IIML 3 4 Probability and Statistics A Review (Compatibility Mode)

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Copyright Tapan P Bagchi 1
Sessions 3 and 4
Probabilit y and St at ist ics
in Six Sigma: A review
Why St udy PROBABI LI TY?
Occurrence of defects in production is
stochasticsuch events cannot be exactly
predicted.
In decisions about such events we rely on the
theory of probability.
When our decisions require data analysis, the
typical methods are obtained from statistics.
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Applications of Probability Theory
and Statistics in Business
Forecasting, Inventory Management
Quality Assurance
Project Risk Management
Investment Portfolio Design
Business simulation, Market research
Game Theory and Strategy Formulation
Six Sigma
The Scope of Sessions 3 and 4
Exper iment s Out comes, Event s and Sample Spaces
What is pr obabilit y?
Basic Rules of Pr obabilit y
Pr obabilit ies of Compound Event s
An int r oduct ion t o Dist r ibut ions
Test of hypot hesis and inf er ence
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Learning Objectives
Understand the concepts of
sample space and probability distribution and
construct sample spaces and distributions in simple
cases
conditional probability and independent events;
understand how to compute the probability of a
compound event
Use simulations to construct empirical probability
distributions and to make informal inferences about the
theoretical probability distribution
What is Probability?
Probability
the study of chance associated with the occurrence
of random or stochastic events
Types of Probability
Classical (Theoretical)
Relative Frequency (Experimental)
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Classical Probability
Rolling dice and tossing a coin are activities
associated with a classical approach to
probability. In these cases, you can list (or
enumerate) all the possible outcomes of an
experiment and determine the actual
probabilities of each outcome.
Sample Space, Events and RVs
The possible outcomes of a stochastic or random
process are called events.
An event is a deterministic process has only one
possible outcome.
The probability of a particular event is the fraction of
outcomes in which the event occurs. The probability
of event A is denoted by P(A).
Random variables map events to numbers. A
S
4.3
X
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Events may be (a) mutually
exclusive, or (b) independent
Probability of an event remains between 0 (the
event never occurs) and 1 (the event always
occurs).
Two events are mutually exclusive if occurrence
of one precludes the occurrence of the other.
Events whose occurrence do not depend on the
occurrence of any other events are called
independent events.
Experiment s, Out comes, Event s
and Sample Spaces
Experiment: An experiment is any activity from which results
are obtained. A random experiment is one in which the
outcomes, or results, cannot be predicted with certainty.
Examples:
1. Flip a coin
2. Flip a coin 3 times
3. Roll a die
4. Draw a random sample of size 50 from a population
Trial: A physical action , the result of which cannot be
predetermined
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Basic Outcomes and Sample Spaces
Basic Outcome (o): A possible outcome of the experiment
Sample Space: The set of all possible outcomes of an
experiment
Example: A company has offices in six cities, San Diego, Los
Angeles, San Francisco, Denver, Paris, and London. A new
employee will be randomly assigned to work in on of these
offices.
What are the Outcomes?
What is the Sample Space?
Assigning Probabilities to Events
Probability of an event P(E): Chance that an event will occur
Must lie between 0 and 1
0 implies that the event will not occur
1 implies that the event will occur
Types of Probability:
Objective
Relative Frequency Approach
Equally-likely Approach
Subjective based on beliefs, judgment and past experience
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Odds
If the odds that an event occurs is a:b, then
( )
a
P A
a b
=
+
Example: If the odds of the horse Chet ak winning the
Hong Kong Derby are 9:2, what is the subjective probability
that he will win?
Probabilities of Events
Let A be the event A = {o
1
, o
2
, , o
k
}, where o
1
, o
2
, , o
k
are k
different outcomes. Then
1 2
( ) ( ) ( ) ( )
k
P A P o P o P o = + + +
Problem: The number on a license plate is any digit between 0
and 9. What is the probability that the first digit is a 3? What is
the probability that the first digit is less than 4?
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Start with the Law of Complements:
If A is an event, then the complement of A, denoted by ,
represents the event composed of all basic outcomes in S
(the sample space) that do not belong to A.
A = set of outcomes that
make event A
By Additive Law of Probability: P(A) + P( ) = 1
Probabilities of Compound Events
A
A
A
S = set of all outcomes
A
If A is an event, then the complement of A, denoted by ,
