Introduction to Probability and

Statistics
Chapter 12
Types of Probability
Fundamentals of Probability
Statistical Independence and Dependence
Expected Value
The Normal Distribution
Topics
Sample Space and Event
Probability is associated with performing an
experiment whose outcomes occur randomly
Sample space contains all the outcomes of an
experiment
An event is a subset of sample space
Probability of an event is always greater than or
equal to zero
Probabilities of all the events must sum to one
Events in an experiment are mutually exclusive if
only one can occur at a time
Objective Probability
Stated prior to the occurrence of the event
Based on the logic of the process producing the outcomes
Relative frequency is the more widely used definition of
objective probability.
Subjective Probability
Based on personal belief, experience, or knowledge of a
situation.
Frequently used in making business decisions.
Different people often arrive at different subjective
probabilities.
Objective Probability
Frequency Distribution
organization of numerical data about the events
Probability Distribution
A list of corresponding probabilities for each event
Mutually Exclusive Events
If two or more events cannot occur at the same
time
Probability that one or more events will occur is
found by summing the individual probabilities of
the events:
P(A or B) = P(A) + P(B)
Fundamentals of Probability Distributions
Grades for past four years.

Event
Grade
Number of
Students
Relative
Frequency
Probability
A
B
C
D
F

300
600
1,500
450
150
3,000
300/3,000
600/3,000
1,500/3,000
450/3,000
150/3,000

.10
.20
.50
.15
.05
1.00

Fundamentals of Probability
A Frequency Distribution Example
Probability that non-mutually exclusive events M and F or
both will occur expressed as:
P(M or F) = P(M) + P(F) - P(MF)
A joint (intersection) probability, P(MF), is the probability
that two or more events that are not mutually exclusive can
occur simultaneously.
Fundamentals of Probability
Non-Mutually Exclusive Events & Joint Probability
Determined by adding the probability of an event to the sum
of all previously listed probabilities





Probability that a student will get a grade of C or higher:
P(A or B or C) = P(A) + P(B) + P(C) = .10 + .20 + .50 = .80


Event
Grade
Probability
Cumulative
Probability
A
B
C
D
F

.10
.20
.50
.15
.05
1.00
.10
.30
.80
.95
1.00


Fundamentals of Probability
Cumulative Probability Distribution
Events that do not affect each other are independent.
Computed by multiplying the probabilities of each event.
P(AB) = P(A) P(B)
For coin tossed three consecutive times: Probability of getting head
on first toss, tail on second, tail on third is:
P(HTT) = P(H) P(T) P(T) = (.5)(.5)(.5) = .125





Statistical Independence and Dependence
Independent Events
Properties of a Bernoulli Process:
Two possible outcomes for each trial.
Probability of the outcome remains constant over
time.
Outcomes of the trials are independent.
Number of trials is discrete and integer.
Statistical Independence and Dependence
Independent Events Bernoulli Process Definition
Used to determine the probability of a number of successes
in n trials.


where: p = probability of a success
q = 1- p = probability of a failure
n = number of trials
r = number of successes in n trials
Determine probability of getting exactly two tails in three tosses of a
coin.

r - n
q
r
p
r)! - (n r!
n!
P(r) =
Binomial Distribution
.375 2) P(r
(.125)
2
6

(.25)(.5)
1)(1) (2
1) 2 (3

2 3
(.5)
2
(.5)
2)! - (3 2!
3!
2) P(r tails) P(2
= =
=


=

= = =
Example
Microchips are inspected at the quality
control station
From every batch, four are selected and
tested for defects
Given defective rate of 20%, what is the
probability that each batch contains
exactly two defectives

.1536
(.0256)
2
24

(.25)(.5)
1)(1) (2
1) 2 3 (4

2
(.8)
2
(.2)
2)! - (4 2!
4!
) defectives 2 P(r
=
=


=
= =
What is probability that each batch will contain exactly two
defectives?




What is probability of getting two or more defectives?


Probability of less than two defectives:
P(r<2) = P(r=0) + P(r=1) = 1.0 - [P(r=2) + P(r=3) + P(r=4)]
= 1.0 - .1808 = .8192
Binomial Distribution Example Quality Control
.1808
.0016 .0256 .1536
0
(.8)
4
(.2)
4)! - (4 4!
4!
1
(.8)
3
(.2)
3)! (4 3!
4!
2
(.8)
2
(.2)
2)! - (4 2!
4!
2) P(r
=
+ + =
+

+ = >
If the occurrence of one event affects the probability of the
occurrence of another event, the events are dependent.
Coin toss to select bucket, draw for blue ball.
If tail occurs, 1/6 chance of drawing blue ball from bucket 2; if head
results, no possibility of drawing blue ball from bucket 1.
Probability of event drawing a blue ball dependent on event
flipping a coin.
Dependent Events
Unconditional: P(H) = .5; P(T) = .5, must sum to one.




