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Lec 16

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Lecture 16: Introduction to Statistics by Dr.

Javed Iqbal
Random Variable
A random variable is a quantitative variable whose value depends on chance
experiment. In other words a random variable is function defined on the outcome of
a sample space.
e.g. in the experiment if tossing three coins, define the RV X: number of heads that
turn up. Possible values of X are 0, 1, 2, 3.

Discrete Random Variable


A discrete random variable is a random variable whose possible values can be listed.
In particular, a random variable with only a finite or (countably infinite) number of
possible values is a discrete random variable.

A discrete variable usually involves a count of something, such as the number of


siblings a person has, the number of cars owned by a family, or the number of
students in an introductory statistics class.

Continuous Random Variable is a variable whose possible values lie in an interval


of numbers. Typically, a continuous variable involves a measurement of something,
such as the height of a person, the weight of a newborn baby, or the length of time a
car battery lasts.

Probability Density Function (pdf)


A continuous random variable is characterized by a continuous function f(x), known
as probability density function . The pdf of a continuous random variable X has three
properties:

Properties of Probability Density Function f(x):


1) 𝑓(𝑥) ≥ 0
∞
2) Total area under the density function f(x) is 1 i.e. ∫−∞ 𝑓(𝑥) 𝑑𝑥 = 1
3) Let a and b be two possible values of random variable X, with a < b. Then,
the probability that X lies between a and b is the area under the probability
density function between these points.
𝑏
𝑃(𝑎 ≤ 𝑋 ≤ 𝑏) = ∫𝑎 𝑓(𝑥) 𝑑𝑥
Some of the continuous random variables arise frequently in real life situations.
These distributions are studied in detail. They are known as standard probability
distributions. One such distribution is Uniform Distribution.

Example: Let us assume that sufficient actual flight data are available to conclude
that the probability of a flight time within any specified (e.g.10-minute interval is
the same as the probability of a flight time within any other 10-minute interval
contained in the larger interval from 120 to 140 minutes. The probability distribution
is given by
1
𝑓(𝑥) = , 120 ≤ 𝑥 ≤ 140
20
This is plotted below:

So to find probability such as P(120 ≤ 𝑋 ≤ 130)


130 1 1 30−20
P(120 ≤ 𝑋 ≤ 130) =∫120 𝑑𝑥 = [𝑥]30
20 = = 0.5
20 20 20

Exponential Distribution is another example: One particular example of RV


(loading time at dock) is shown below that has exponential distribution.

Weiss Chapter 6: The Normal Distribution

A continuous random variable X is said to have a normal distribution if its pdf is


given by the formula:
1 1 𝑥−𝜇 2
− ( )
𝑓(𝑥) = 𝑒 2 𝜎 , −∞ < 𝑥 < ∞
√2𝜋 𝜎
Here 𝑒 = 2.71828. .. (the base of natural log) and 𝜋 = 3.14159 … are two famous
irrational constants.

The normal distribution is characterized by two parameters: the mean (μ) and the
standard deviation (σ).
Several features of normal distributions are listed below.

1. The pdf of Normal distribution is symmetric around its mean.


2. The mean, median, and mode of a normal distribution (and all other symmetric
distributions) are same hence any skewness measure e.g., Pearson Skewness
coefficient is zero.
3. The area under the normal curve is equal to 1.
4. Normal distributions are denser in the center and less dense in the tails. Thus
values near average are more common. Such a behaviors arise frequently in
real life e.g. height of men is such that many people’s height in community is
near the average. There are very few people who are very tall or very short.
5. 68% of the area of a normal distribution is within one standard deviation of
the mean, approximately 95% with two standard deviation of mean and nearly
all (99.7%) is within three standard deviation of the mean.
6. Points of inflection of the normal curve are 𝑥 = 𝜇 ± 𝜎. At these points the
normal curve changes its curvature.
7. Theoretically speaking the normal curve touches the x axis at the infinity thus
is asymptotic with the x-axis
Real life examples: Height of men, other natural features of men or women e.g.
arm length, foot size etc. Other such natural measurement e.g. length of leaves
approximately have a normal shape of their distributions. In finance text books,
distributions of returns (especially for annual or monthly frequency) is assumed
normal but its validity as a return distribution is debated especially for high
frequency data.

Standard Normal Distribution. The distribution of the standardized variable


𝑋−𝜇
𝑍=
𝜎
is said to be the Standard Normal distribution. Its mean is zero and standard
deviation is 1. (See Weiss p -291).

Finding Probabilities for the normally distributed random variables.