represents the event composed of all basic outcomes in S that
do not belong to A.
Law of Complements
A
A
S
Law of Complements:
Example: If the probability of getting a working computer is 0.7,
What is the probability of getting a defective computer?
( ) 1 ( ) P A P A =
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Unions of Two Events
If A and B are events, then the union of A and B, denoted
by AB, represents the event composed of all basic
outcomes in A or B.
Intersections of Two Events
If A and B are events, then the intersection of A and B,
denoted by AB, represents the event composed of all
basic outcomes in A and B.
Unions and Intersections of Two Events
S
B
A
Additive Law of Probability
Let A and B be two events in a sample space S. The probability
of the union of A and B is
( ) ( ) ( ) ( ). P A B P A P B P A B = +
S
B
A
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Using Additive Law of Probability
S
C
M
Example: At Cornell, all first-year students must take
chemistry and math. Suppose 15% fail chemistry, 12% fail
math, and 5% fail both. Suppose a first-year student is selected
at random. What is the probability that student selected failed
at least one of the courses?
Mutually Exclusive Events
Mutually Exclusive Events: Events that have no basic
outcomes in common, or equivalently, their intersection is the
empty set C.
S
B
A
Let A and B be two events in a sample space S. The probability
of the union of two mutually exclusive events A and B is
( ) ( ) ( ). P A B P A P B = +
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Multiplication Rule and Independent
Events
Two independent events can occur together!
Multiplication Rule for Independent Events: Let A and B
be two independent events, then
( ) ( ) ( ). P A B P A P B =
Examples:
Flip a coin twice. What is the probability of observing two heads?
Flip a coin twice. What is the probability of getting a head and then a tail? A
tail and then a head? One head?
Three computers are ordered. If the probability of getting a working computer
is .7, what is the probability that all three are working ?
Definitions
Sample Space - the list of all possible
outcomes from a probabilistic experiment.
3-Children Example:
S = {BBB, BBG, BGB, BGG,
GBB, GBG, GGB, GGG}
Each individual item in the list is called a Simple
Event or Single Event.
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Probability of Single Events with
Equally Likely Outcomes
If each outcome in the sample space is equally
likely, then the probability of any one outcome is
1 divided by the total number of outcomes.
outcomes of number total
1
event) simple (
outcomes, likely equally For
= P
Three Children Example
Continued
A couple wants 3 children. Assume the
chance of a boy or girl is equally likely at
each birth.
What is the probability that they will have
exactly 3 girls?
What is the probability of
having exactly 3 boys?
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Probability of Combinations of
Single Events
But in general, an Event can be a
combination of Single Events.
The probability of such an event is the sum
of the individual probabilities.
Three Children Example
Continued
P(exactly 2 girls) = __
P(exactly 2 boys) = __
P(at least 2 boys) = __
P(at most 2 boys) = __
P(at least 1 girl) = __
P(at most 1 girl) = __
Sample
space =
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Types of Probability
Classical (Theoretical)
Relative Frequency (Experimental, Empirical)
Relative Frequency Probability
Uses actual experience to determine the
likelihood of an outcome.
What is
the chance
of scoring
a B or better?
Grade Frequency
A 20
B 30
C 40
Below C 10
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Empirical Probability
Given a frequency distribution, the probability
of an event, E, being in a given group is
n
x
P = =
on distributi in the s frequencie total
group the of frequency
E) (
A Problem:
Two-way Tables and Probability
Find:
P(M)
P(A)
P(A and M)
Given: Got A
Got
< A
Total
Male 30 45
Female 60 65
Total
To solve this problem we need some theory.
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Probability Fundamentals
What is wrong with the statements?
The probability of rain today is -10%.
The probability of rain today is 120%.
The probability of rain or no rain today is 90%.
1 ) (
1 ) (
0 ) (
=
s
>
space sample P
event P
event P
REMEMBER!
These ar e t he axioms
of Kolmogor ov.
Probability Rules
Let A and B be events
Complement Rule:
P(A) + P( not A) = 1
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Set Theory Notation
Union: A or B
(inclusive or)
B A
B A
Intersection: A and B
Probability Rules
Union P(AUB) = P(A or B)
) ( ) ( ) ( ) ( B A P B P A P B A P + =
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Find:
P(M)
P(A)
P(A and M)
P(A if M)
Got A Got
< A
Total
Male 30 45 75
Female
60 65 125
Total 90 110 200
Conditional Probability
P(A|B) = the conditional probability of event A
happening given that event B has happened
probability of A given B
) (
) (
) | (
B P
B A P
B A P

