval
• This is an example of discrete distribution.
• A Poisson random variable satisfies the following key assumptions:
• The experiment outcomes that can be classified as success or failure.
• The average number of “successes” (𝝀) that occurs in a specified region (time or
space) is known.
• The probability that a “success” will occur is proportional to the size of the region.
• The occurrence of events are independent of each other.

The Poisson distribution – examples
• The following are examples of data in the real world that would satisfy assumptions of
being a Poisson random variable:
• Planning/engineering: vehicles arriving at a traffic light or a toll booth; № of accidents
on a road stretch.
• Management: customers arriving at a counter in unit time.
• Finance and insurance: number of losses/claims occurring in a given period of time.
• Telecommunication: calls arriving in a main switch board in unit time.
• Physics: photons arriving at a telescope/unit time
• Biology: the number of mutations on a strand of DNA per unit length.
• Radioactivity: number of decays in a given time interval in a radioactive sample.

The Poisson distribution – in-class example
Q: On average, 25 cars arrive in an hour at a toll booth. Find the probability that in an hour
[a] exactly 30 cars arrive and [b] between 20 and 23 cars arrive?
𝟐𝟓𝟑𝟎 𝐞𝐱𝐩 𝟐𝟓
A: [a] 𝒑𝒐𝒊 𝒙; 𝝀 = 𝒑𝒐𝒊 𝟑𝟎; 𝟐𝟓 = 𝐏𝐫 𝒙 = = 𝟎. 𝟎𝟒𝟓𝟒 = 𝟒. 𝟓𝟒%
𝟑𝟎!
[b] 𝑷𝒐𝒊 𝒙; 𝝀 = 𝑷𝒐𝒊 𝟐𝟎 ≤ 𝒙 ≤ 𝟐𝟑; 𝟐𝟓 =

𝝀𝒙 𝐞𝐱𝐩(−𝝀)
𝟐𝟓𝒙 𝐞𝐱𝐩 𝟐𝟓 𝒑𝒐𝒊 𝒙; 𝝀 = 𝐏𝐫 𝒙 =
𝐏𝐫 𝟐𝟎 ≤ 𝒙 ≤ 𝟐𝟑 = ∑𝟐𝟑
𝒙 𝟐𝟎 = 𝒙!
𝒙!
𝟐𝟓𝟐𝟎 𝐞𝐱𝐩 𝟐𝟓 𝟐𝟓𝟐𝟏 𝐞𝐱𝐩 𝟐𝟓 𝟐𝟓𝟐𝟐 𝐞𝐱𝐩 𝟐𝟓 𝟐𝟓𝟐𝟑 𝐞𝐱𝐩 𝟐𝟓

= + + +
𝟐𝟎! 𝟐𝟏! 𝟐𝟐! 𝟐𝟑!
= 𝟎. 𝟎𝟓𝟏𝟗 + 𝟎. 𝟎𝟔𝟏𝟖 + 𝟎. 𝟎𝟕𝟎𝟐 + 𝟎. 𝟎𝟕𝟔𝟑 = 𝟎. 𝟐𝟔𝟎𝟑 = 𝟐𝟔. 𝟎𝟑%
Syntax for Poisson probabilities in MS Excel 2013 or higher:

=POISSON.DIST(30,25,FALSE) = 0.0454  POISSON.DIST(x,λ,pmf)[x=20][pmf]
For cdf use the syntax POISSON.DIST(x,λ,TRUE)

The normal distribution
• The binomial and Poisson are examples of discrete distributions.
• But we will often have to deal with continuous variables.
• By far the most commonly used continuous distribution in statistics is the normal
distribution.
• Also know as Gaussian distribution (after the German mathematician Carl Friedrich
Gauss, 1777–1853).
• The equation for the normal cumulative distribution function (cdf) is:
𝒙
𝟐
𝟐
𝟐
{𝑓𝑜𝑟 − ∞ < 𝜇 < ∞ 𝑎𝑛𝑑 𝜎 > 0}

The normal distribution – areas under the curve
Source: Anderson et al (2018, p. 280)
𝟏 𝒙 𝝁 𝟐
𝑵 𝒙; 𝝁, 𝝈𝟐 = 𝐞𝐱𝐩 − {𝒇𝒐𝒓 − ∞ < 𝒙 < ∞}
𝝈 𝟐𝝅 𝟐𝝈𝟐