Probabilities or areas under the standard normal curve have been computed using
numerical integration. The tables of cumulative probabilities are available in
statistical text books.

Introduction to the table’s feature (less than type i.e. from –infinity to z table).
Using this table to find various probabilities.

Note that there are different types of normal tables e.g. less than type, b/w zero
and + z type etc.

The simplest to work with, that we will use, is less than cumulative probability
table i.e. –infinity to z table.

This table gives probability of a standard normal RV, Z falling below a given z
value. Using this table all probabilities can be classified as of any of the following
three types.

(1) Less than type: 𝑃(𝑍 ≤ 𝑧) available by default in left cumulative normal table
(2) More than type: 𝑃(𝑍 ≥ 𝑧) = 1 − 𝑃(𝑍 < 𝑧)
(3) Between type∶ 𝑃( 𝑧1 ≤ 𝑍 ≤ 𝑧2 ) = 𝑃(𝑍 ≤ 𝑧2 ) − 𝑃(𝑍 ≤ 𝑧1 )

Note that for normal or any other continuous RV, these four probabilities are
same:
𝑃( 𝑧1 ≤ 𝑍 ≤ 𝑧2 ) = 𝑃( 𝑧1 ≤ 𝑍 < 𝑧2 ) = 𝑃( 𝑧1 < 𝑍 ≤ 𝑧2 ) = 𝑃( 𝑧1 < 𝑍 < 𝑧2 )

Also, probability at a single point in continuous distribution is zero i.e.


𝑃(𝑋 = 𝑐) = 0.
Ex: Let Z ~ N(0,1). Find these probabilities.

(1) 𝑃(𝑍 ≤ 1.23) = 0.8907 (𝑑𝑖𝑟𝑒𝑐𝑡𝑙𝑦 𝑓𝑟𝑜𝑚 𝑡𝑎𝑏𝑙𝑒)

(2) 𝑃(𝑍 ≥ 1.97) = 1 − 𝑃(𝑍 < 1.97) = 1 − 0.9756 = 0.0244

(3) 𝑃(1.33 ≤ 𝑍 ≤ 2.97) = 𝑃(𝑍 ≤ 2.97) − 𝑃(𝑍 ≤ 1.33)


= 0.9985 − 0.9082 = 0.0903

(4) 𝑃(𝑍 < −1.63)

(5) 𝑃(𝑍 > −1.69) (6) 𝑃(−1.97 ≤ 𝑍 ≤ −1.23),

(7) 𝑃(−1.23 < 𝑍 < 1.45), (8) 𝑃(𝑍 < 0),

𝑷𝒓𝒐𝒃𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 𝒐𝒇 𝒖𝒏𝒔𝒖𝒂𝒍 𝒁 𝒗𝒂𝒍𝒖𝒆𝒔

(9) 𝑃(𝑍 > 4.52) (10) 𝑃(𝑍 < −3.98) (11) 𝑃(𝑍 > −5.69)

(12) 𝑃(𝑍 < 4.62) (13) 𝑃(−4.23 < 𝑍 < 5.19)


Reverse Use of Normal Table i.e. given a probability, finding Z value
(1) 𝑃(𝑍 < 𝐴) = 0.3336, find 𝐴 (2) 𝑃(𝑍 > 𝐵) = 0.0594, find 𝐵
(3) 𝑃(−𝐴 < 𝑍 < 𝐴) = 0.8812, find A

Sol (3): 𝑃(−𝐴 < 𝑍 < 𝐴) = 0.8812


=> 𝑃(−𝐴 < 𝑍 < 0) = 0.4406
=> 𝑃(𝑍 < 0) − 𝑃(𝑍 < −𝐴) = 0.4406
=> 𝑃(𝑍 < −𝐴) = 𝑃(𝑍 < 0)− 0.4406 = 0.5 − 0.4406 = 0.0594
= > −𝐴 = −1.56 (𝑢𝑠𝑖𝑛𝑔 𝑟𝑒𝑣𝑒𝑟𝑠𝑒 𝑢𝑠𝑒 𝑜𝑓 𝑛𝑜𝑟𝑚𝑎𝑙 𝑡𝑎𝑏𝑙𝑒) => 𝐴 = 1.56
So far we have learnt to use normal table to find probabilities on standard normal
distribution RV i.e. Z
Working with normally distributed random variables X (real life random variable
problems).
Weiss p-303 Example 6.11, Example 6.13, exercise p-309. Ex Q: 6.90, 6.87, 6.93,
6.94, and 6.99

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