=
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Independent Mutually
events exclusive
events
Head Tail
KGP Student
had bicycle
stolen
It rained in
Mumbai on
July 15
Car accidents
Obama gets
elected
Fire in lab
Independence
Events A and B are Independent if and only
if
) ( ) | ( A P B A P =
Using the data in the two-way table, can
you say that getting an A grade is
independent of the students being male?
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Question:
Are grades and
gender
independent?
Got A Got
< A
Total
Male 30 45 75
Female
60 65 125
Total 90 110 200
Terminology
The sum of probabilities of all mutually
exclusive events in a process is 1. For
example, if there are n possible mutually
exclusive outcomes, then
P(i) = 1
i=1
n
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Simple probabilities
If A and B are mutually exclusive events,
then the probability of either A or B to occur
is the union
P(A B) = P(A) + P(B)
Simple probabilities
If A and B are independent events, then
the probability that both events A and B
occur is the intersection
P(A B) = P(A) P(B)
Example: The probability that a US president is bearded is ~14%,
the probability that a US president died in office is ~19%, thus the
probability that a president both had a beard and died in office is
~3%. If the two events are independent, 1.3 bearded out of 43
presidents are expected to fulfill the two conditions. In reality, 2
died. (A close enough result.)
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Conditional probabilities
What is the probability of event A to occur
given than event B did occur. The conditional
probability of A given B is
P(A | B) =
P(AB)
P(A)
Example: The probability that a US president dies in office if
he is bearded 0.03/0.14 = 22%. Thus, out of 6 bearded
presidents, 22% (or 1.3) are expected to die. In reality, 2 died.
(Again, a close enough result.)
Joint Probability
For events A and B, joint probability Pr(AB)
stands for the probability that both events
happen.
Example: A={HH}, B={HT, TH}, what is the joint
probability Pr(AB)?
Thinkcan any outcome lead to the occurrence of
A and also B? Can A and B occur together?
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Independence
Two events A and B are independent in case
Pr(AB) = Pr(A) Pr(B)
Independence does not mean that the events
A and B cannot occur together
A set of events {A
i
} is independent in case
Pr( ) Pr( )
i i
i i
A A =
[
The birth of a son or a
daughter are mutually
exclusive events.
Eventsbirth of a
daughter daughter and
the birth of a child with
AB+ blood type AB+ blood typeare are not
mutually exclusive (they
are independent
events).
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Independence
Two events A and B are independent in case
Pr(AB) = Pr(A)Pr(B)
A set of events {A
i
} is independent in case
Example: Drug test
Pr( ) Pr( )
i i
i i
A A =
[
Women Men
Success 200 1800
Failure 1800 200
A = {A patient is a Women}
B = {Drug fails}
Will event A be independent of
event B ?
Independence
Consider the experiment of tossing a coin twice
Example I:
A = {HT, HH}, B = {HT}
Will event A be independent from event B?
Example II:
C = {HT}, D = {TH}
Will event C be independent from event D?
Disjoint = Independence
If A is independent from B, B is independent from C, will A be
independent from C?
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If A and B are events with Pr(A) > 0, the
conditional probability of B given A is
Conditioning
Pr( )
Pr( | )
Pr( )
AB
B A
A
=
If A and B are events with Pr(A) > 0, the conditional
probability of B given A is
Example: Drug test
Conditioning
Pr( )
Pr( | )
Pr( )
AB
B A
A
=
Women Men
Success 200 1800
Failure 1800 200
A = {Patient is a Women}
B = {Drug fails}
Pr(B|A) = ?
Pr(A|B) = ?
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If A and B are events with Pr(A) > 0, the conditional
probability of B given A is
Example: Drug test
Given A is independent from B, what is the relationship
between Pr(A|B) and Pr(A)?
Conditioning
Pr( )
Pr( | )
Pr( )
AB
B A
A
=
Drugs
performance
Women Men
Success 200 1800
Failure 1800 200
A = {Patient is a Women}
B = {Drug fails}
Pr(B|A) = ?
Pr(A|B) = ?
Bayes Rule for
computing Conditional
Probabilities
Bayes Rule allows you to go from
P(A/B) to P(B/A)
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Cancer Test example
A medical test is used to check cancer.
This test has a known reliability:
P(Test +ive /person has cancer) = 0.92
P(Test +ive /person healthy) = 0.04
We know that cancer is rare and in the general
population P(cancer) = 0.001 = (0.1%)
If a person is randomly selected and his test is +ive,
what is the chance that he has cancer?
Data for the medical test
P(cancer) = P(c) = 0.001,
P(healthy) = 0.999
P(test +ive/ c) = 0.92,
P(test +ive / healthy) = 0.04
Question: Will you rely on this test to start a
treatment for cancer?
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Given two events A and B and suppose that Pr(A) > 0. Then
Bayes Rule for finding P(B/A)
) Pr(
) Pr( ) | Pr(
) Pr(
) Pr(
) | Pr(
A
B B A
A
AB
A B = =
Bayes Definitions:
Pr(B) = a priori
Pr(B|A) = a posteriori
Bayes Rule
Pr(W|R) R R
W 0.7 0.4
W 0.3 0.6
Events:
R: It rains
W: The grass is wet
R W
Information
Pr(W|R)
Inference
Pr(R|W)
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Bayes Rule
Pr( | ) Pr( )
Pr( | )
Pr( )
E H H
H E
E
=
Hypothesis H Evidence E
Information: Pr(E|H)
Inference: Pr(H|E)
Prior Likelihood Posterior
Note: Pr(H)
= Pr(H is true)
Solution to the medical test
P(cancer) = P(c) = 0.001, P(healthy) = 0.999
P(test +ive/ c) = 0.92, P(test +ive / healthy) = 0.04
P(+ive / c ) P(c)
P( c / test +ive) = ---------------------------------------------------------
P(+ive/ c) P(c) + P(+ive/healthy) P(healthy)
Verify that the answer is 0.0225
Managerial question:
Will you rely on this test to get a treatment?
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Bayes Rule: More
Complicated contd.
Suppose that B
1
, B
2
, B
k
form a partition of S:
Suppose that Pr(B
i
) > 0 and Pr(A) > 0. Then
;
i j i
i
B B B S = C =

