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DBM

Quantitative Techniques in Management

Semester - 1

Session - 4

Examples of continuous

probability distributions:

The normal and standard normal

as mathematical function (pdf)

f ( x)

Note constants:

=3.14159

e=2.71828

1 x 2

(

)

2

curve with different

centers and spreads

depending on and

Its a probability function, so no matter what the

values of and , must integrate to 1!

1

2

1 x 2

(

)

e 2 dx

its mean and standard dev.

E(X)= =

Var(X)= =

2

1

2

1 x 2

(

)

2

e

dx

x2

Standard Deviation(X)=

1 x 2

(

)

2

dx ) 2

No matter what and are, the area between - and

+ is about 68%; the area between -2 and +2 is

about 95%; and the area between -3 and +3 is

about 99.7%. Almost all values fall within 3 standard

deviations.

68-95-99.7 Rule

68% of

the data

95% of the data

99.7% of the data

68-95-99.7 Rule

in Math terms

1

2

1

2

1

2

1 x 2

(

)

e 2 dx

.68

1 x 2

(

)

e 2 dx

.95

1 x 2

(

)

2

e

dx

.997

that describes real world situations.

distribution of infinite range (can take any

values not just integers as in the case of

binomial and Poisson distribution).

This is the most important probability

distribution in statistics and important tool in

analysis of epidemiological data and

management science.

distribution

Has a Bell Shape Curve and is Symmetric

It is Symmetric around the mean:

Two halves of the curve are the same

(mirror images)

The total area under the curve is 1 (or 100%)

Normal Distribution has the same shape as Standard

Normal Distribution.

The mean ( ) = 0

and

Standard deviation () =1

Skewness

Positive Skewness: Mean Median

Negative Skewness: Median

Mean

= 3 (Mean Median)

Standard deviation

statistical inference.

is important in hypothesis testing.

The mean of the weight of the runners = 127.8

The standard deviation (SD) = 15.5

In fact, 79 runners fall within 1-SD (15.5 lbs) of the mean.

112.3

127.8

143.3

25

20

P

e

r

c

e

n

t

15

10

0

80

90

100

110

120

POUNDS

130

140

150

160

In fact, 115 runners fall within 2-SDs of the mean.

96.8

127.8

158.8

25

20

P

e

r

c

e

n

t

15

10

0

80

90

100

110

120

POUNDS

130

140

150

160

In fact, all 120 runners fall within 3-SDs of the mean.

81.3

127.8

174.3

25

20

P

e

r

c

e

n

t

15

10

0

80

90

100

110

120

POUNDS

130

140

150

160

Example

Suppose SAT scores roughly follows a normal

distribution in the U.S. population of collegebound students (with range restricted to 200800), and the average math SAT is 500 with a

standard deviation of 50, then:

68% of students will have scores between 450 and

550

95% will be between 400 and 600

99.7% will be between 350 and 650

Example

BUT

What if you wanted to know the math SAT

score corresponding to the 90th percentile

(=90% of students are lower)?

P(XQ) = .90

Q

1 x 500 2

)

50

dx

(

1

e 2

(50) 2

200

Solve for Q?

.90

Universal Currency

The formula for the standardized normal

probability density function is

1

p( Z )

e

(1) 2

1 Z 0 2

(

)

2 1

e

2

1

( Z )2

2

All normal distributions can be converted into

the standard normal curve by subtracting the

mean and dividing by the standard deviation:

X

Z

normal and put them in a table! So we never have to

integrate!

Even better, computers now do all the integration.

100

0

200

2.0

X

Z

( = 100, = 50)

( = 0, = 1)

Example

For example: Whats the probability of getting a math SAT score of 575 or less, =500 and =50?

575 500

Z

1.5

50

i.e., A score

575

P ( X 575)

(50)

200

1 x 500 2

(

)

2

50

e

dx

1.5

1

2

1

Z2

e 2 dz

Yes!

But to look up Z= 1.5 in standard normal chart = .9332

Practice problem

If birth weights in a population are normally

distributed with a mean of 109 oz and a

standard deviation of 13 oz,

a. What is the chance of obtaining a birth

weight of 141 oz or heavier when sampling

birth records at random?

b. What is the chance of obtaining a birth

weight of 120 or lighter?

Answer

a. What is the chance of obtaining a birth

weight of 141 oz or heavier when sampling

birth records at random?

141 109

Z

2.46

13

From the chart 2.46 corresponds to a right tail (greater than)

of: P(Z2.46) = 1-(.9931)= .0069 or .69 %

area

Answer

b. What is the chance of obtaining a birth

weight of 120 or lighter?

