Business Statistics:

A Decision-Making Approach

Chapter 5
Discrete Probability Distributions

5-1
 Chapter Goals

After completing this chapter, you should be able to:

 Calculate and interpret the expected value of a discrete
probability distribution
 Apply the binomial distribution to business problems
 Compute probabilities for the Poisson and hypergeometric
distributions
 Recognize when to apply discrete probability distributions
to decision making situations

5-2
 Random variable vs. Probability distribution

Experiment: Toss 2 Coins. Let x = # heads.

4 possible outcomes

T T x Value Probability
0 1/4 = 0.25
T H 1 2/4 = 0.50
2 1/4 = 0.25
H T
Probability

0.50

H H 0.25

0 1 2 x
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 Random variable vs. Probability distribution

 When the value of a variable is the outcome of

a statistical experiment, that variable is a random
variable.
 Let the variable X represent the number of Heads that result
from the previous experiment.
 The variable X can take on the values 0, 1, or 2. In this previous
example, X is a random variable
 A probability distribution is a table or an equation that
links each outcome of a statistical experiment with its
probability of occurrence.
 Just like the previous table

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 Cumulative Variable vs.
Cumulative Probability Distribution
 A cumulative probability refers to the
probability that the value of a random variable
falls within a specified range.
 Like a probability distribution, a cumulative
probability distribution can be represented by
a table or an equation.
 See the next slide

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 Cumulative Probability Distribution

Cumulative
Number of heads: x Probability: P(X = x) Probability:
P(X < x)

0 0.25 0.25

1 0.50 0.75

2 0.25 1.00

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 Discrete Random Variable
 A discrete random variable is a variable that
can assume only a countable number of values
Many possible outcomes:

number of complaints per day

number of TV’s in a household

number of rings before the phone is answered
Only two possible outcomes:

gender: male or female

defective: yes or no

spreads peanut butter first vs. spreads jelly first

5-7
 Continuous Random Variable
 A continuous random variable is a variable that
can assume any value on a continuum (can
assume an uncountable number of values)
 thickness of an item
 time required to complete a task
 temperature of a solution
 height, in inches
 These can potentially take on any value,
depending only on the ability to measure
accurately.
5-8
 Discrete Probability Distribution
 If a random variable is a discrete variable,
its probability distribution is called a discrete
probability distribution.

Number of heads Probability

0 0.25
1 0.50
2 0.25

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 Discrete Random Variable
Mean
 Expected Value (or mean) of a discrete distribution
(Weighted Average)

E(x) = xP(x)
 Example: Toss 2 coins,
x P(x)
x = # of heads,
0 0.25
compute expected value of x:
1 0.50
2 0.25
E(x) = (0 x 0.25) + (1 x 0.50) + (2 x 0.25)
= 1.0

5-10
 Discrete Random Variable
Standard Deviation
 Standard Deviation of a discrete distribution

σx   {x  E(x)} P(x) 2

where:
E(x) = Expected value of the random variable
x = Values of the random variable
P(x) = Probability of the random variable having
the value of x

5-11
 Discrete Random Variable
Standard Deviation
(continued)
 Example: Toss 2 coins, x = # heads,
compute standard deviation (recall E(x) = 1)

σx   {x  E(x)} P(x) 2

σ x  (0  1) 2 (0.25)  (1  1) 2 (0.50)  (2  1) 2 (0.25)  0.50 .707

Possible number of heads

= 0, 1, or 2

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 Probability Distributions

Ch. 5 Ch. 6

Discrete Continuous
Probability Probability
Distributions Distributions

Binomial Normal

Poisson Uniform

Hypergeometric Exponential

5-13
 The Binomial Distribution
 Characteristics of the Binomial Distribution:
 A trial has only two possible outcomes – “success” or
“failure”
 There is a fixed number, n (finite), of identical trials
 The trials of the experiment are independent of each
other
 The probability of a success, p, remains constant from
trial to trial
 If p represents the probability of a success, then
(1-p) = q is the probability of a failure

5-14
 Binomial Distribution Examples

 A manufacturing plant labels items as

either defective or acceptable
 A firm bidding for a contract will either get
the 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
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 Counting Rule for Combinations
 A combination is an outcome of an experiment
where x objects are selected from a group of n
objects
n n!
C  x
x! (n  x )!
where:
Cnx = number of combinations of x objects selected from n objects
n! =n(n - 1)(n - 2) . . . (2)(1)
Order does not
x! = x(x - 1)(x - 2) . . . (2)(1) matter
NOTE: 0! = 1 (by definition) i.e. ABC = CBA
only one outcome
5-16
Binomial Distribution Formula

n! x n x
P(x)  p q
x ! (n  x ) !