1
1
Pr( | ) Pr( )
Pr( | )
Pr( )
Pr( | ) Pr( )
Pr( )
Pr( | ) Pr( )
Pr( ) Pr( | )
i i
i
i i
k
j
j
i i
k
j j
j
A B B
B A
A
A B B
AB
A B B
B A B
=
=
=
=
=

A More Complicated Example
R It rains
W The grass is wet due to rain
or sprinkler
U People bring umbrella
Pr(UW|R)=Pr(U|R)Pr(W|R)
Pr(UW| R)=Pr(U| R)Pr(W| R)
R
W U
Pr(W|R) R R
W 0.7 0.4
W 0.3 0.6
Pr(U|R) R R
U 0.9 0.2
U 0.1 0.8
Pr(U|W) = ?
Pr(R) = 0.8
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R It rains
W The grass is wet
R
W U
Pr(W|R) R R
W 0.7 0.4
W 0.3 0.6
Pr(U|R) R R
U 0.9 0.2
U 0.1 0.8
Q. What is the probability that people will bring umbrella
when they see that grass is wet = Pr(U|W) = ?
Pr(R) = 0.8
R It rains
W The grass is wet
R
W U
Pr(W|R) R R
W 0.7 0.4
W 0.3 0.6
Pr(U|R) R R
U 0.9 0.2
U 0.1 0.8
Pr(U|W) = ?
Pr(R) = 0.8
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Random variables and
probability distributions
Probability Distribution
The probability distribution
refers to the frequency with which
all different possible outcomes
occur. There are numerous types of
probability distributions.
Small
fish got
caught
first!
I n CA if
you f ish in
Fall, you
are more
likely t o
cat ch big
f ish
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Random Variable and
Distribution
A random variable X is a numerical outcome of a
random experiment
The distribution of a random variable is the
collection of possible outcomes along with their
probabilities:
Discrete case:
Continuous case:
Pr( ) ( ) X x p x
= =
Pr( ) ( )
b
a
a X b p x dx
s s =
}
Random Variable: Example
Let S be the set of all sequences of three rolls of a
die. Let X be the sum of the number of dots on the
three rolls.
What are the possible values for X?
Pr(X = 5) = ?, Pr(X = 10) = ?
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Expectation
A random variable X~Pr(X=x). Then, its expectation is
In an empirical sample, x1, x2,, xN,
Continuous case:
Expectation of sum of random variables
[ ] Pr( )
x
E X x X x = =
1
1
[ ]
N
i
i
E X x
N
=
=

[ ] ( ) E X xp x dx
=
}
1 2 1 2
[ ] [ ] [ ] E X X E X E X + = +
Expectation: Example
Let S be the set of all sequence of three rolls of a
die. Let X be the sum of the number of dots on the
three rolls.
What is E(X)?
Let S be the set of all sequence of three rolls of a
die. Let X be the product of the number of dots on
the three rolls.
What is E(X)?
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Variance
The variance of a random variable X is the
expectation of (X-E[x])
2
:
Range = Max(Xi) Min(Xi)
2
2 2
2 2
2 2
( ) (( [ ]) )
( [ ] 2 [ ])
( [ ] )
[ ] [ ]
Var X E X E X
E X E X XE X
E X E X
E X E X
=
= +
=
=
Finding probabilities by Counting
Events
Many times probabilities can be determined
by enumerating (listing all possible) events or
counting the ones of our interest.
Examples:
Tossing a perfect coin
Getting exactly 4 heads in 10 tosses
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Permutations
The number of possible permutations (sequences)
is the number of different orders in which
particular events occur. The number of possible
permutations are
where r is the number of events in the series, n is
the number of possible events, and n! denotes the
factorial of n = the product of all the positive
integers from 1 to n.
N
p
=
n!
(n r)!
Combinations
When the order or sequence in which the events
occurred is of no interest, we are dealing with
combinations. The number of possible
combinations is
where r is the number of events in the series, n is
the number of possible events, and n! denotes the
factorial of n = the product of all the positive
integers from 1 to n.
N
c
=
n
r
|
\

|
.
|
=
n!
r!(n r)!
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The uniform distribution
A random variable is said to be uniformly
distributed if the probability of all possible outcomes
are equal to one another. Thus, the probability P(i),
where i is one of n possible outcomes, is
P(i) =
1
n
12i n X X is discrete here
1/n
Bernoulli Distribution
The outcome of an experiment can either be success
(i.e., 1) and failure (i.e., 0).
Pr(X=1) = p, Pr(X=0) = 1-p, or
E[X] = p, Var(X) = p(1-p)
1
( ) (1 )
x x
p x p p

=
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The binomial distribution
The mean and variance of a binomially distributed
variable are given by
np =
npq Variance =
Example:
P(x) = Prob of finding x heads in n tosses of a coin
Application: Acceptance Sampling in Quality Control
d defectives in a sample of size n.
The binomial distribution
A process that has only two possible outcomes is called a
binomial process. In statistics, the two outcomes are
frequently denoted as success and failure. The
probabilities of a success or a failure are denoted by p and
q, respectively. Note that p + q = 1. The binomial
distribution gives the probability of exactly k successes in
n trials
P(k) =
n
k
|
\

|
.
|
p
k
1 p
( )
n k
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Binomial Distribution
n draws of a Bernoulli distribution
X
i
~Bernoulli(p), X=
i=1
n
X
i
, X~Bin(p, n)
Random variable X stands for the number of times
that experiments are successful.
E[X] = np, Var(X) = np(1-p)
(1 ) 1, 2,...,
Pr( ) ( )
0 otherwise
x n x
n
p p x n
X x p x x
| |
=
|
= = =

\ .