The normal distribution – key properties
• The total area under the normal equals ONE.
• The curve is asymptotic to the horizontal axis.
• The highest point occurs at the mean, which is also the median and the mode, since the
curve is symmetrical about the mean.
• The shape of the curve depends on 𝝈; larger the 𝝈 , flatter the curve as shown below:
𝝈=𝟓
𝝈 = 𝟏𝟎
𝝈 = 𝟏𝟓

The standard normal distribution
• For different values of 𝝁 and 𝝈, different normal curves need to be constructed, followed
by calculating the probabilities. This gets cumbersome!
• Since we are interested in the area under the curve (which represents the
probability/proportion of observations), for any values of 𝝁 and 𝝈, it is found extremely
useful to convert the normal curve to a “standard” normal curve by “re-scaling” it.

The standard normal distribution
• The change in scale is performed by introducing a new random variable called 𝒛.
• The standard normal distribution is therefore a special case of a normal distribution
having 𝝁 = 𝟎 and 𝝈 = 𝟏.
• 𝒛 is know as the standardised random variable and the cdf simplifies to:
𝟏 𝒛 𝒛𝟐
𝑵 𝒙; 𝟎, 𝟏 = 𝒆𝒙𝒑 − 𝒅𝒛
𝟐𝝅 𝟐
• Fortunately, we do not need to use the equation every time as ready-made 𝒛 -tables are
available to calculate the probability!

Using the standard normal distribution
• Can be used to find probabilities (proportion of observations) associated with a
standard normal distribution.
Q: A ward of a city has mean income of Rs.9,000 pm and the standard deviation is Rs.800.
What is the proportion of households in the ward having household income up to Rs.10,000
pm? Assume the income follows a normal distribution.
𝒙 𝝁 𝟏𝟎𝟎𝟎𝟎 𝟗𝟎𝟎𝟎
𝒛= = = 𝟏. 𝟐𝟓
𝝈 𝟖𝟎𝟎
A: The probability (proportion) of households in this ward

with income up to Rs.10,000 is 89.44%.

Using the standard normal distribution
Q: In the same ward (with 𝝁=Rs.9,000 pm and 𝝈=Rs.800), what is the proportion of
households in the ward having household income in the range of Rs.8,500–Rs.8,800 pm?
𝒙𝟏 − 𝝁 𝟖𝟓𝟎𝟎 − 𝟗𝟎𝟎𝟎 𝒙𝟐 − 𝝁 𝟖𝟖𝟎𝟎 − 𝟗𝟎𝟎𝟎

𝒛𝟏 = = = −𝟎. 𝟔𝟐𝟓 𝒛𝟐 = = = −𝟎. 𝟐𝟓
𝝈 𝟖𝟎𝟎 𝝈 𝟖𝟎𝟎
A: The probability (proportion) of households in this ward

with income in the range of Rs.8,500-Rs.8,800 pm is 13.57%.

Comparing two or more normal distributions
• The 𝒛-value (aka 𝒛-score) can also use be used to compare values from different
distributions (with different mean and SD).
Q: How does a score of 55 of a student in School A (with 𝝁 = 𝟔𝟓, 𝝈 = 𝟓) compare with the score
of 50 of a student in School B (with 𝝁 = 𝟔𝟐, 𝝈 = 𝟕)? Assume data is normally distributed.
𝒙𝑨 − 𝝁 𝟓𝟓 − 𝟔𝟓 𝒙𝑩 − 𝝁 𝟓𝟎 − 𝟔𝟐
𝒛𝑨 = = = −𝟐. 𝟎𝟎 𝒛𝑩 = = = −𝟏. 𝟕𝟏
𝝈 𝟓 𝝈 𝟕
A: 55% marks has a 𝒛 -score of 2.28
(percentile), while 50 marks has a 𝒛 -
score of 4.36 (percentile). Therefore,
student in School B has done better!

