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Probability distributions can be viewed as a tool for dealing with uncertainty: you use distributions to perform specific calculations, and apply the results to make well-grounded business decisions. However, if you use a wrong tool, you will get wrong results. If you select and apply an inappropriate distribution (the one that doesn't fit to your data well), your subsequent calculations will be incorrect, and that will certainly result in wrong decisions. In many industries, the use of incorrect models can have serious consequences such as inability to complete tasks or projects in time leading to substantial time and money loss, wrong engineering design resulting in damage of expensive equipment etc. In some specific areas such as hydrology, using appropriate distributions can be even more critical. Distribution fitting allows you to develop valid models of random processes you deal with, protecting you from potential time and money loss which can arise due to invalid model selection, and enabling you to make better business decisions.
Calculate Probabilities
Calculating probabilities is the most common way of using distributions. Once you calculate the probability, you can use it to make informed decisions: for instance, if the probability of a good outcome is high enough, then the decision you are about to make is probably correct. Some of the typical answers you can get using probability distributions in various industries: investment: the probability of the stock price being less than $50 actuarial science: the probability of a claim size higher than $10,000 market research: the probability of a purchase between $500 and $750 customer support: the probability that a customer will be served in less than 5 minutes project management: the probability that the project will be completed in 6 months reliability engineering: the probability that the device will not fail during 5 years
Calculate Statistics
The most frequently used statistic is the distribution mean (the expected value) representing the average amount you can expect as the outcome if a large number of observations is considered. You can use the mean value to take a quick look at your data, however, you should not base your decisions on this statistic alone. The standard deviation indicates the spread of your data about the mean, and one of the most obvious applications of this statistic is in finance and investment where it is used to determine the volatility, as well as to quanitfy the risk associated with a given security, or a portfolio of securities. Another useful statistic is the mode value which indicates the most likely outcome. For instance, in project management, this statistic is quite frequently used to determine the most likely amount of time required for successful project completion.
Specific Applications
There are a large number of applications of probability distributions in specific industries, to name just a few: queueing systems: service time, waiting time calculation
transportation and logistics: MDBF (Mean Distance Between Failures) calculation survival analysis: survival probability, hazard rate estimation telecommunication: signal fading modeling reliability engineering: MTBF (Mean Time Between Failures), MTTF (Mean Time To Failure), failure probability, and failure rate estimation mining: concentration analysis hydrology: exceedance probability and return period calculation
Distribution Graphs
The distribution graphs enable you to: Visually assess the goodness of fit of a certain distribution Compare several fitted models Some of the graphs display both your input data (e.g. the histogram) and fitted distributions at the same time: Probability Density Function Graph Cumulative Distribution Function Graph The following graphs display the fitted distributions only: P-P Plot Q-Q Plot Probability Difference Graph Each graph has its own meaning and interpretation. Typically, distribution fitting software will display these graphs for one or several fitted distributions, depending on your choice. In manual fitting mode, the graphs update automatically while you modify the distribution parameters, making the process of fitting more interactive.
Typical Applications
Some of the typical applications of probability distributions include: Calculating probabilities Making estimates Calculating statistics The calculations can be done using the corresponding functions of the distribution you have selected, including the Cumulative Distribution Function (CDF), Inverse CDF, Hazard Function etc. Calculating probabilities is one of the most popular applications: in a typical data analysis, you would define a good (desired) outcome, and calculate the probability of that outcome. If the probability is high enough, then the decision that will result in the desired outcome is worth making. On the other hand, if the probability is too low, then you should make the opposite decision. For example, if you are analyzing the distribution of the customer service time, the outcomes might look like: Good outcome: A customer can be served in 5 minutes or less Bad outcome: It takes more than 5 minutes to serve a customer The corresponding decisions are: Decision A: Do not hire extra staff Decision B: Hire additional staff The probabilities can be easily calculated using the Cumulative Distribution Function (CDF) of the selected distribution, for instance, CDF(5) represents the probability of the good outcome. If this value is less than a certain fixed level (e.g. < 95%), you might consider hiring additional staff to reduce the service time and improve the customer experience. The probability of 90% would mean that 10% of your customers have to wait longer and might be unhappy with the customer service your company offers. Sometimes you might want to define more than two outcomes: The Outcome A: A customer can be served in under 5 minutes or less Outcome B: A customer can be served in 5 to 6 minutes Outcome C: It takes more than 6 minutes to serve a customer probabilities can be calculated in a similar way, and might look like:
Probability(Outcome A) = 90% Probability(Outcome B) = 7% Probability(Outcome C) = 3% In this case, your decision might be not to hire additional staff, because only 3% of your customers are served in more than 6 minutes. Making estimates is an inverse problem requiring you to specify a fixed probability value. For example, you would like to estimate how long it takes to serve 95% of the customers. To make the estimate, you can use the Inverse Cumulative Distribution Function (ICDF) of the distribution you have selected: ICDF(0.95)=5.5 minutes. The interpretation is that even though only 90% of the customers are served in under 5 minutes (see the example above), another 5% wait for 0.5 minutes (30 seconds) more, which is quite acceptable. Calculating statistics can be useful to take a quick look at your data (note that it is not correct to base your decisions on the statistics alone). The most useful statistics include: Mean (the average value) Mode (the most likely value)
For example, you might find out that a customer is most likely to be served in 2 minutes, but there are many customers which require more time, so the average service time is 3 minutes.
Specific Applications
Even though probability distributions can be applied in any industry dealing with random data, there are additional applications arising in specific industries (actuarial science, finance, reliability engineering, hydrology etc.), enabling business analysts, engineers and scientists to make informed decisions under uncertainty.
VER: http://www.mathwave.com/articles/distribution-fitting-types.html
http://www.mathwave.com/articles/distribution-fitting-goodness-of-fit.html
http://www.mathwave.com/articles/distribution-fitting-graphs.html
Parameters
- shape parameter ( - shape parameter ( - scale parameter ( - location parameter ( ) yields the three-parameter Burr distribution) ) )
Escolher a melhor. Comparar com a 2 e 3 melhor. Variar o parmetro de escolha da melhor: Kolmogorov Smirnov ou Anderson Darling ou ChiSquared