120 109

Z

.85

13

P(Z.85) = .8023= 80.23%

standard normal table

What is the area to the

left of Z=1.51 in a

standard normal curve?

Z=1.51

Z=1.51

Area is 93.45%

Exercises

Assuming the normal heart rate (H.R) in

normal healthy individuals is normally

distributed with Mean = 70 and Standard

Deviation =10 beats/min

Exercise # 1

Then:

1) What area under the curve is

above 80 beats/min?

Diagram of Exercise # 1

13.6%

33.35%

13.6 %

2.2 %

-3

-2

-1

0.159

0.15%

Since M=70, then the area under the curve which is above 80 beats per minute

corresponds to above + 1 standard deviation. The total shaded area corresponding to

above 1+ standard deviation in percentage is 15.9% or Z= 15.9/100 =0.159. Or we

can find the value of z by substituting the values in the formula Z= X-M/ standard

deviation. Therefore, Z= 70-80/10 -10/10= -1.00 is the same as +1.00. The value of z

from the table for 1.00 is 0.159

Exercise # 2

Then:

2) What area of the curve is above 90

beats/min?

Diagram of Exercise # 2

33.35%13.6%

2.2%

0.15

0.023

-3

-2

-1

Exercise # 3

Then:

3) What area of the curve is between

50-90 beats/min?

Diagram of Exercise # 3

33.35%

13.6%

2.2%

0.954

-3

-2

-1

0.15

Exercise # 4

Then:

4) What area of the curve is above 100

beats/min?

Diagram of Exercise # 4

33.35%

13.6%

2.2%

0.15

0.015

-3

-2

-1

Not all continuous random variables are

normally distributed!!

It is important to evaluate how well the

data are approximated by a normal

distribution

distributed?

1. Look at the histogram! Does it appear bell shaped?

2. Compute descriptive summary measuresare

mean, median, and mode similar?

3. Do 2/3 of observations lie within 1 std dev of the

mean? Do 95% of observations lie within 2 std dev

of the mean?

4. Look at a normal probability plotis it

approximately linear?

5. Run tests of normality (such as KolmogorovSmirnov). But, be cautious, highly influenced by

sample size!

binomial

When you have a binomial distribution where n is large

and p is middle-of-the road (not too small, not too big,

closer to .5), then the binomial starts to look like a

normal distribution in fact, this doesnt even take a

particularly large n

Recall: What is the probability of being a smoker among a

group of cases with lung cancer is .6, whats the

probability that in a group of 8 cases you have less than

2 smokers?

binomial

When you have a binomial distribution

where n is large and p isnt too small (rule

of thumb: mean>5), then the binomial

starts to look like a normal distribution

Recall: smoking

example

.27

6 7

shape even with fairly small

n. You can imagine that if n

got larger, the bars would get

thinner and thinner and this

would look more and more

like a continuous function,

with a bell curve shape. Here

np=4.8.

Normal approximation to

binomial

.27

6 7

Exact binomial probability (from before) = .00065 + .008 = .00865

=4.8

=1.39

2 (4.8) 2.8

Z

2

1.39

1.39

P(Z<2)=.022

A little off, but in the right ballpark we could also use the value

to the left of 1.5 (as we really wanted to know less than but not

including 2; called the continuity correction)

Z

2.37

1.39

1.39

P(Z-2.37) =.0069

the exact probability, .00865.

SAMPLING and

SAMPLING DISTRIBUTIONS

Sampling Distributions

A sampling distribution is created by, as the

name suggests, sampling.

The method we will employ on the rules of

probability and the laws of expected value

and variance to derive the sampling distribution.

For example, consider the roll of one and two

dice

Mean

with the random variable X = # of spots on any

throw.The probability distribution of X is:

x

P(x)

1/6

1/6

1/6

1/6

1/6

1/6

all samples of size n=2 (i.e. two dice) and their means

While there are 36 possible samples of size 2, there are only 11 values for

, and some (e.g. =3.5) occur more frequently than others (e.g.

=1).

The sampling distribution of

1/36

2/36

3/36

4/36

5/36

6/36

5/36

4/36

3/36

2/36

1/36

5/36

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

is shown below:

6/36

P( )

4/36

P(

3/36

2/36

1/36

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Compare

2

4

5

6

1 with

the 3sampling

distribution

of

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Generalize

We can generalize the mean and variance

of the sampling of two dice:

to n-dice:

sampling distribution is called the

standard error:

The sampling distribution of the mean of a

random sample drawn from any

population is approximately normal for a

sufficiently large sample size.

The larger the sample size, the more

closely the sampling distribution of X will

resemble a normal distribution.

as the sample size increases.

allow us to use the normal distribution as an approximation for the sampling

distribution of X.