P(x) = probability of x successes in n trials,

with probability of success p on each trial

x = number of successes in sample,

(x = 0, 1, 2, ..., n)
p = probability of “success” per trial
q = probability of “failure” = (1 – p)
n = number of trials (sample size)

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 Binomial Distribution
Summary Measures
 Mean
μ E(x) np
 Variance and Standard Deviation
2
σ npq
σ  npq
Where n = sample size
p = probability of success
q = (1 – p) = probability of failure

5-18
 Binomial Distribution
 The shape of the binomial distribution depends on the
values of p and n
Mean .6
P(X) n = 5 p = 0.1
.4
.2
 Here, n = 5 and p = 0.1
0 X
0 1 2 3 4 5

.6
P(X) n = 5 p = 0.5
.4
 Here, n = 5 and p = 0.5 .2
0 X
0 1 2 3 4 5

5-19
 Binomial Characteristics
Examples
μ np (5)(0.1) 0.5
Mean P(X) n = 5 p = 0.1
.6
.4
σ  npq  (5)(0.1)(1  .1) .2
 0.6708 0 X
0 1 2 3 4 5

μ np (5)(0.5) 2.5 P(X) n = 5 p = 0.5

.6
.4
σ  npq  (5)(0.5)(1  0.5) .2
1.118 0 X
0 1 2 3 4 5

5-20
 Binomial Distribution Example
 Example: 35% of all voters support Proposition A. If a
random sample of 10 voters is polled, what is the
probability that exactly three of them support the
proposition?
i.e., find P(x = 3) if n = 10 and p = 0.35 :

n! x n x 10!
P(x 3)  p q  (0.35)3 (0.65)7 0.2522
x!(n  x)! 3!7!

There is a 25.22% chance that 3 out of the 10 voters

will support Proposition A

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 Using Binomial Tables
n = 10
x p=.15 p=.20 p=.25 p=.30 p=.35 p=.40 p=.45 p=.50
0 0.1969 0.1074 0.0563 0.0282 0.0135 0.0060 0.0025 0.0010 10
1 0.3474 0.2684 0.1877 0.1211 0.0725 0.0403 0.0207 0.0098 9
2 0.2759 0.3020 0.2816 0.2335 0.1757 0.1209 0.0763 0.0439 8
3 0.1298 0.2013 0.2503 0.2668 0.2522 0.2150 0.1665 0.1172 7
4 0.0401 0.0881 0.1460 0.2001 0.2377 0.2508 0.2384 0.2051 6
5 0.0085 0.0264 0.0584 0.1029 0.1536 0.2007 0.2340 0.2461 5
6 0.0012 0.0055 0.0162 0.0368 0.0689 0.1115 0.1596 0.2051 4
7 0.0001 0.0008 0.0031 0.0090 0.0212 0.0425 0.0746 0.1172 3
8 0.0000 0.0001 0.0004 0.0014 0.0043 0.0106 0.0229 0.0439 2
9 0.0000 0.0000 0.0000 0.0001 0.0005 0.0016 0.0042 0.0098 1
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001 0.0003 0.0010 0
p=.85 p=.80 p=.75 p=.70 p=.65 p=.60 p=.55 p=.50 x

Examples:
n = 10, p = 0.35, x = 3: P(x = 3|n =10, p = 0.35) = 0.2522
n = 10, p = 0.75, x = 2: P(x = 2|n =10, p = 0.75) = 0.0004

5-22
 Using PHStat
 Select: Add-Ins / PHStat / Probability & Prob. Distributions / Binomial…

5-23
 Using PHStat

Enter desired values in dialog box
Here: n = 10
p = 0.35
Output for x = 0
to x = 10 will be
generated by PHStat