Student from School A Student from School B
Uniform distribution
Discrete and continuous random variable
Uniform distribution - discrete RV Uniform distribution - continuous RV
Roll of a die Waiting time at an elevator
0.250
0.200
Probability
0.150
0.100
0.050
0.000
1 2 3 4 5 6
Number on the face of a die
Approximations of probability distributions

Normal approximation of binomial
• The normal distribution can be used as an approximation of the binomial distribution if
the following conditions are satisfied:
a) Sample sould be “sufficiently large”, which can be ascertain by ensuring that
𝝁 = 𝒏𝒑 ≥ 𝟓 𝐚𝐧𝐝 𝒏𝒒 ≥ 𝟓 [main condition]
b) 𝟎. 𝟏 ≤ 𝒑 ≤ 𝟎. 𝟗
• To use the approximation, take normal distribution mean (𝝁) and SD (𝝈) to be equal to
binomial 𝝁 = 𝒏𝒑 and 𝝈 = 𝒏𝒑𝒒.
• It should be noted that normal distribution is continuous and binomial distribution is
discrete. Therefore, we need to make an adjustment to convert the discrete
observation to “continuous intervals”, called the “continuity correction”.
• For example, for 𝑥 = 6, the interval becomes 𝟓. 𝟓 ≤ 𝒙 ≤ 𝟔. 𝟓.
• More generally, 𝐏𝐫(𝑿 = 𝒙) becomes 𝐏𝐫(𝒙 − 𝟎. 𝟓 ≤ 𝒙 ≤ 𝒙 + 𝟎. 𝟓).

Q: If 𝑿 is a binomial random variable with 𝒏 = 𝟐𝟎 and 𝒑 = 𝟎. 𝟒𝟕, then find 𝐏𝐫(𝒙 < 𝟗) using
normal distribution as an approximation of binomial distribution, and cross check the same
using binomial distribution?
• A: Step-1: Check if the approximation works.

• 𝒏𝒑 = 𝟐𝟎 × 𝟎. 𝟒𝟕 = 𝟗. 𝟒 > 𝟓 𝒂𝒏𝒅 𝒏𝒒 = 𝟐𝟎 × 𝟎. 𝟓𝟑 = 𝟏𝟎. 𝟔 > 𝟓 → 𝒄𝒐𝒏𝒅𝒊𝒕𝒊𝒐𝒏 𝒂 𝝁 = 𝒏𝒑 > 𝟓 𝐚𝐧𝐝 𝒏𝒒 >
𝟓 𝒊𝒔 𝒔𝒂𝒕𝒊𝒔𝒇𝒊𝒆𝒅.
• 𝒑 = 𝟎. 𝟒𝟕 → 𝒄𝒐𝒏𝒅𝒊𝒕𝒊𝒐𝒏 𝒃 𝒊𝒔 𝒔𝒂𝒕𝒊𝒔𝒇𝒊𝒆𝒅.
• Step-2: Calculate the normal probability as follows:
• Taking 𝒙 = 𝟖 + 𝟎. 𝟓 = 𝟖. 𝟓, calculate z This is called the “continuity correction”. This
adjustment is needed to convert the discrete
𝟖.𝟓 𝟗.𝟒
• 𝒛= = −𝟎. 𝟒𝟎𝟑𝟐 observation to “continuous intervals”,
𝟐.𝟐𝟑𝟐
• 𝑷𝒓 (𝒛 = −𝟎. 𝟒𝟎𝟑𝟐) = 𝟑𝟒. 𝟑𝟒% Standard normal probabilities in Excel are:

=NORM.S.DIST(z,TRUE) =NORM.S.DIST(-0.4032,TRUE)=0.3434

• Step-3: Check using binomial formula:
𝑩 𝑿 < 𝒙; 𝒏, 𝒑 = 𝑩 𝑿 < 𝟗; 𝟐𝟎, 𝟎. 𝟒𝟕 = 𝒃 𝒙 ≤ 𝟖; 𝟐𝟎, 𝟎. 𝟒𝟕

𝒙 𝟎
𝟖
𝒏!
= 𝒑𝒙 𝒒𝒏 𝒙
𝒙! (𝒏 − 𝒙)!
𝒙 𝟎
𝟖
𝟐𝟎!
= 𝟎. 𝟒𝟕𝒙 𝟎. 𝟓𝟑𝟐𝟎 𝒙
𝒙! (𝟐𝟎 − 𝒙)!
𝒙 𝟎
= 𝟎. 𝟑𝟒𝟓𝟒 = 𝟑𝟒. 𝟓𝟒%
Check - using MS Excel the binomial probabilities are:

=BINOM.DIST(8,20,0.47,TRUE) = 0.3454  BINOM.DIST(x,n,p,cdf)[x≤8]