Note: If X is normal, Dont need Central Limit Theorem in this case.

Example 1

The foreman of a bottling plant has observed that

the amount of soda in each 32-ounce bottle is

actually a normally distributed random variable,

with a mean of 32.2 ounces and a standard

deviation of .3 ounce.

If a customer buys one bottle, what is the

probability that the bottle will contain more than

32 ounces?

Regular old look up a normal probability.

Example 1

=.3

=32.2 and

more than 32oz.

Example 1

The foreman of a bottling plant has observed

that the amount of soda in each 32-ounce

bottle is actually a normally distributed random

variable, with a mean of 32.2 ounces and a

standard deviation of .3 ounce.

If a customer buys a carton of four bottles, what

is the probability that the mean amount of the

four bottles will be greater than 32 ounces?

Example 1

with =32.2 and =.3

Things we know:

1) X is normally distributed, therefore so will X.

2)

3)

= 32.2 oz.

Example 1

If a customer buys a carton of four bottles, what is the

probability that the mean amount of the four bottles

will be greater than 32 ounces?

bottles will exceed 32oz.

Graphically Speaking

mean=32.

2

bottle will contain more than 32

ounces?

mean of four bottles will exceed 32

oz?

Example

The dean of the School of

Business claims that the average

salary of the schools graduates

one year after graduation is $800

per week (x) with a standard

deviation of $100 (x). Note: This

is the population. A second-year

student would like to check

whether the claim about the mean

is correct. He does a survey of 25

people who graduated one year

ago and determines their weekly

salary. He discovers the sample

mean to be $750. Is this

consistent with the deans

claim???

x 800

x / n 100 / 25 20

Sampling Distribution of a

Proportion

successes is the sample proportion. That is, we

count the number of successes in a sample and

compute:

X is the number of successes, n is the sample size.

Normal Approximation to

Binomial

Binomial distribution with n=20 and p=.5 with a normal approximation

superimposed ( =10 and =2.24)

Normal Approximation to

Binomial

Binomial distribution with n=20 and p=.5 with a normal

approximation superimposed ( =10 and =2.24)

From 7.6 we saw that:

Hence:

and

Normal Approximation to

Binomial

works best when the number of

experiments, n, (sample size) is large, and

the probability of success, p, is close to 0.5

For the approximation to provide good

results two conditions should be met:

1) np 5

2) n(1p) 5

Proportion

Using the laws of expected value and variance, we can

determine the mean, variance, and standard deviation of

(The standard deviation of

of the proportion.)

normal distribution using this formulation:

two means

The final sampling distribution introduced is that of the

difference between two sample means. This requires:

independent random samples be drawn from each of

two normal populations

If this condition is met, then the sampling distribution of the

difference between the two sample means will be

normally distributed if the populations are both normal.

(note: if the two populations are not both normally

distributed, but the sample sizes are large (>30), the

distribution of

is approximately normal) Central

Limit Theorem

two means

mean:

(also called the standard error of the difference

between two means)

Example 2

Starting salaries for MBA grads at two universities are normally distributed

with the following means and standard deviations. Samples from each

school are taken

University1

University2

Mean

62,000$/yr

60,000$/yr

Std.Dev.

14,500$/yr

18,300$/yr

50

60

samplesizen

Sampling Distribution

mean:

= 62,000 60,000

=2000

and standard deviation:

=SQRT(14,5002/50 + 18,3002/60)

= 3128.3

Sampling

Population A group that includes all the

cases (individuals, objects, or groups) in

which the researcher is interested.

Sample A relatively small subset from a

population.

Random Sampling

Simple Random Sample A sample

designed in such a way as to ensure that

(1) every member of the population has

an equal chance of being chosen and

(2) every combination of N members has

an equal chance of being chosen.

This can be done using a computer,

calculator, or a table of random numbers

Random Sampling

Systematic random sampling A method

of sampling in which every Kth member (K is

a ration obtained by dividing the population

size by the desired sample size) in the total

population is chosen for inclusion in the

sample after the first member of the sample

is selected at random from among the first K

members of the population.

Proportionate stratified sample The size

of the sample selected from each subgroup is

proportional to the size of that subgroup in

the entire population. (Self weighting)

Disproportionate stratified sample The

size of the sample selected from each

subgroup is disproportional to the size of that

subgroup in the population. (needs weights)

Stratified random sample A method of

sampling obtained by (1) dividing the

population into subgroups based on one

or more variables central to our analysis

and (2) then drawing a simple random

sample from each of the subgroups

To: sjain@amity.edu

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