Plots of Binomial Distribution
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The Poisson distribution
Simon Denis Poisson
1781-1840
Simon Denis Poisson
1781-1840
The Poisson distribution
When the probability of success is very small, e.g., the
probability of a gene mutation, then p
k
and (1 p)
n k
become too small to calculate exactly by the binomial
distribution. In such cases, the Poisson distribution
becomes useful. Let l be the expected number of
successes in a process consisting of n trials, i.e., l = np.
The probability of observing k successes is
Mean and variance are given by m = l and V = l,
respectively.
P( k ) =

k
e

k!
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Examples of Poisson Distribution
Number of buses arriving at a bus stop/hour
Number of road accidents/week on NH6
Number of copying machine
breakdowns/month
Number of customers arriving/hour at BC Roy
Hospital
Applications: Service facilities design
(queuing theory, Communications networks),
sampling plan design (quality control)
Poisson Distribution
Coming from Binomial distribution
Fix the expectation =np
Let the number of trials n
A Binomial distribution will become a Poisson distribution
E[X] = , Var(X) =

>
= = =

otherwise 0
0
!
) ( ) Pr(
x e
x
x p x X
x
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Plots of Poisson Distribution
Normal (Gaussian) Distribution
X~N(,o)
E[X]= , Var(X)= o
2
If X
1
~N(
1
,o
1
) and X
2
~N(
2
,o
2
), X= X
1
+ X
2
?
2
2
2
2
2
2
1 ( )
( ) exp
2
2
1 ( )
Pr( ) ( ) exp
2
2
b b
a a
x
p x
x
a X b p x dx dx

=
`

)