Normal approximation of binomial (self-study example)
Q: Gold City Municipal Corporation has 500 municipal councillors, of which 44% belong to the
majority party called GCJP (Gold City Janta Party). Since councillors are elected by the citizens
directly, we can assume the same proportion of support amongst the public for GCJP’s policies
in general. GCJP administration is proposing a new policy to introduce regularisation of
street vendors. If 100 people are chosen at random and asked would you favour this policy,
what is the probability that a majority (at least 51%) will favour it?
Notations
𝝁 = 𝒏𝒑
𝝈 = 𝒏𝒑𝒒 (where)
𝒏 𝐢𝐬 𝐭𝐡𝐞 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐭𝐫𝐢𝐚𝐥𝐬 𝐮𝐧𝐝𝐞𝐫𝐭𝐚𝐤𝐞𝐧
𝒑 𝐢𝐬 𝐭𝐡𝐞 𝐩𝐫𝐨𝐛𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐬𝐮𝐜𝐜𝐞𝐬𝐬
𝒒 𝐢𝐬 𝐭𝐡𝐞 𝐩𝐫𝐨𝐛𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐟𝐚𝐢𝐥𝐮𝐫𝐞 𝐢𝐞, 𝑞 = 1 − 𝑝
The binomial probability of 𝑥 occurring is denoted by 𝑏(𝑥; 𝑛, 𝑝) is given as:

𝒏!
𝐛 𝒙; 𝒏, 𝒑 = 𝐏𝐫 𝒙 = 𝒑𝒙 𝒒𝒏 𝒙 {𝑓𝑜𝑟 0 ≤ 𝒙 ≤ 𝒏}
𝒙!(𝒏 𝒙)!

• Given
𝝁 = 𝒏𝒑 = 𝟏𝟎𝟎 × 𝟎. 𝟒𝟒 = 𝟒𝟒
𝝈 = 𝒏𝒑𝒒 = 𝟏𝟎𝟎 × 𝟎. 𝟒𝟒 × 𝟎. 𝟓𝟔 ≅ 𝟒. 𝟗𝟔
• The first thing is to check whether normal distribution can be used to approximate
binomial distribution. As a thumb rule, conditions 𝒏𝒑 ≥ 𝟓 and 𝒏𝒒 ≥ 𝟓 need to be satisfied. In
this case it does, so we can use normal as an approximation of binomial distribution.
𝒙 − 𝝁 𝟓𝟏 − 𝟒𝟒
𝐏𝐫 𝑿 ≥ 𝟓𝟏 = 𝑷𝒓 𝒛 ≥ = = 𝐏𝐫 𝒛 ≥ 𝟏. 𝟒𝟏 = 𝟏 − 𝐏𝐫(𝒛 < 𝟏. 𝟒𝟏)
𝝈 𝟒. 𝟗𝟔
• Area under the normal curve for 1.41 is 0.9207. Now 1−0.9207=0.079, so there is 7.9%
chance of getting 51 (or more) out of 100 to indicate “in favour” of the policy (given that
overall, 44% of the population should favour the policy).


Check using binomial distribution formula:
B(𝑥; 𝑛, 𝑝) = b(𝑥; 𝑛, 𝑝)
𝐏𝐫 𝑿 ≥ 𝟓𝟏 = 𝟏 − 𝑷𝒓 𝑿 ≤ 𝟓𝟏
100!
=𝟏− 0.44𝒙 0.56 𝒙
𝑥! (100 − 𝑥!)
= 1 − 0.9341 ≅ 0.066
≅ 6.6% 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑡ha𝑡 𝑎 𝑚𝑎𝑗𝑜𝑟𝑖𝑡𝑦 (𝑎𝑡 𝑙𝑒𝑎𝑠𝑡 51%) 𝑤𝑖𝑙𝑙 𝑓𝑎𝑣𝑜𝑢𝑟 𝑖𝑡
pro
=BINOM.DIST(51,100,0.44,TRUE) = 0.9341  BINOM.DIST(x,n,p,cdf)

Normal approximation of Poisson – in-class example
Q: In Gold City, at a major junction the average number of traffic offence tickets (challans)
given to offenders in a peak-hour is 12. What is the probability of 15 or fewer tickets being
given in a randomly selected peak-hour?
Notations
𝝀 = 𝒎𝒆𝒂𝒏 (𝝁)
The Poisson probability of 𝑥 occurring is denoted by 𝐩𝐨𝐢(𝒙; 𝝀) is given as:

𝝀𝒙 𝐞𝐱𝐩( 𝝀)
𝐩𝐨𝐢(𝒙; 𝛌) = 𝐏𝐫 𝒙 = {𝑓𝑜𝑟 𝒙 ≥ 𝟎 𝐚𝐧𝐝 𝝀 > 𝟎}
𝒙!

