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Mean Variance and SD of A Discrete Random Variable

The document discusses the mean and variance of a discrete random variable. The mean is the weighted average of all possible values a random variable can take, with each value weighted by its probability of occurring. The variance measures how spread out the possible values are, and is calculated by taking the weighted average of the squared deviations from the mean. For a new restaurant, the expected value (mean profit) is calculated by multiplying each possible profit by its probability and summing, and the standard deviation measures how spread out the profits could be.

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purajian041007
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16 views12 pages

Mean Variance and SD of A Discrete Random Variable

The document discusses the mean and variance of a discrete random variable. The mean is the weighted average of all possible values a random variable can take, with each value weighted by its probability of occurring. The variance measures how spread out the possible values are, and is calculated by taking the weighted average of the squared deviations from the mean. For a new restaurant, the expected value (mean profit) is calculated by multiplying each possible profit by its probability and summing, and the standard deviation measures how spread out the profits could be.

Uploaded by

purajian041007
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MEAN AND VARIANCE

OF A DISCRETE
RANDOM VARIABLE
Tossing a single unfair die.
Imagine a weighted die so we have these
probabilities:
Mean or Expected Value: μ
The mean of a discrete random variable X is a weighted average of the possible values that the random
variable can take. Unlike the sample mean of a group of observations, which gives each observation equal
weight, the mean of a random variable weights each outcome xi according to its probability, pi. The
common symbol for the mean (also known as the expected value of X) is , formally defined by

When we know the probability p of every value x we can calculate the Expected Value (Mean) of X:

To calculate the Expected Value:


• multiply each value by its probability
• sum them up
Variance: Var(X)

The variance of a discrete random


variable X measures the spread, or
variability, of the distribution.
To calculate the Variance:
• square each value and multiply by its probability
• sum them up and we get Σx2p
• then subtract the square of the Expected Value μ2
INTERPRETATION OF
MEAN AND VARIANCE
OF A DISCRETE
RANDOM VARIABLE
If values of X near its mean μX are very likely and values further away
from μX have VERY SMALL PROBABILITY, then the distribution of X
will be closely concentrated around μX. In this case, the spread of the
distribution of X is small. On the other hand, if values of X some distance
from its mean μX are likely, the spread of the distribution of X will be
large.
•a small standard deviation (or variance) means that the distribution of the random
variable is narrowly concentrated around the mean
•a large standard deviation (or variance) means that the distribution is spread out,
with some chance of observing values at some distance from the mean.
You plan to open a new McDo Fried Chicken, and found these stats for
similar restaurants: Using that as probabilities for your new restaurant's profit, what is
the Expected Value and Standard Deviation?

Percent Year's Earnings

20% P50,000 Loss

30% P0

40% P50,000 Profit

10% P150,000 Profit


You plan to open a new McDo Fried Chicken, and found these stats for
similar restaurants: Using that as probabilities for your new restaurant's profit, what is
the Expected Value and Standard Deviation?

Percent Year's Earnings

20% P50,000 Loss

30% P0

40% P50,000 Profit

10% P150,000 Profit

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