500 400 300 200 100 4800 5300 5800 6300 6800 7300 7800 SIG # of Transactions
Addition Rule of Probability
It simply refers to the likelihood of an event taking place whenever the occurrence of an event is uncertain. The probability of a single event can be calculated by dividing the number of successful trials of that event by the total number of trials.
Expected Value
When a large number of trials are performed for any random variable ‘X’, the predicted result is most likely the mean of all the outcomes for the random variable and it is known as expected value also known as expectation. The expected value, also known as the expectation, is denoted by: E(X).
Probability Distributions
Understanding probability is necessary to know the probability distributions. In statistics, probability is how the uncertainty of an event is measured. This event can be anything. The most common examples include tossing a coin, rolling a die, or choosing a card. Each of these events has multiple possibilities. Every such possibility is measured with the help of probability. To be more precise, the probability is used for calculating the occurrence of events that may or may not happen. Probability does not give sure results. Unless the probability of any event is 1, the different outcomes may or may not happen in real life, regardless of how less or how more their probability is.
Basic Probability
The simple definition of probability it is a chance of the occurrence of an event. It is defined in numerical form and the probability value is between 0 to 1. The probability value 0 indicates that there is no chance of that event occurring and the probability value 1 indicates that the event will occur. Sum of the probability value must be 1. The probability value is never a negative number. If it happens, then recheck the calculation.
the incidence of fraudulent card use. The bank suspects
that the type of product bought may provide clues to the
fraud. To examine this situation, the bank looks at the
Standard Industrial Code (SIC) of the business related to
the transaction. This is a code that was used by the U.S.
Census Bureau and Statistics Canada to identify the type
of every registered business in North America.2
ample, 1011 designates Meat and Meat Products (except
1031 is Canned and Preserved Fruits and Vegetables, and
1032 is Frozen Fruits and Vegetables.
A company intern produces the following histogram
of the SIC codes for 1536 transactions:
dard deviation of 488.17.
mean and standard deviation as summary statistics.
b) How well do you think the Normal model will work
on these data? Explain.
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