s s = =
`

)
} }
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Other important Distributions
Normal distribution N(m, s
2
) Control charts in QC
Weibull distribution Reliability
Chi Square distribution Market research
F distribution Six Sigma
Beta distribution and the
Triangular distribution
Project Mgmt
Poisson distribution Traffic studies
Statistical Inference
Consider a coin. To determine if this is a fair
coin, you flip it 10 times, with 3 heads and 7
tails. Do you think this is fair coin?
In other words, is = P[head] = 0.5?
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Statistical Inference inferring
parameters from observed data
Problem:
Likelihood function
This is really a joint probability of {Y
i
} calculated using
Approach: Maximum likelihood estimation (MLE), or
maximize log-likelihood
Example: Flip Coins to find
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45
Example: Flip Coins (contd)
Likelihood = joint probability of the observed data / u
Maximize l
n
()
Recall Probability: Basic Ideas
Terminology:
Trial: each time you repeat an experiment
Outcome: result of an experiment
Random experiment: one with random
outcomes (cannot be predicted exactly)
Relative frequency: how many times a
specific outcome occurs within the entire
experiment.
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Statistics: Basic Ideas
Statistics is the area of science that deals with
collection, organization, analysis, and interpretation
of data.
It also deals with methods and techniques that can
be used to draw conclusions about the
characteristics of a large number of data points--
commonly called a population--
By using a smaller subset of the entire data.
For Example
You work in a cell phone factory and are asked to
remove cell phones at random off of the assembly
line and turn it on and off.
Each time you remove a cell phone and turn it on
and off, you are conducting a random experiment.
Each time you pick up a phone is a trial and the
result is called an outcome.
If you check 200 phones, and you find 5 bad
phones, then
relative frequency of failure = 5/200 = 0.025
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Statistics in Quality Control
As engineers perform experiments, they collect data that
can be used to explain relationships better and to reveal
information about the quality of products and services
they provide.
Frequency Distribution:
Scores for an Six Sigma class are as follows: 58, 95, 80, 75, 68, 97,
60, 85, 75, 88, 90, 78, 62, 83, 73, 70, 70, 85, 65, 75, 53, 62, 56,
72, 79
To better assess the success of the class, we make a frequency
chart:
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48
Now the information can be better analyzed.
For example, 3 students did poorly, and 3 did
exceptionally well. We know that 9 students were in
the average range of 70-79. We can also show this
data in a freq. histogram (PDF).
Divide each no. by 26
Cumulative Frequency
The data can be further organized by calculating the
cumulative frequency (CDF).
The cumulative frequency shows the cumulative number of
students with scores up to and including those in the given
range. Usually we normalize the data - divide 26.
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Measures of Central Tendency &
Variation
Systematic errors, also called fixed errors, are errors
associated with using an inaccurate instrument.
These errors can be detected and avoided by properly
calibrating instruments
Random errors are generated by a number of
unpredictable variations in a given measurement
situation.
Mechanical vibrations of instruments or variations in line
voltage friction or humidity could lead to random fluctuations
in observations.