Conditional: P(R,H) =.33, P(W,H) = .67, P(R,T) = .83,
P(W,T) = .17
Dependent Events Conditional Probabilities
Given two dependent events A and B:
P(A,B) = P(AB)/P(B) or P(AB) = P(A|B).P(B)
With data from previous example:
P(RH) = P(R,H) P(H) = (.33)(.5) = .165
P(WH) = P(W,H) P(H) = (.67)(.5) = .335
P(RT) = P(R,T) P(T) = (.83)(.5) = .415
P(WT) = P(W,T) P(T) = (.17)(.5) = .085
Math Formulation of Conditional Probabilities
Summary of Example Problem Probabilities
B)P(B) P(C A)P(A) P(C
A)P(A) P(C
) C P(A
+
=
In Bayesian analysis, additional information is used to alter
(improve) the marginal probability of the occurrence of an
event.
Improved probability is called posterior probability
A posterior probability is the altered marginal probability of
an event based on additional information.
Bayes Rule for two events, A and B, and third event, C,
conditionally dependent on A and B:
Bayesian Analysis
Machine setup; if correct 10% chance of defective part; if
incorrect, 40%.
50% chance setup will be correct or incorrect.
What is probability that machine setup is incorrect if sample
part is defective?
Solution: P(C) = .50, P(IC) = .50, P(DC) = .10, P(DIC) = .40
where C = correct, IC = incorrect, D = defective

Bayesian Analysis Example (1 of 2)
.80
(.10)(.50) (.40)(.50)
(.40)(.50)

C)P(C) P(D IC)P(IC) P(D
IC)P(IC) P(D
) D P(IC
=
+
=
+
=
Previously, the manager knew that there was a 50% chance
that the machine was set up incorrectly
Now, after testing the part, he knows that if it is defective,
there is 0.8 probability that the machine was set up
incorrectly


Statistical Independence and Dependence
Bayesian Analysis Example (2 of 2)
When the values of variables occur in no particular order or
sequence, the variables are referred to as random
variables.
Random variables are represented by a letter x, y, z, etc.
Possible to assign a probability to the occurrence of
possible values.
Expected Value
Random Variables
Possible values of
no. of heads are:
Possible values of
demand/week:

Random Variable x
(Number of Breakdowns)

P(x)
0
1
2
3
4

.10
.20
.30
.25
.15
1.00

Machines break down 0, 1, 2, 3, or 4 times per month.
Relative frequency of breakdowns , or a probability
distribution:
Expected Value
Example (1 of 4)
Computed by multiplying each possible value of the
variable by its probability and summing these products.
The weighted average, or mean, of the probability
distribution of the random variable.
Expected value of number of breakdowns per month:
E(x) = (0)(.10) + (1)(.20) + (2)(.30) + (3)(.25) + (4)(.15)
= 0 + .20 + .60 + .75 + .60
= 2.15 breakdowns

Expected Value
Example (2 of 4)
Variance is a measure of the dispersion of random variable
values about the mean.
Variance computed as follows:
Square the difference between each value and the
expected value.
Multiply resulting amounts by the probability of each
value.
Sum the values compiled in step 2.
General formula:
o
2
= E[x
i
- E(x
i
)]
2
P(x
i
)

Expected Value
Example (3 of 4)
Standard deviation computed by taking the square root of
the variance.
For example data:





o
2
= 1.425 breakdowns per month
standard deviation = o = sqrt(1.425)
= 1.19 breakdowns per month

x
i
P(x
i
) x
i
E(x) [x
i
E(x
i
)]
2
[x
i
E(x)]
2
- P(x
i
)
0
1
2
3
4

.10
.20
.30
.25
.15
1.00
-2.15
-1.15
-0.15
0.85
1.85

4.62
1.32
0.02
0.72
3.42

.462
.264
.006
.180
.513
1.425

Expected Value
Example (4 of 4)
Poisson Distribution
Based on the number of outcomes occurring during
a given time interval or in a specified regions
Examples
# of accidents that occur on a given highway during a 1-
week period
# of customers coming to a bank during a 1-hour interval
# of TVs sold at a department store during a given week
# of breakdowns of a washing machine per month
Conditions
Consider the # of breakdowns of a washing
machine per month example
Each breakdown is called an occurrence
Occurrences are random that they do not
follow any pattern (unpredictable)
Occurrence is always considered with respect
to an interval (one month)
The Probability Mass Distribution
X = number of counts in the interval
Poisson random variable with > 0
PMF
f(x)= x=0,1,2,.

