Probabilities

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JosephFrank 101 Jun 17, 2005 at 12:25

My question is in two parts:

1- if I have a probability that an event would occur after one year, how can I compute this probability after 6 months and after 2 years?

2- Are the computations above going to change if I consider the probability of occurence discrete or continuous? if so how can I account for the fact that the event is discrete or continuous
Thx

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Reedbeta 168 Jun 17, 2005 at 16:35

What you’re looking at is a Poisson distribution. This assumes that the event occurs randomly but at a constant “average” rate.

http://en.wikipedia.org/wiki/Poisson_distribution

For this problem it is easier to calculate the probability that the event has NOT occurred after a certain time span t. This is given by
P_not_occurring(t) = e\^(-lambda * t)
where t would be measured in years for your problem, and lambda is a constant. Then,
P_occurring(t) = 1 - e\^(-lambda * t).
This measures the probability of the event occurring at least once within the time span t.

You can calculate the value of lambda if you have the probability of the event occurring after one year, by substituting 1 in for t:
P_occuring(1) = 1 - e\^(-lambda)
e\^(-lambda) = 1 - P_occuring(1)
lambda = -ln(1 - P_occuring(1))
where ln is the natural logarithm.

In this case the probability of occurrence is always continuous (assuming that the event truly is Poisson distributed). I’m not sure what you mean by saying that it might be discrete.

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justdan 101 Jun 27, 2005 at 21:16

You could just make a line graph and average the slope.