DOM105 2022

Session 3
Probability distribution of a discrete
variable
A discrete variable is a variable that takes only discrete values. These values may not
be integer, but they do not form a continuous function.
It is a mutually exclusive list of all possible numerical outcomes along with the
probability of each outcome occurring.
Eg: The number of possible absentees in an office:
No. of absentees (x) Probability
0 0.15
1 0.35
2 0.2
3 0.15
4 0.1
5 0.05
Expected value of a discrete variable
The expected value of a discrete variable is the weighted average of all the outcomes,
the weights being the probability scores.

In the previous example, µ = 0.15(0)+0.35(1)+0.2(2)+0.15(3)+0.1(4)+0.05(5) = 1.85

Variance and standard deviation of
discrete variable
The variance of the discrete variable is the sum of the squared difference between
outcome and expected value, multiplied by the probability of that outcome.

Variance =

The standard deviation is the square root of the variance.

σ==
Conditional Probability
The probability of event A happening if event B has already happened is called the
conditional probability of A given B, written as P(A|B).
P(A|B) = P(A and B)/P(B)
Two events are called Independent if P(A|B) = P(A), i.e., P(A and B) = P(A).P(B)
Bayes’ theorem: P(B|A) = (P(A|B)P(B))/P(A)

P(A or B) = P(A)+P(B)-P(A and B)

There are two competing companies X and Y. If X launches a product, there is a 60%
chance that Y will launch a competing product. If Y is the first to launch a product,
there is a 70% chance X will introduce a competing product. If the chances of X
launching a product on its own is 75%, what is the chance of Y launching a product
on its own?
P(Y|X)=0.6, P(X|Y)=0.7, P(X)=0.75
By Bayes’ theorem, P(Y|X)=P(X|Y)P(Y)/P(X), so P(Y)=0.6*0.75/0.7=0.643
Decision trees
When Malinga plays for the Mumbai Indians the team has a
70% chance of victory. When he does not play, the chance of
victory is 60%. Malinga has a 20% chance of not playing. If
there are 16 matches in a season, how many matches is the team
likely to win?

From the decision tree, P(Win)=0.7*0.8+0.6*0.2=0.68

Matches won = Matches played * P(Win) = 16 * 0.68=10.88
In a game, there are three doors. One door contains the prize,
the others contain nothing. After the player makes a selection,
one of the remaining doors which is empty is eliminated. At
this point, the player may stick to his original choice or change
to the remaining door. Which option has a better chance of
winning?

Chance of selecting the correct door in the beginning is 1/3

A wrong door is eliminated.
Correct choice is to switch (1-1/3=2/3 chance of winning)
A company spends $50,000 developing a product. There is a
20% chance the product fails to develop correctly. Once
developed the company must spend $20,000 testing for safety,
and there is a 40% chance the product will fail the test. Once it
passes the test, the company needs to spend $200,000
marketing the product. On being marketed, the product starts
earning money. How much money does the product need to
bring in for the company to break even?
Outcomes: 1st step failure, 0.2 chance, - 50k outcome
2nd step failure, 0.8*0.4 chance, - 70k outcome
2nd step success, 0.8*0.6 chance, Income x, expenses 270k
Thus, (x-270k)*0.8*0.6 – 70k*0.8*0.4 – 50k*0.2 = 0
Thus x=337,500