• Given
𝝀 = 𝟏𝟐
𝝈 = 𝝀 ≅ 𝟑. 𝟒𝟔
• The first thing is to check whether normal distribution can be used to approximate
Poisson distribution. As a thumb rule, condition 𝛌 ≥ 𝟏𝟎 needs to be satisfied. In this case it
does, so we can use normal as an approximation of Poisson distribution.
𝟏𝟓. 𝟓 − 𝟏𝟐
𝒛= ≅ 𝟏. 𝟎𝟏
𝟑. 𝟒𝟔
• Note: We are using a continuous distribution to approximate a discrete random variable.
Therefore, we need to preform something called a continuity correction, which is done as
𝒙 ± 𝟎. 𝟓, which in this case is 𝟏𝟓 + 𝟎. 𝟓 = 𝟏𝟓. 𝟓 because we want to include 𝟏𝟓).
• Area under the normal curve for 1.01 is 0.8438 ie, Pr(𝒛 ≤ 𝟏. 𝟎𝟏). So there is 84.38% chance
of getting 15 (or fewer) traffic tickets in a randomly selected peak-hour.


Check using Poisson distribution formula: Poi(𝑥; 𝜆) = ∑ poi(𝑥; 𝜆))
𝒙 ( )
=
!
=
Check - using MS Excel the Poisson probabilities are:

=POISSON.DIST(15,12,TRUE) = 0.8444  POISSON.DIST(x,λ,TRUE)

Poisson approximation of binomial – in-class example
Q: The long term building inspection log shows that 5% of the buildings in Gold City violate
building norms. If 50 building are chosen are random from a Google satellite map, what is the
probability that exactly, none, 3, and 5 buildings are likely to violate building norms?
Notations
𝝀 = 𝒎𝒆𝒂𝒏 (𝝁)
The Poisson probability of 𝑥 occurring is denoted by 𝐩𝐨𝐢(𝒙; 𝝀) is given as:

𝝀𝒙 𝐞𝐱𝐩( 𝝀)
{𝑓𝑜𝑟 𝒙 ≥ 𝟎 𝐚𝐧𝐝 𝝀 > 𝟎}
𝒙!

• Given
𝒏 = 𝟓𝟎 𝒂𝒏𝒅 𝒑 = 𝟎. 𝟎𝟓
𝝀 = 𝒏𝒑 = 𝟓𝟎 × 𝟎. 𝟎𝟓 = 𝟐. 𝟓𝟎
• The first thing is to check whether Poisson distribution can be used to approximate
binomial distribution. As a thumb rule, 𝒏 has to be “large” and 𝒑 has to be “small”, which
is approximated by conditions: 𝒏 ≥ 𝟐𝟎, 𝒑 ≤ 𝟎. 𝟎𝟓, and 𝒏𝒑 < 𝟏𝟎 need to be satisfied. In this
case it does, so we can use Poisson as an approximation of binomial distribution.
𝝀𝒙 𝒆𝒙𝒑( 𝝀) 𝟐.𝟓𝟎 𝒆𝒙𝒑( 𝟐.𝟓)
𝐏𝐫 𝑿 = 𝟎 = = ≅ 𝟎. 𝟎𝟖𝟐𝟏 ≅ 8.21%
𝒙! 𝟎!
• Similarly,
𝐏𝐫 𝑿 = 𝟑 ≅ 𝟎. 𝟐𝟏𝟑𝟖 ≅ 𝟐𝟏. 𝟑𝟖% and 𝑷𝒓 𝑿 = 𝟓 ≅ 𝟎. 𝟎𝟔𝟔𝟖 ≅ 𝟔. 𝟔𝟖% =



=BINOM.DIST(0,50,0.05,FALSE) = 0.0769  BINOM.DIST(x,n,p,pmf)
Joint probability distribution

Introduction
• Until now we have been discussing distribution of a single random variable.
• However, there would often be situations when two random variables would be needed to
be observed simultaneously.
• Observing simultaneously means that we are interested in how they “move together” in
the same or opposite direction. In other words, are they associated, and if so, what is the
magnitude of this association.
• Some examples of such variables are:
• Household income and recreational trip rate
• Firm’s profit and their corporate social responsibility budget
• University rating and staring job salary
• Height and weight
• Now let us look at how joint probabilities are calculated.

