Business Mathematics and Statistics · Ch 7 — Probability Distributions
Choosing the Right Distribution for a Business Problem
7
Choosing the Right Distribution for a Business Problem
With three theoretical distributions now available, the practical skill this chapter builds toward is recognising, from the wording of a business problem, which one applies. A simple decision guide:
| Question to ask | If the answer points here… | Use |
|---|---|---|
| Is the variable discrete (whole-number counts) with a fixed, known number of trials, and a not-too-small probability of success on each trial? | Fixed sample size, e.g. 10 items inspected, probability of defect 0.1 | Binomial |
| Is the variable a discrete count of rare events over a continuous interval (time/area/volume), with only an average rate known, and no natural 'number of trials'? | Accidents per day, complaints per hour, defects in a very large batch | Poisson |
| Is the variable continuous, symmetric around a central value, and influenced by many small independent factors? | Daily sales, heights, marks, measurement errors | Normal |