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Chapter 8: Discrete Probability Distributions
A larger standard deviation for
Y
would suggest that there is greater
variability in profits for portfolio B and hence an inherent larger risk for
your investment, and vise versa. You would need to consider these issues
and weigh the risks against the gains in order to make an informed decision
as to the portfolio in which you should invest.
Section Review
8-6 Bernoulli Trials and the Binomial Probability Distribution
When a coin is tossed once, the outcome can be classified in one of two
possible mutually exclusive ways: a head (
H
) or a tail (
T
). Similarly, in
selecting an item from a manufacturing process, we can have a defective (
D
)
item or a non-defective (
N
) item. Such experiments in which the number of
trials is one and there are two possible outcomes on the single trial are called
Bernoulli experiments.
In the case of tossing a coin once, we may be
interested in the outcome of a head. In such a case, we will classify a head
as a successful outcome. In the case of selecting the item, a success may be
the selection of a defective item.
Definition: Bernoulli Experiment
A Bernoulli experiment is a random experiment with a single trial, the
outcome of which can be classified as one of two simple events.
Of course, we can repeat a Bernoulli experiment several times. When we do
this under certain conditions, we say we have a
sequence of Bernoulli
trials.
e-Self Review