Introduction
Download DATA-ICE-PD-JOINT.XLSX from the cloud drive
Table of height and weight for all 60 adult males residing on an small island!
Wt (kg) → 58-62 63-67 68-72 73-77 78-82 83-87 88-92

𝚺𝒙
Ht (in) ↓ Mid-pt 60 65 70 75 80 85 90
59-61 60 1 2 0 0 0 0 0 3
62-64 63 0 1 3 4 2 0 0 10
65-67 66 0 2 3 5 6 3 0 19
68-70 69 0 2 5 7 4 2 1 21
71-73 71 0 0 0 1 2 2 1 6
74-76 74 0 0 0 0 0 0 1 1
𝚺𝒚 1 7 11 17 14 7 3 60

Introduction
Q: What is the joint probability distribution of height and weight?

Wt (kg)
[mid-pt]
→
60 65 70 75 80 85 90
Ht (in)
[mid-pt]
↓
60 0.017 0.033
63 0.017 0.050 0.067 0.033
66 0.033 0.050 0.083 0.100
69 0.033 0.083 0.117 0.067 0.033 0.017
71 0.117 0.033 0.033 0.017
74 0.017
𝚺=1.000

Population covariance
• The population covariance, denoted by 𝐜𝐨𝐯 𝒙, 𝒚 is a very useful measure that indicates
how two random variables “move together” (in the same or opposite direction.).
• This measure can be seen as the product of the deviations from the mean of variables 𝑿
and 𝒀 (both are random variables)
• Thus if:
(a) (𝑿 − 𝝁𝑿 ) (𝒀 − 𝝁𝒀 ) is positive, then both deviations are either positive or negative, and
(b) (𝑿 − 𝝁𝑿 ) (𝒀 − 𝝁𝒀 ) is negative, then one of the deviations is either positive or negative

Population covariance
• Based on this principle, we can state covariance to be the expected value of the product
of deviations from the respective means of 𝑿 and 𝒀.
• Mathematically, it is given as:
𝐜𝐨𝐯 𝒙, 𝒚 𝒐𝒓 𝝈𝒙𝒚 = 𝑬[ 𝑿 − 𝝁𝑿 𝒀 − 𝝁𝒀 ]
Which can re restated as:
𝐜𝐨𝐯 𝒙, 𝒚 𝒐𝒓 𝝈𝒙𝒚 = ∑𝒙. ∑𝒚 𝒙 − 𝝁𝒙 𝒚 − 𝝁𝒚 · 𝐏𝐫(𝒙, 𝒚) …[formula 1]
For hand-held calculators the formula modifies to:

𝐜𝐨𝐯 𝒙, 𝒚 𝒐𝒓 𝝈𝒙𝒚 = 𝑬 𝑿, 𝒀 − 𝝁𝑿 𝝁𝒀
Which can be restated as:
𝐜𝐨𝐯 𝒙, 𝒚 𝒐𝒓 𝝈𝒙𝒚 = ∑𝒂𝒍𝒍 𝒙𝒚 · 𝐏𝐫(𝒙, 𝒚) − 𝝁𝒙 𝝁𝒚 …[formula 2]

Population correlation
• Covariance is influenced by the units it is measured in.
• To further enhance its strength, it has been found useful to divided the population
covariance by product of the standard deviation of 𝑿 and 𝒀.
• Mathematically, it is given as:
𝝈𝒙𝒚
𝐜𝐨𝐫𝐫 𝒙, 𝒚 𝒐𝒓 𝝆𝒙𝒚 = …[formula 1]
𝝈 𝝈 𝒙 𝒚
{𝑛𝑜𝑡𝑒: 𝑡ℎ𝑎𝑡 − 1 ≤ 𝝆𝒙𝒚 ≤ +1}
• In other words:
𝑬[ 𝑿 − 𝝁𝑿 𝒀 − 𝝁𝒀 ]
𝐜𝐨𝐫𝐫 𝒙, 𝒚 𝒐𝒓 𝝆𝒙𝒚 =
𝝈𝑿 𝝈 𝒀
Which can be restated as:
𝒙 − 𝝁𝒙 𝒚 − 𝝁𝒚
𝐜𝐨𝐫𝐫 𝒙, 𝒚 𝒐𝒓 𝝆𝒙𝒚 = 𝐏𝐫 𝒙, 𝒚
𝝈𝒙 𝝈𝒚
𝒂𝒍𝒍
= ∑𝒂𝒍𝒍 𝒁𝒙 𝒁𝒚 𝐏𝐫 𝒙, 𝒚 …[formula 2]

