POISSON DISTRIBUTION

Applied Statistics and Computing Lab Indian School of Business

Applied Statistics and Computing Lab

Learning goals
To understand the idea behind Poisson distribution To study situations where Poisson distribution can help evaluate probabilities of events

Applied Statistics and Computing Lab

Example
Every day, about 7 million commuters travel on the suburban local trains in Mumbai. On an average, 10 persons die in local train related accidents, every day! Then what is the probability that I will die travelling in the train tomorrow?

Applied Statistics and Computing Lab

Example (contd.)
We can use Binomial distribution to evaluate this probability
Success = death of a person while travelling on the suburban local train, on a given day = = = 7

Would our computer be able to solve this equation?

Prob X = 1 = 7,000,000 10 7,000,000 10 ,, ( ) ( ) 10 7,000,000 7,000,000
4

Applied Statistics and Computing Lab

Framework for Poisson distribution

This is where Poisson distribution comes to rescue! When is very large, is very small (7 million and respectively, in our example) and is finite, the PMF of a variable following Poisson distribution with parameter = is given by = = ! where = 0,1,2,3, and > 0 Here, is the value of average occurrences
Applied Statistics and Computing Lab
5

More examples
There are many other situations in which we observe that the total number of trials is very large and the probability of success is very small. Here are some examples:
Probability of finding 1 out of 10 items to be defective, when produced on a machine that produces 0.1% defective items Probability of one of the policy holders of a life insurance plan dying during the next one year Probability of the tubelight in your room going off, when it generally works about 18 months
Applied Statistics and Computing Lab
6

Properties of Poisson distribution

For ~ , = = = It is an important property of Poisson distribution that its mean and variance is equal to each other In case of a Binomial distribution where is very large and is very small, Poisson distribution helps us approximate the probabilities
Applied Statistics and Computing Lab
7

Thank you

Applied Statistics and Computing Lab