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PGP 13-15

Decision Makers Use Statistics To:

Present and describe business data and information

properly

Draw conclusions about large populations, using

information collected from samples

Make reliable forecasts about a business activity

Improve business processes

A marketing research analyst needs to assess the

manufactured is conforming to company standards.

compliance with generally accepted accounting principles.

Types of Statistics

Statistics

The branch of mathematics that transforms data

Descriptive Statistics

Inferential Statistics

describing data

decisions concerning a population

based only on sample data

Descriptive Statistics

Collect data

ex. Survey

Present data

ex. Tables and graphs

Characterize data

X

ex. Sample mean = i

n

Inferential Statistics

Estimation

ex. Estimate the

population mean weight

using the sample average

weight

Hypothesis testing

ex. Test the claim that

the population average

weight is 65 Kg

Drawing conclusions and/or making decisions

concerning a population based on sample results.

VARIABLE

A variable is a characteristic of an item or individual.

DATA

Data are the different values associated with a variable.

POPULATION

A population consists of all the items or individuals about which you want to draw a

conclusion.

SAMPLE

A sample is the portion of a population selected for analysis.

PARAMETER

A parameter is a numerical measure that describes a characteristic of a population.

STATISTIC

A statistic is a numerical measure that describes a characteristic of a sample

Population

population are called parameters

Sample

sample data are called statistics

Sources of Data

Primary Sources: The data collector is the one

using the data for analysis

Data from a political survey

Data collected from an experiment

Observed data

analysis is not the data collector

Analyzing census data

Examining data from print journals or data published on

the internet.

Types of Variables

Categorical (qualitative) variables have values

yes and no.

Numerical (quantitative) variables have values

Types of Data

Data

Categorical

Numerical

Examples:

Marital Status

Political Party

Eye Color

(Defined categories)

Discrete

Continuous

Examples:

Number of Children

Defects per hour

(Counted items)

Examples:

Weight

Voltage

(Measured characteristics)

Probability

Empirical classic probability

Computed after performing the experiment

Number of times an event occurred divided by the number of

trials

Objective -- everyone correctly using the method assigns an

identical probability

Subjective probability

different individuals may (correctly) assign different numeric

Collectively Exhaustive event

Equally Likely event

Random Variable

A random variable x takes on a defined set

of values with different probabilities.

(not fixed) and there are 6 possible outcomes, each of

which occur with probability one-sixth.

For example, if you poll people about their voting

preferences, the percentage of the sample that responds

Yes on Proposition 100 is a also a random variable

(the percentage will be slightly differently every time

you poll).

expect different outcomes to occur if we

repeat the experiment over and over

(frequentist view)

continuous

Discrete random variables have a countable number of

outcomes

of possible values.

numbers from 1 to 6.

Probability functions

A probability function maps the possible values of

occurrence, p(x)

p(x) is a number from 0 to 1.0.

The area under a probability function is always 1.

p(x)

1/6

P(x) 1

all x

x

p(x)

p(x=1)=1

/6

p(x=2)=1

/6

p(x=3)=1

/6

p(x=4)=1

/6

p(x=5)=1

/6

p(x=6)=1

/6

1.0

2

3

4

5

6

(CDF)

1.0

5/6

2/3

1/2

1/3

1/6

P(x)

x

P(xA)

P(x1)=1/6

P(x2)=2/6

P(x3)=3/6

P(x4)=4/6

P(x5)=5/6

P(x6)=6/6

Practice Problem:

The number of patients seen in the ER in any given hour is

distribution for x is:

x

P(x)

10

.4

11

.2

12

.2

13

.1

14

.1

a. exactly 14 patients arrive

p(x=14)= .1

Review Question 1

If you toss a die, whats the probability that you

roll a 3 or less?

a.

b.

c.

d.

e.

1/6

1/3

1/2

5/6

1.0

Review Question 1

If you toss a die, whats the probability that you

roll a 3 or less?

a.

b.

c.

d.

e.

