Statistics for Business and Economics

Chapter 1 (cont.): Discrete Probability Distributions

Faculty of Economic Mathematics, University of Economics and Law

Outline

Discrete Probability Distributions

Expected value and Variance

Bivariate Distributions, Covariance, and Correlation

Binomial Probability Distribution

Discrete Probability Distributions
Bin/o lng ngu nhiên
=/random event: bin c ngu nhiên
Random Variables
A random variable is a numerical description of the outcome of an experiment.

Example
A classification of random variables

A random variable can be classified as being either discrete or continuous depending on

the assumed numerical values.
▶ If the numerical values are either finite or countable then the random variable is
said to be discrete. mc
▶ If the numerical values are infinite and uncountable then the random variable is
không m c + vô hn: all real
said to be continuous. number
Exercises

Exercises: p.221.
Discrete probability function - Example

Example
Consider an experiment of rolling a die. We define the random variable X to be the
number of dots on the upward face. Then the set of its numerical values is
{1, 2, 3, 4, 5, 6}. If so, X = 1 is a sample point, and

P(X = 1) = 1/6.

For a real number x, the function f(x) defined by f(x) = P(X = x) is called the
probability function of X.
Find f(2), f(7), f(−1), f(2.3), f(π).
Discrete probability function

Definition
Let X be a discrete random variable. The function f : R → [0, 1] defined by
f(x) = P(X = x) is called the probability function of the random variable X.

Example
Consider the experiment of tossing a coin. Let X be the random variable determined
by: X = 0 if the head occurs and X = 1 if the tail occurs. Then X is a discrete random
variable. The numerical values of X is {0, 1}. The probability function f of X is

f : R → [0, 1]
{
1/2, if x = 0, 1,
x 7→ f(x) =
0, otherwise.

Exercise: p.225
Cumulative distribution function

Let X be a (discrete) random variable with probability function f(x).

Cumulative distribution function
The cumulative distribution function (CDF) of a random variable X is defined as

F : R → [0, 1]
x 7→ F(x) = P(X ≤ x)

▶ F is a non-decreasing function. F is discrete if and only if X is discrete.

▶ When a is small enough, we have F(a) = 0, and when b is large enough, we have
F(b) = 1.
▶ P(a < X ≤ b) = F(b) − F(a).
Expected value
Let X be a discrete random variable with probability function f. Then the expected
value or mean of a discrete random variable X is defined by
∑
E(X) = xf(x).

Remark. We also use the notation µ for the expected value.

Example
Consider the experiment of rolling a die. Let X be the random variable describing the
number of dots on the upward face. Then

Random variable X The probability And therefore,

1 1/6
2 1/6 1 1 1
··· E(X) = 1 × + 2 × + · · · + 6 × = 3.5
6 6 6
Variance

The variance of discrete random variable X having probability function f is defined by

∑
Var(X) = σ 2 = (x − E(X))2 f(x)

The square root of variance, that is, σ, is called the standard deviation of X.
Example
Consider the experiment of rolling a die. Let X be the random variable describing the
number of dots on the upward face. Then E(X) = 3.5 and

1 1 1
Var(X) = (1 − 3.5)2 × + (3 − 3.5)2 × + · · · + (6 − 3.5)2 ×
6 6 6
Meaning of Expected value and variance

▶ The expected value provides a measure of central tendency for a random variable.
▶ The variance provides a measure of variability for a random variable.

Example
Let’s consider three groups: A, B, and C. Each group has 10 students. Let X, Y, and
Z denote the number of students having marks from 7 to 10 in groups A, B, and C,
respectively. Assume that
X # students Y # students Z # students
7 3 7 5 7 2
8 2 8 2 8 3
9 2 9 2 9 3
10 3 10 1 10 2
Which group study better? Explain your opinion.
Exercises

Exercises: p.229
Bivariate Distributions
Bivariate distributions
A probability distribution involving two random variables X and Y is called a bivariate
probability distribution.
f(x, y) = P(X = x, Y = y).