Population covariance and correlation calculations (1)
Tabulation required for calculation of covariance and correlation using formula 1
Mean and SD
𝝁𝒙 ≅ 𝟔𝟔. 𝟖𝟖 𝒂𝒏𝒅 𝝁𝒚 ≅ 𝟕𝟓. 𝟕𝟓

60 60 1 -6.88 -15.75 0.017 1.807
60
63
65
65
2
1
-6.88
-3.88
-10.75
-10.75
0.033
0.017
2.467
0.696
𝝈𝒙 ≅ 𝟑. 𝟎𝟒 𝒂𝒏𝒅 𝝈𝒙 ≅ 𝟔. 𝟗𝟒
66 65 2 -0.88 -10.75 0.033 0.317
69 65 2 2.12 -10.75 0.033 -0.758
63 70 3 -3.88 -5.75 0.050 1.116 Population covariance by formula 1
66 70 3 -0.88 -5.75 0.050 0.254
69 70 5 2.12 -5.75 0.083 -1.014
63 75 4 -3.88 -0.75 0.067 0.194 𝝈𝒙𝒚 = . 𝑥−𝝁 𝑦−𝝁 · 𝐏𝐫 𝒙, 𝒚
66 75 5 -0.88 -0.75 0.083 0.055
𝒙 𝒚
69 75 7 2.12 -0.75 0.117 -0.185
71 75 1 4.12 -0.75 0.017 -0.051 = 𝟗. 𝟖𝟒
63 80 2 -3.88 4.25 0.033 -0.550
66 80 6 -0.88 4.25 0.100 -0.375
69 80 4 2.12 4.25 0.067 0.600
71 80 2 4.12 4.25 0.033 0.583
66 85 3 -0.88 9.25 0.050 -0.409 Population correlation by formula 1
69 85 2 2.12 9.25 0.033 0.653
71 85 2 4.12 9.25 0.033 1.269 𝝈𝒙𝒚 𝟗. 𝟖𝟒
69 90 1 2.12 14.25 0.017 0.503 𝝆𝒙𝒚 = =
71 90 1 4.12 14.25 0.017 0.978
𝝈𝒙 𝝈𝒚 𝟑. 𝟎𝟒 × 𝟔. 𝟗𝟒
74 90 1 7.12 14.25 0.017 1.690 = +𝟎. 𝟒𝟕
Totals 60 1.000 9.84

Population covariance and correlation calculations (2)
Tabulation required for calculation of covariance and correlation using formula 2
X
height
Y
weight xy P(x,y)
E(XY) = Zx = Zy = Z x ·Z y · Mean and SD
xyP(x,y) (x-µ x )/ σx (y-µ y )/ σy P(x,y)
(in) (kg)
60 60 3600 0.017 60.0 -2.26 -2.27 0.086
𝝁𝒙 ≅ 𝟔𝟔. 𝟖𝟖 𝒂𝒏𝒅 𝝁𝒚 ≅ 𝟕𝟓, 𝟕𝟓
60 65 3900 0.033 130.0 -2.26 -1.55 0.117
63 65 4095 0.017 68.3 -1.28 -1.55 0.033 𝝈𝒙 ≅ 𝟑. 𝟎𝟒 𝒂𝒏𝒅 𝝈𝒙 ≅ 𝟔. 𝟗𝟒
66 65 4290 0.033 143.0 -0.29 -1.55 0.015
69 65 4485 0.033 149.5 0.70 -1.55 -0.036
63 70 4410 0.050 220.5 -1.28 -0.83 0.053 Population covariance by formula 2
66 70 4620 0.050 231.0 -0.29 -0.83 0.012
69 70 4830 0.083 402.5 0.70 -0.83 -0.048
63
66
75
75
4725
4950
0.067
0.083
315.0
412.5
-1.28
-0.29
-0.11
-0.11
0.009
0.003
𝝈𝒙𝒚 = ∑𝒂𝒍𝒍 𝒙𝒚 · 𝐏𝐫(𝒙, 𝒚) − 𝝁𝒙 𝝁𝒚 =
69 75 5175 0.117 603.8 0.70 -0.11 -0.009
71 75 5325 0.017 88.8 1.35 -0.11 -0.002 = 𝟗. 𝟖𝟒
63 80 5040 0.033 168.0 -1.28 0.61 -0.026
66 80 5280 0.100 528.0 -0.29 0.61 -0.018
69 80 5520 0.067 368.0 0.70 0.61 0.028 Population correlation by formula 2
71 80 5680 0.033 189.3 1.35 0.61 0.028
66 85 5610 0.050 280.5 -0.29 1.33 -0.019
69 85 5865 0.033 195.5 0.70 1.33 0.031
71 85 6035 0.033 201.2 1.35 1.33 0.060 𝝆𝒙𝒚 = 𝒁𝒙 𝒁𝒚 𝐏𝐫 𝒙, 𝒚
69 90 6210 0.017 103.5 0.70 2.05 0.024
71 90 6390 0.017 106.5 1.35 2.05 0.046 𝒂𝒍𝒍
74 90 6660 0.017 111.0 2.34 2.05 0.080 = +𝟎. 𝟒𝟕
Totals 1.000 5076.25 0.84 1.22 0.47