Optional check boxes

for additional output

5-24
PHStat Output

P(x = 3 | n = 10, p = 0.35) = 0.2522

P(x > 5 | n = 10, p = 0.35) = 0.0949

5-25
 The Poisson Distribution
 Characteristics of the Poisson Distribution:
 The outcomes of interest are rare relative to the possible
outcomes
 The average number of outcomes of interest per time or
space interval is 
 The number of outcomes of interest are random, and the
occurrence of one outcome does not influence the
chances of another outcome of interest
 The probability that an outcome of interest occurs in a
given segment is the same for all segments

e.g. the number of customers per hour or the number of bags lost per flight

5-26
 Poisson Distribution
Summary Measures
 Mean
μ λt
 Variance and Standard Deviation

σ 2 λt
σ  λt
where  = number of successes in a segment of unit size
t = the size of the segment of interest

5-27
 Graph of Poisson Probabilities
0.70

Graphically: 0.60

 = .05 and t = 100 0.50

t = P(x) 0.40

X 0.50
0.30
0 0.6065
0.20
1 0.3033
2 0.0758 0.10

3 0.0126 0.00
0 1 2 3 4 5 6 7
4 0.0016
x
5 0.0002
6 0.0000
P(x = 2) = 0.0758
7 0.0000

5-28
 Poisson Distribution Shape
 The shape of the Poisson Distribution
depends on the parameters  and t:

t = 0.50 t = 3.0
0.70 0.25

0.60
0.20
0.50

0.15
0.40

P(x)
P(x)

0.30 0.10

0.20
0.05
0.10

0.00 0.00
0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9 10 11 12

x x

5-29
 Poisson Distribution Formula

x  t
( t ) e
P( x ) 
x!
where:
t = size of the segment of interest
x = number of successes in segment of interest
 = expected number of successes in a segment of unit size
e = base of the natural logarithm system (2.71828...)

5-30
 Using Poisson Tables
t
0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
X

0 0.9048 0.8187 0.7408 0.6703 0.6065 0.5488 0.4966 0.4493 0.4066

1 0.0905 0.1637 0.2222 0.2681 0.3033 0.3293 0.3476 0.3595 0.3659
2 0.0045 0.0164 0.0333 0.0536 0.0758 0.0988 0.1217 0.1438 0.1647
3 0.0002 0.0011 0.0033 0.0072 0.0126 0.0198 0.0284 0.0383 0.0494
4 0.0000 0.0001 0.0003 0.0007 0.0016 0.0030 0.0050 0.0077 0.0111
5 0.0000 0.0000 0.0000 0.0001 0.0002 0.0004 0.0007 0.0012 0.0020
6 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001 0.0002 0.0003
7 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Example: Find P(x = 2) if  = 0.05 and t = 100

(t ) x e  t (0.50)2 e  0.50

P ( x 2)   0.0758
x! 2!

5-31
 The Hypergeometric Distribution

 “n” trials in a sample taken from a finite population of

size N
 Sample taken without replacement
 Trials are dependent
 The probability changes from trial to trial
 Concerned with finding the probability of “x” successes
in the sample where there are “X” successes in the
population

5-32
 Hypergeometric Distribution
Formula
(Two possible outcomes per trial: success or failure)

N X . X
C C
P( x )  n x
N
x
C n
Where
N = population size
X = number of successes in the population
n = sample size
x = number of successes in the sample
n – x = number of failures in the sample

5-33
 Hypergeometric Distribution
Example
■ Example: 3 Light bulbs were selected from 10. Of the
10 there were 4 defective. What is the probability that 2
of the 3 selected are defective?

N = 10 n=3
X=4 x=2

N X X 6 4
C C C C (6)(6)
P(x 2)  n x
N
x
 10 
1 2
0.3
C n C3 120

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 Hypergeometric Distribution
in PHStat
 Select: Add-Ins / PHStat / Probability & Prob. Distributions /
Hypergeometric …

5-35
 Hypergeometric Distribution
in PHStat
(continued)
 Complete dialog box entries and get output …

N = 10 n=3
X=4 x=2

P(x = 2) = 0.3
5-36
 Chapter Summary

 Reviewed key discrete distributions

 Binomial
 Poisson
 Hypergeometric
 Found probabilities using formulas and tables
 Recognized when to apply different distributions
 Applied distributions to decision problems

5-37