ProbabilityandProbability

Di t ib ti Distributions
Lecture 2 Lecture2
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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Probabilityy
Probabilityunderliesstatisticalinference thedrawingofconclusions
from a sample of data fromasampleofdata
Ifsamplesaredrawnatrandom,theircharacteristics(suchasthe
samplemean)dependuponchance
Hencetounderstandhowtointerpretsampleevidence,weneedto p p ,
understandchance,orprobability
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
DefinitionofProbability
TheprobabilityofaneventA maybedefinedindifferentways:
Thefrequentistview:theproportionoftrialsinwhichtheevent
occurs,calculatedasthenumberoftrialsapproachesinfinity , pp y
Thesubjectiveview:someonesdegreeofbeliefaboutthe
likelihoodofaneventoccurring
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
Probabilities
Witheachoutcomeinthesamplespacewecanassociatea
b bilit probability
Example:Tossacoin
Pr(Head)=1/2
Pr(Tail)=
Thisisanexampleofaprobabilitydistribution
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
RulesforProbabilities
0s Pr(A)s 1
,or100%,summedoveralloutcomes

=1 p
Pr(notA)=1 Pr(A)
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
ProbabilityDistribution
Weextendtheprobabilityanalysisbyconsideringrandomvariables
(usually the outcome of a probability experiment) (usuallytheoutcomeofaprobabilityexperiment)
These(usually)haveaknownprobabilitydistribution
Onceweworkouttherelevantdistribution,solvingtheproblemis
usually straightforward usuallystraightforward
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
RandomVariables
Moststatistics(e.g.thesamplemean)arerandomvariables
Manyrandomvariableshavewellknownprobabilitydistributions
associatedwiththem
Tounderstandrandomvariables,weneedtoknowaboutprobability
distributions
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
SomeStandardProbability Distributions
Binomial distribution Binomialdistribution
Normaldistribution
d th t di t ib ti andthetdistribution
Poissondistribution
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
WhendoTheyArise?
Binomial whentheunderlyingprobabilityexperimenthasonlytwo
possibleoutcomes(e.g.tossingacoin) p ( g g )
Normal whenmanysmallindependentfactorsinfluenceavariable
(e.g. IQ, influenced by genes, diet, etc.) (e.g.IQ,influencedbygenes,diet,etc.)
Poisson forrareevents,whentheprobabilityofoccurrenceislow
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
TheNormalDistribution
ExamplesofNormallydistributedvariables:
IQ IQ
Heights
thesamplemean
sometransformationsofvariables:e.g.naturallogarithmof
incomeisoftennormal
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
TheNormal Distribution(cont.)
TheNormaldistributionis
b ll h d bellshaped
Symmetric
Unimodal
andextendsfrom
x= to+
(intheory)
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
Parameters oftheDistribution
h f h l d b h d ThetwoparametersoftheNormaldistributionarethemean and
thevariance o
2
x ~ N( o
2
) x N(,o )
e.g.MensheightsareNormallydistributedwithmean174cmand
variance 92 16 variance92.16
x
M
~N(174,92.16)
e.g.WomensheightsareNormallydistributedwithameanof166
cmandvariance40.32
~ N(166 40 32) x
W
~N(166,40.32)
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
GraphofMensandWomensHeights
Men Men
Women
140 145 150 155 160 165 170 175 180 185 190 195 200
Height in centimetres
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
AreasUndertheDistribution
Whatistheproportionofwomenthataretallerthan175cm?
Need this area
140 145 150 155 160 165 170 175 180 185 190 195 200
Height in centimetres
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
AreasUnderthe Distribution(cont.)
Howmanystandarddeviationsis175above166?
Onestandarddeviationis\40.32=6.35,hence
42 . 1
166 175
=

= z
So 175 lies 1.42 standard deviations above the mean
35 . 6
So175lies1.42standarddeviationsabovethemean
HowmuchoftheNormaldistributionliesbeyond1.42s.dsabove
themean?Usetables...
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
TableA2TheStandardNormalDistribution
z 0.00 0.01 0.02 0.03 0.04 0.05
0 0 0 5000 0 4960 0 4920 0 4880 0 4840 0 4801 0.0 0.5000 0.4960 0.4920 0.4880 0.4840 0.4801