TOD333 Probability and Distributions Lecture

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Lecture course • TOD333: Logistics and Transport Management • Amrut Mody School of Management, Ahmedabad University • Monsoon 2022

Bhargav Adhvaryu Ahmedabad

2. Random variable and its probability distribution

3. Some probability distributions

4. Approximations of some probability distributions

5. Joint probability distribution

Bhargav Adhvaryu Probability and distributions 2 of 67

Why study probability?

random variable take.

better informed decisions in real life.

• It has application in several fields, eg insurance (actuarial studies), business risk

analysis, shopping behaviour of customer, pathology, epidemiology, weather forecast,

sports and gaming strategies, analysing political strategies, etc

Bhargav Adhvaryu Probability and distributions 3 of 67

• Mathematically, probability is defined as the limit of the relative frequency.

Bhargav Adhvaryu Probability and distributions 4 of 67

outcome without conducting an experiment.

• Classical probability can be defined as:

• What is the probability that…

• …you will a lottery tomorrow?

• …the earth will be hit by a comet tomorrow?

• How do we measure probabilities when outcomes are not equally likely?

estimating the probability based on the observed relative frequency.

Bhargav Adhvaryu Probability and distributions 8 of 67

Bhargav Adhvaryu Probability and distributions 9 of 67

• As the name suggests, probability is estimated based on “gut feeling” or “instinct” or

Bhargav Adhvaryu Probability and distributions 10 of 67

Random variable and its probability distribution

lower case letters.

• Eg: 𝑿 = traffic volume on a certain road per hour

• Random variables can be discrete or continuous:

• Discrete: 5 trucks, 20 people, 10 schools, 42 cars, etc

• Continuous: 7.55 m, 150.87 kg, etc

Bhargav Adhvaryu Probability and distributions 11 of 67

Random variable and its probability distribution

• A random variable 𝑿 is associated with a probability distribution, which gives the

• A probability distribution specifies probabilities of values 𝒙 or probabilities of intervals

such as 𝒂 < 𝒙 < 𝒃.

• Probabilities have a value between 0 and 1.

the probability mass function (pmf).

• Examples of discrete distributions are binomial and Poisson distributions.

Bhargav Adhvaryu Probability and distributions 12 of 67

Random variable and its probability distribution

• In case of a continuous random variable, probabilities of intervals are given by the

probability density function (pdf).

video for more explanation]

• The total probability of the interval (−∞, +∞) is unity.

• Examples of continuous distributions are normal and exponential distributions.

• Uniform distribution can be applied to both discrete and continuous variables

Bhargav Adhvaryu Probability and distributions 13 of 67

Random variable and its probability distribution

𝐏𝐫(𝒙), ie 𝑭 𝒙 = 𝐏𝐫(𝑿 ≤ 𝒙).

• The probabilities denoted as 𝐏𝐫 𝑿 = 𝒙 or simply 𝐏𝐫 𝒙 and can be expressed in terms of a

table, a bar chart, or a formula.

Bhargav Adhvaryu Probability and distributions 14 of 67

Random variable and its probability distribution

Random variable and its probability distribution

• The mean of a probability distribution is known as the expected value as it provides an

indication of an outcome that is most likely or expected to occur.

• It is denoted by the notation 𝑬(𝑿)

Bhargav Adhvaryu Probability and distributions 16 of 67

Random variable and its probability distribution

Variance 𝝈𝟐 = 𝑽𝒂𝒓 𝑿 = ∑[(𝒙 − 𝝁)𝟐 · 𝐏𝐫(𝒙)]