Chapter 5

Discrete Probability
Distributions
Chap 5-1

Learning Objectives
In this chapter, you learn:
The properties of a probability distribution

To compute the expected value and variance of a

probability distribution

Chap 5-2

Definitions
Random Variables

A random variable represents a possible

numerical value from a random event. A random
variable can be discrete or continuous.

Discrete random variables produce outcomes

that come from a counting process (e.g. number
of classes you are taking, or sum of values on
two dice).
Continuous random variables produce
outcomes that come from a measurement
(e.g. your annual salary, your weight, or miles
per gallon for a sample of cars).

Chap 5-3

Discrete Random Variables

Can only assume a countable number of values

Examples:

Roll a die twice

Let X be the number of times 4 occurs
(then X could be 0, 1, or 2 times)

Toss a coin 5 times.

Let X be the number of heads
(then X = 0, 1, 2, 3, 4, or 5)

Chap 5-4

Example of a Discrete Random

Variable Probability Distribution
Experiment: Toss 2 Coins.

T
T
H
H

T
H
T
H

Probability Distribution
X Value

Probability

1/4 = 0.25

2/4 = 0.50

1/4 = 0.25

Probability

4 possible outcomes

Let X = # of heads.

0.50
0.25

X
Chap 5-5

Definitions
Random Variables
Random
Variables
Ch. 5

Discrete
Random Variable

Continuous
Random Variable

Ch. 6

Chap 5-6

Probability Distribution

A probability distribution can be determined

theoretically or experimentally.
A probability distribution can be discrete or
continuous.
The probability of each value of x must be at
least 0 and not greater than 1.
The sum of all probabilities for all the possible
values of x must equal 1. That is, = 1.
Chap 5-7

Discrete Probability Distribution

A probability distribution for a discrete random variable is a mutually exclusive list of

all the possible numerical outcomes of the random variable along with the probability of
occurrence of each outcome.

Example:The following probability distribution table gives the distribution of the number of
interruptions per day in a large computer network.
Interruptions per Day
0
1
2
3
4
5
a.
b.
c.

Probability
0.35
0.25
0.20
0.10
0.05
0.05

What is the probability that there will be 3 interruptions in a day?

P( 3 interruptions) = 0.1 or 10 %
What is the probability that there will be more than 2 interruptions in a day?
P ( more than 2 interruptions) = 0.1+ 0.05 + 0.05 = 0.2 or 20 %
What is the probability that there will be 3 or 4 interruptions in a day?
P ( 3 or 4 interruptions) = 0.1 + 0.05 = 0.15 or 15 %
Chap 5-8

Discrete Random Variables

Expected Value (Measuring Center)

Expected Value (or mean) of a discrete

random variable
N

= E(X) = xi P( X = xi )
i =1

Example: Toss 2 coins,

X = # of heads,
compute expected value of X:
E(X) = ((0)(0.25) + (1)(0.50) + (2)(0.25))
= 1.0

P(X=xi)

0.25

0.50

0.25

Chap 5-9

Discrete Random Variables

Measuring Dispersion

Variance of a discrete random variable

N

2 = [x i E(X)]2 P(X = x i )
i =1

Standard Deviation of a discrete random variable

= 2 =

2
[x

E(X)]
P(X = x i )
i
i =1

where:
E(X) = Expected value of the discrete random variable X
xi = the ith outcome of X
P(X=xi) = Probability of the ith occurrence of X
Chap 5-10

Discrete Random Variables

Measuring Dispersion
(continued)

Example: Toss 2 coins, X = # heads,

compute standard deviation (recall E(X) = 1)

= [ xi E(X)] P(X = x i )
2

= (0 1)2 (0.25) + (1 1)2 (0.50) + (2 1)2 (0.25) = 0.50 = 0.707

Possible number of heads
= 0, 1, or 2

Chap 5-11

Investment Returns
The Mean
Consider the return per $1000 for two types of
investments.
Investment
Economic Condition
Prob.