Mean and Variance
E[X] = , V (X) =
! x
e
x

Example
If a bank gets on average = 6 bad checks per
day, what are the probabilities that it will receive
four bad checks on any given day?10 bad checks
on any two consecutive days?
Solution
x = 4 and = 6, then f(4) = = 0.135


= 12 and x = 10, then f(10) = = 0.105
! 4
6
6 4
e
! 10
12
10 12
e
Example
The number of failures of a testing instrument from
contamination particle on the product is a Poisson
random variable with a mean of 0.02 failure per
hour.
What is the probability that the instrument does not fail in
an 8-hour shift?
What is the probability of at least one failure in one 24-
hour day?
Solution
a) Let X denote the failure in 8 hours. Then, X has a
Poisson distribution with =0.16
P(X=0)=0.8521
b) Let Y denote the number of failure in 24 hours.
Then, Y has a Poisson distribution with =0.48
P(Y>1) = 1-P(Y = 0) =0.3812

Continuous random variable can take on an infinite number
of values within some interval.
Continuous random variables have values that are not
countable
Cannot assign a unique probability to each value

The Normal Distribution
Continuous Random Variables
The normal distribution is a continuous probability
distribution that is symmetrical on both sides of the mean.
The center of a normal distribution is its mean .
The area under the normal curve represents probability,
and total area under the curve sums to one.
The Normal Distribution
Definition
Mean weekly carpet sales of 4,200 yards, with standard
deviation of 1,400 yards.
What is probability of sales exceeding 6,000 yards?
= 4,200 yd; o = 1,400 yd; probability that number of yards
of carpet will be equal to or greater than 6,000 expressed
as: P(x>6,000).
The Normal Distribution
Example (1 of 5)
-
-

The Normal Distribution
Example (2 of 5)
The area or probability under a normal curve is measured
by determining the number of standard deviations from the
mean.
Number of standard deviations a value is from the mean
designated as Z.
Z = (x - )/o
The Normal Distribution
Standard Normal Curve (1 of 2)
The Normal Distribution
Standard Normal Curve (2 of 2)


The Normal Distribution
Example (3 of 5)
Z = (x - )/ o = (6,000 - 4,200)/1,400
= 1.29 standard deviations
P(x> 6,000) = .5000 - .4015 = .0985
Determine probability that demand will be 5,000 yards or
less.
Z = (x - )/o = (5,000 - 4,200)/1,400 = .57 standard deviations
P(xs 5,000) = .5000 + .2157 = .7157
The Normal Distribution
Example (4 of 5)
Determine probability that demand will be between 3,000
yards and 5,000 yards.
Z = (3,000 - 4,200)/1,400 = -1,200/1,400 = -.86
P(3,000 s x s 5,000) = .2157 + .3051= .5208
The Normal Distribution
Example (5 of 5)
Different Table
P(3,000 s x s 5,000)=
P((3,000 - 4,200)/1,400) s z s ((5,000 -
4,200)/1,400)
P(-0.86s z s 0.57)=
P( z s 0.57)- P( z s -0.86)=
P( z s 0.57)- P( z 0.86)=
P( z s 0.57)- [1-P( z s 0.86)]=
(0.7157)-[1-0.8051]=0.5208
The population mean and variance are for the entire set of
data being analyzed.
The sample mean and variance are derived from a subset
of the population data and are used to make inferences
about the population.
The Normal Distribution
Sample Mean and Variance
2
s s deviation standard Sample
1 - n
n
1 i
2
) x -
i
(x

2
s variance Sample
n
n
1 i
i
x
x mean Sample
= =

=
= =

=
= =
The Normal Distribution
Computing the Sample Mean and Variance
Sample mean = 42,000/10 = 4,200 yd
Sample variance = [(190,060,000) - (1,764,000,000/10)]/9
= 1,517,777
Sample std. dev. = sqrt(1,517,777)
= 1,232 yd



Week
i
Demand
x
i

1
2
3
4
5
6
7
8
9
10

2,900
5,400
3,100
4,700
3,800
4,300
6,800
2,900
3,600
4,500
42,000

The Normal Distribution
Example Problem Re-Done
It can never be simply assumed that data are normally
distributed.
A statistical test must be performed to determine the exact
distribution.
The Chi-square test is used to determine if a set of data fit a
particular distribution.
It compares an observed frequency distribution with a
theoretical frequency distribution that would be expected to
occur if the data followed a particular distribution (testing
the goodness-of-fit).
The Normal Distribution
Chi-Square Test for Normality (1 of 2)
In the test, the actual number of frequencies in each range
of frequency distribution is compared to the theoretical
frequencies that should occur in each range if the data
follow a particular distribution.
A Chi-square statistic is then calculated and compared to a
number, called a critical value, from a chi-square table.
If the test statistic is greater than the critical value, the
distribution does not follow the distribution being tested; if it
is less, the distribution does exist.
Chi-square test is a form of hypothesis testing.
The Normal Distribution
Chi-Square Test for Normality (2 of 2)
Statistical Analysis with Excel (1 of 3)
Statistical Analysis with Excel (2 of 3)
Statistical Analysis with Excel (3 of 3)