0.1 0.4602 0.4562 0.4522 0.4483 0.4443 0.4404



1.3 0.0968 0.0951 0.0934 0.0918 0.0901 0.0885

1.4 0.0808 0.0793 0.0778 0.0764 0.0749 0.0735

1.5 0.0668 0.0655 0.0643 0.0630 0.0618 0.0606



Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006

Answer
7.78%ofwomenaretallerthan175cm.
To find the area in the tail of the distribution: Tofindtheareainthetailofthedistribution:
1. Calculatethezscore,giventhenumberofstandarddeviations
b t th d th d i d h i ht betweenthemeanandthedesiredheight
2. Thenlookthezscoreupintablestogetaprobability
3. Userulesofsymmetrywhereappropriate
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
TheDistributionoftheSampleMean
IfsamplesofsizenarerandomlydrawnfromaNormallydistributed
population of mean and variance o
2
the sample mean is populationofmean andvarianceo ,thesamplemean is
distributedas
( ) n N x
2
, ~ o
E.g.ifsamplesof50womenarechosen,thesamplemean is
distributed
( ) ,
distributed
( ) 50 32 . 40 , 166 ~N x
notetheverysmallstandarderror:\(40.32/50)=0.897
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
TheDistributionsofx andofx
Notethedistinctionbetween
( )
2
, ~ o N x
and
( ) ,o N x
( ) n N x
2
, ~ o
Theformerreferstothedistributionofatypicalmemberofthe
population and the latter to the distribution of the sample mean
( ) ,
population,andthelattertothedistributionofthesamplemean
Weusuallyrefertothesquarerootofthevarianceofthesample
h d d f h l h h h meanasthestandarderror ofthesamplemean,ratherthanthe
standarddeviation
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
Example
Wh t i th b bilit f d i l f 50 h Whatistheprobabilityofdrawingasampleof50womenwhose
average heightis>168cm?
23 . 2
50 32 . 40
166 168
=

= z
z =2.23cutsoff1.29%intheuppertailofthestandardNormal
d b h l b b l f f d distribution,sothereisonlyaprobabilityof1.29%ofdrawinga
samplewithamean>168cm
Q.whatisprobabilityofdrawingasamplewithamean<168cm?
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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The Distribution of the Sample Proportion TheDistributionofthe SampleProportion
Thesampleproportionalsohasanormaldistribution
( )
|
|

|

N
t t 1 ( )
|
.
|

\
|
n
N p t, ~
wherepisthesampleproportion,t thepopulationproportion,and
thevarianceofthesampleproportionist(1 t)/n.
sincet isusuallyunknownweestimateitwithp
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
The CentralLimitTheorem
Ifthesamplesizeislarge(n >25)thepopulationdoesnothavetobe
Normallydistributed,thesamplemeanis(approximately)Normal
whatevertheshapeofthepopulationdistribution
The approximation gets better the larger the sample size 25 is a safe Theapproximationgetsbetter,thelargerthesamplesize.25isasafe
minimumtouse
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
Di ib i h S l S ll DistributionswhenSamplesareSmall:
Usingthet distribution g
When: When:
Thesamplesizeissmall(<25orso),and
The true variance
2
is unknown Thetruevariance,o
2
,isunknown
Thenthetdistributionshouldbeusedinsteadofthestandard
Normal.
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
b The tDistribution
Thetdistributionis
bellshaped
symmetric
big n
unimodal
extendsfrom
x = to +
small n
x= to+
(intheory)
morespreadoutthanNormal
dependsonn1(degreesoffreedom)
Barrow, Statistics for Economics, Accounting and Business Studies, 4
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edition Pearson Education Limited 2006
Summary
Moststatisticalproblemsconcernrandomvariables whichhavean
associatedprobabilitydistribution p y
CommondistributionsaretheBinomial,NormalandPoisson(there
manyothers)
Oncetheappropriatedistributionfortheproblemisrecognised,the
solutionisrelativelystraightforward
Barrow, Statistics for Economics, Accounting and Business Studies, 4
th
edition Pearson Education Limited 2006