1/6

1/3

1/2

5/6

1.0

Review Question 2

Two dice are rolled and the sum of the face

values is six? What is the probability that at

least one of the dice came up a 3?

a.

b.

c.

d.

e.

1/5

2/3

1/2

5/6

1.0

Review Question 2

Two dice are rolled and the sum of the face

values is six. What is the probability that at least

one of the dice came up a 3?

a.

b.

c.

d.

e.

1/5

2/3

1/2

5/6

1.0

1-5, 5-1, 2-4, 4-2, 3-3

One of these five has a 3.

1/5

on the first coin (call event A) and a head on the second

coin (call event B)?

Example: A card is drawn from a well shuffled pack of

playing cards. What is the probability that it will either a

spade or a queen?

Example: In a DMD class there are 123 students of which

93 students are males and 30 are females. Of these, 36

males and 18 females plan to major in Marketing. A student

is selected at random from this class and it is found that this

student plans to be a Marketing major. What is the

probability that the student is a male?

Continuous case

The probability function that accompanies a

continuous random variable is a continuous

mathematical function that integrates to 1.

function (in probability, this is called an

exponential distribution):

f ( x) e x

e

0

0 1 1

Clinical example: Survival

times after lung transplant may

roughly follow an exponential

function.

Then, the probability that a

patient will die in the second

year after surgery (between

years 1 and 2) is 23%.

p(x)=e-x

1

x

1

2

P(1 x 2) e

1

2

1

All probability distributions are

characterized by an expected value

(mean) and a variance (standard

deviation squared).

Discrete case:

E( X )

x p(x )

i

all x

Continuous case:

E( X )

xi p(xi )dx

all x

A Situation

Acme Fruit and Vegetable Wholesalers buys tomatoes,

then sells them to retailers. Acme currently pays `

2000 per container. Tomatoes sold on the same day

bring ` 5000 per container. Extremely perishable in

nature, if any tomato container not sold on the same

day are worthless and required to be disposed off

(consider at no cost). The distribution managers

problem is to determine the optimum number he

should order each day. On days when he stocks more

than he sells, his profit is reduced by the cost of the

unsold containers. On the other hand, when retailers

request more containers than he has in stock, he loses

sales and makes smaller profit than he could have.

Acme currently pays ` 2000 per container. Tomatoes sold

per container.

Pay off table in ` 00

ACTIONS ( Quantity ordered Q)

EVENTS

(Demand)

Q1= 10

Q2= 11

Q3 =12

Q4= 13

D1= 10

300

280

260

240

D2= 11

300

330

310

290

D3= 12

300

330

360

340

D4= 13

300

330

360

390

Q, P = 30 D 20 (Q-D)

Let us suppose the Manager kept a record of his sales for the past

100 days.

Daily Sales

Number of days

sold

Probability of each

number being sold

D1= 10

15

0.15

D2= 11

20

0.20

D3= 12

40

0.40

D4= 13

25

0.25

of decision alternative di is defined as:

EV( d(EV)

i ) P( s j )Vij

j 1

where:

N = the number of states of nature

P(sj ) = the probability of state of nature sj

ij = the payoff corresponding to decision alternative di and

state of nature sj

ACTION ( Quantity ordered is 10)

EVENTS

(Demand)

Conditional

profit (1)

Probability of

selling (2)

Expected profit

=(1) x (2)

D1= 10

300

0.15

45

D2= 11

300

0.20

60

D3= 12

300

0.40

120

D4= 13

300

0.25

75

Total EV

300

ACTION ( Quantity ordered is 11)

EVENTS

(Demand)

Conditional

profit (1)

Probability of

selling (2)

Expected profit

=(1) x (2)

D1= 10

280

0.15

42

D2= 11

330

0.20

66

D3= 12

330

0.40

132

D4= 13

330

0.25

82

Total EV

322.50

ACTION ( Quantity ordered is 12)

EVENTS

(Demand)

Conditional

profit (1)

Probability of

selling (2)

Expected profit

=(1) x (2)

D1= 10

260

0.15

39

D2= 11

310

0.20

62

D3= 12

360

0.40

144

D4= 13

360

0.25

90

Total EV

335

ACTION ( Quantity ordered is 13)