Passive Fund X

Aggressive Fund Y

0.2

Recession

- $25

- $200

0.5

Stable Economy

+ $50

+ $60

0.3

Expanding Economy

+ $100

+ $350

Chap 5-12

Investment Returns
The Mean
E(X) = X = (-25)(.2) +(50)(.5) + (100)(.3) = $ 50
E(Y) = Y = (-200)(.2) +(60)(.5) + (350)(.3) = $ 95
Interpretation: Fund X is averaging a $50.00 return
and fund Y is averaging a $95.00 return per $1000
invested.

Chap 5-13

Investment Returns
Standard Deviation
X = (-25 50) 2 (.2) + (50 50) 2 (.5) + (100 50) 2 (.3)
= 43.30
Y = (-200 95) 2 (.2) + (60 95) 2 (.5) + (350 95) 2 (.3)
= 193.71

Interpretation: Even though fund Y has a higher

average return, it is subject to much more variability
and the probability of loss is higher.

Chap 5-14

Decision Making
Adam is thinking about investing $10,000 in two different
investment funds. The expected rates of return and the
corresponding probabilities for each fund are listed below.

50%
20%
20%
10%

Fund A
chance of an $800 profit
chance of an $1200 profit
chance of an $600 profit
chance of an $100 loss

30%
10%
40%
20%

Fund B
chance of an $2400 profit
chance of an $1900 profit
chance of an $200 profit
chance of an $400 loss

a. Find the expected value for

each investment.
A:()=0.5(800)+0.2(1200)+0.2(600)+0.1 (-100)=750

B:()=0.3(2400)+0.1(1900)+0.4(200)+0.2 (-400)=750
Chap 5-15

Decision Making
b. Find each standard deviation.
Fund A
Profit, X

P(X)

800

0.5

1200

0.2

600

0.2

-100

0.1

800 750

= 2500

1200 750

= 202,500

100 750

= 722,500

600 750

= 22,500

.P(X)

(2500) 0.5 = 1,250

(202,500) 0.2 = 40,500

(22,500) 0.2 = 4,500

(722,500) 0.1 = 72,250

.P(X)

= ,

[ 2 . ()= 118,500 344.2

Chap 5-16

Decision Making
Fund B
Profit, X

P(X)

2400

0.3

1900

0.1

-200

0.4

-400

0.2

2400 750
1900 750

2
2

200 750

400 750

= 2,722,500
= 1,322,500

= 902,500

= 1,322,500

.P(X)

(2,722,500) 0.3 = 816,750

(1,322,500) 0.1 = 132,250
(902,500) 0.4 = 361,000

(1,322,500) 0.2 = 264, 500

.P(X)

= , ,

[ 2 . ()= 1,574,500 1254.8

Chap 5-17

Decision Making
c. Comment on the two investments.
While the funds have identical expected values, the standard deviation of
Fund B is almost four times the standard deviation for Fund A. This means
that Fund B will have about four times the variability than Fund A and hence
riskier.

Chap 5-18

Practice
The information below is the number of daily emergency service calls made
by the volunteer ambulance service in Dubai.
Number of Calls X

Frequency

0
1
2
3
4
5

3
5
6
2
4
3

Chap 5-19

Practice
a) Convert the information on the number of calls to a probability distribution.

b) Is this an example of a discrete probability distribution or a continuous probability distribution?

(Explain why).

c) What is the mean number of emergency calls made daily?

d) Using the frequency table (or probability distribution table), what is the probability that
tomorrow the number of phone calls is less than 3 calls?

e) Using the frequency table what is the probability that tomorrow the number of phone calls is
greater than 3 calls?

Chap 5-20

Solution
a.
Number of Calls X

Frequency

P( X )

0
1
2
3
4
5

3
5
6
2
4
3

3/23 = 0.13
5/23 = 0.22
6/23 = 0.26
2/23 = 0.09
4/23 = 0.17
3/23 = 0.13

b. Discrete probability distribution, because the number of calls X is a discrete random variable.

c. = = 2.34

d. 3 = 0.61 61 %

e. 3 = 0.3 30 %

Chap 5-21