Example
Consider the bivariate experiment of rolling a pair of dice. The outcome consists of
two values, the number obtained with the first die and the number obtained with the
second die. Let X and Y be the random variables that indicate the numbers of dots on
the upward faces of the first and second dies, respectively. Then we have a bivariate
experiment (X, Y). The sample space of this bivariate experiment is

S = {(1, 1), (1, 2), · · · , (1, 6), (2, 1), · · · , (6, 6)} .

Determine P(X = 5, Y = 6) and P(X ≤ 2, Y ≤ 4).

Covariance
Let X and Y be two discrete random variables. The covariance of random variables X
and Y is defined by

Var(X + Y) − Var(X) − Var(Y)

σXY =
2

Remark
▶ The covariance of X and Y is also denoted by Covar(X, Y).
▶ We may use the following formula to calculate the covariance:
∑
σXY = [xi − E(X)] [yj − E(Y)] f(xi , yj ),
i,j

where {xi } and {yj } are the set of numerical values of X and Y, respectively; and
f(xi , yj ) := P(X = xi , Y = yj ).
Correlation between two random variables

Definition
The correlation between two random variables X and Y is defined by
σXY
ρXY =
σX σY

Expected value of a linear combination of random variables

E(aX + bY) = aE(x) + bE(Y)

Variance of a linear combination of random variables

Var(aX + bY) = a2 Var(X) + b2 Var(Y) + 2abCovar(X, Y)

Covariance and correlation

▶ For any two random variables X and Y, we always have

−1 ≤ ρXY ≤ 1.

▶ The covariance measures the association between two random variables.

▶ The correlation between two random variables X and Y measures the linear
association between two variables. Values near +1 indicate a strong positive linear
relationship; values near −1 indicate a strong negative linear relationship; and
values near zero indicate a lack of a linear relationship.
Exercises: p.239-p.241.
Binomial and Bernoulli experiments

Binomial experiment
A binomial experiment is an experiment satisfying the following 4 requirements:
1. The experiment consists of a sequence of n identical trials.
2. Two outcomes are possible on each trial. we refer to one outcome as a success
and the other outcome as a failure.
3. The probability of a success, denoted by p, does not change from trial to trial.
Consequently, the probability of a failure, denoted by 1 − p, does not change from
trial to trial.
4. The trials are independent.

Bernoulli experiment
A Bernoulli experiment is a binomial experiment having only one trial.
Binomial probability distribution

In a binomial experiment, we let X denote the number of successes occurring in the n

trials. Then X is a discrete random variable having values {0, 1, . . . , n}. The
probability distribution associated with this random variable is called the binomial
probability distribution.
Example
Consider the experiment of tossing a coin five times. This is a binomial experiment.
The sample space is:

S = {HHHHH, HHHHT, HHHTH, HHHTT, . . . , TTTTT}

Let X be the number of heads appearing over the five tosses. Then the set of numerical
values of X is {0, 1, 2, 3, 4, 5}. The probability distribution of X is f(x) = P(X = x).
Binomial probability distribution (cont.)

Example


 1/32, if x = 0,



 5/32, if x = 1,





10/32, if x = 2,
f(x) = 10/32, if x = 3,



 5/32, if x = 4,





 1/32, if x = 5,


0, otherwise.
Binomial probability function
Binomial probability function
Let X be a binomial experiment with n trials. Assume that the probability of a success
on each trial is p. Then the probability of k successes in n trials is given by:
( )
n k
f(k) = p (1 − p)n−k
k

Expected value and variance

The Expected value and the variance for the binomial distribution X is:

E(X) = µ = np
Var(X) = σ 2 = np(1 − p)

Exercises: p.250
Teamwork for bonus point

▶ Team 1: Applications Exercises (p.221).

▶ Team 2: Applications Exercises (p.225-p.227).
▶ Team 3: Applications Exercises (p.229-p.231).
▶ Team 4: Supplementary Exercises (p.262-p.263).
▶ Team 5: Supplementary Exercises (p.264-p.265).
▶ Team 6: Supplementary Exercises (p.266).
▶ All teams: Case problem (p.266-p.267).
Files to submit (to LMS):
▶ A text that includes questions and answers of your team’s exercises.
▶ Group meeting minutes that include tasks with responsible people.
Thank you for your attention!