Strategy adopted

EVENTS

(Demand)

Conditional

profit (1)

Probability of

selling (2)

Expected profit

=(1) x (2)

D1= 10

240

0.15

36

D2= 11

290

0.20

58

D3= 12

340

0.40

136

D4= 13

390

0.25

97

Total EV

327.50

distribution: The binomial

A fixed number of observations, n

ex. 15 tosses of a coin; ten light bulbs taken from a

warehouse

Two mutually exclusive and collectively

exhaustive categories

ex. head or tail in each toss of a coin; defective or not

Generally called success and failure

Probability of success is p, probability of failure is 1 p

Constant probability for each observation

The outcome of one observation does not affect the outcome of

the other

Infinite population without replacement

Finite population with replacement

Binomial distribution

Take the example of 5 coin tosses. Whats the

probability that you flip exactly 3 heads in 5 coin

tosses?

Notethegeneralpatternemergingifyouhaveonlytwopossible

outcomes(callthem1/0oryes/noorsuccess/failure)innindependent

trials,thentheprobabilityofexactlyXsuccesses=

n = number of trials

n

X=#

successes

out of n

trials

p (1 p )

n X

1-p = probability

of failure

p=

probability of

success

If I toss a coin 20 times, whats the probability of

20

10

10

10

(.5) (.5) .176

If I toss a coin 20 times, whats the probability of

20

20

20

0

20

(.5) (.5)

19

(.5) (.5)

20!

19!1!

2

18

(.5) (.5)

1.8 x10 4

20!

(.5) 20 9.5 x10 7

20!0!

20!

(.5) 20 190 x9.5 x10 7 1.8 x10 4

18!2!

by an expected value and a variance:

If X follows a binomial distribution with parameters n

and p: X ~ Bin (n, p)

Mean

E(x) np

2 np (1 - p )

np (1 - p )

p = probability of success

(1 p) = probability of failure

Applications

A manufacturing plant labels items as either

defective or acceptable

A firm bidding for contracts will either get a

contract or not

A marketing research firm receives survey responses

of yes I will buy or no I will not

New job applicants either accept the offer or reject it

Your team either wins or loses the football game at

the company picnic

The binomial distribution is applicable

replacement or from an infinite population

without replacement.

The hypergeometric distribution is

population without replacement.

P( X )

N A

n X

N

Where

N = population size

A = number of successes in the population

N A = number of failures in the population

n = sample size

X = number of successes in the sample

n X = number of failures in the sample

Example

Different computers are checked from 10 in the

software loaded. What is the probability that 2 of the

3 selected computers have illegal software loaded?

So, N = 10, n = 3, A = 4, X = 2

A

X

P(X 2)

N A

4 6

2 1

n X

(6)(6)

0.3

N

120

10

3

n

Characteristics

The mean of the hypergeometric distribution is:

E(x)

nA

N

Where

nA(N - A) N - n

2

N

N -1

N-n

N - 1 is called the Finite Population Correction Factor

An area of opportunity is a continuous unit or

more than one occurrence of an event can

occur.

ex. The number of scratches in a cars paint

ex. The number of mosquito bites on a

person

ex. The number of computer crashes in a day

Apply the Poisson Distribution when:

You wish to count the number of times an event occurs in a

The probability that an event occurs in one area of opportunity

is the same for all areas of opportunity

The number of events that occur in one area of opportunity is

independent of the number of events that occur in the other

areas of opportunity

The probability that two or more events occur in an area of

opportunity approaches zero as the area of opportunity

becomes smaller

The average number of events per unit is (lambda)

e x

P(X)

X!

where:

X = the probability of X events in an area of opportunity

= expected number of events

e = mathematical constant approximated by 2.71828

An example

Suppose that, on average, 5 cars enter a parking lot

minute, 7 cars will enter?

e x e 5 5 7

P(7)

0.104

X!

7!

So, there is a 10.4% chance 7 cars will enter the

Mean = Variance =

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