When analyzing data, the mean alone cannot signal
possible mistakes. There are a number of ways to
define the dispersion or spread of data.
You can compute how much each number deviates
from the mean, add up all the deviations, and then
take their average as shown in the table below.
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As exemplified in Table 19.4, the sum of
deviations from the mean for any given sample
is always zero. This can be verified by
considering the following:
Where x
i
represents data points, x is the
average, n is the number of data points, and d,
represents the deviation from the average.
x =
1
n
x
i
i=1
n
d
i
= (x
i
x )
Therefore the average of the deviations from the mean
of the data set cannot be used to measure the
spread of a given data set.
Instead we calculate the average of the absolute
values of deviations. (This is shown in the third
column of table 19.4 in your textbook)
For group A the mean deviation is 290, and Group B is
820.
We can conclude that Group B is more scattered
than A.
d
i
i=1
n
= x
i
i=1
n
x
i=1
n
d
i
i=1
n
= nx nx = 0
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51
Variance
Another way of measuring the data is by
calculating the variance.
Instead of taking the absolute values of each
deviation, you can just square the deviation
and find the means.
(n-1) makes estimate unbiased
v =
i=1
n
(x
i
x )
2
n 1
Taking the square root of the variance
which results in the standard deviation.
The standard deviation can also provide
information about the relative spread of a
data set.
Range (Xmax Xmin) can also show
spread
s =
i=1
n
(x
i
x )
2
n 1
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The mean for a grouped distribution is
calculated from:
where
x = midpoints of a given range
f = frequency of occurrence of data in the
range
n = f = total number of data points
x =
(xf )
n
The standard deviation for a grouped distribution
is calculated from:
s =
(x x )
2
f
n 1
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53
Normal Distribution
We could use the probability distribution from the figures
below to predict what might happen in the future. (i.e. next
years students performance)
Normal Distribution
Any probability distribution with a bell-shaped
curve is called a normal distribution.
The detailed shape of a normal distribution
curve is determined by its mean and standard
deviation values.
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3/11/2012
55
THE NORMAL CURVE
Using Table 19.11, approx. 68% of the data will fall
in the interval of -s to s, one std deviation
~ 95% of the data falls between -2s to 2s, and
approx all of the data points lie between -3s to 3s
For a standard normal distribution, 68% of the data
fall in the interval of z = -1 to z = 1.
z
i
= (x
i
- x) / s
AREAS UNDER THE NORMAL CURVE
z = -2 and z = 2 (two standard deviations below and
above the mean) each represent 0.4772 of the total area
under the curve.
99.7% or almost all of the data points lie between -3s and
3s.
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Analysis of Two Histograms
Graph A is class distribution of numbers 1-10
Graph B is class distribution of semester credits
Data for A = 5.64 +/- 2.6 (much greater spread than B)
Data for B = 15.7 +/- 1.96 (smaller spread)
Skew of A = -0.16 and Skew B = 0.146
CV of A = 0.461 and CV of B = 0.125 (CV = SD/Mean)
Frequency A
0
1
2
3
4
5
6
7
2 3 4 5 6 7 8 9 10
Frequency B
0
1
2
3
4
5
6
7
8
9
12 13 14 15 16 17 18 19 20
References
1. Amir D Aczel and Jayavel Sounderpandian
(2009). Complete Business Statistics, 6
th
ed, Tata McGraw-Hill
2. Bharat Jhunjhunwala (2008). Business
StatisticsA Self Study Textbook, 1
st
ed, S
Chand

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