Lirenso: RES 341
(1)383 of 751 business graduates were employed in the past. The probabilitythat a particular graduate will be employed in his or her major area is383/751 = 0.51 or 51%.(2)The probability that your income tax return will be audited if there are twomillion mailed to your district office and 2,400 are to be audited is2,400/2,000,000 = 0.0012 or 0.12%.The third is a
. Subjective probability is a probabilityassigned to an event based on whatever evidence is available. It is an educatedguess.
Unlike empirical probability, it is not based on past experience. Subjectiveprobability is obtained by evaluating the available options and by assigning theprobability. Examples of events that require computing subjective probability:(1)Estimating the probability that a person wins a jackpot lottery.(2)Estimating the probability that the GM will lose its first ranking in car sales.
Events can be classified as
mutually exclusive, joint, independent, conditional
. Combining probabilities of events requires using the rules of addition and multiplication (see table below). A) Two events are
if by virtue of one event happening theother cannot happen. For example, A business can’t be bankrupt, break-evenand profitable at the same. It can only be one of the three. Similarly, being a maleor female are mutually exclusive and collectively exhaustive events. None one isboth and everyone is one or the other.
Example: The two most common primary causes of death in the US are heart attack and cancer.Heart attack is the cause for one-third (0.33) of the Americans who die each year and cancer isthe cause for one-fifth (0.20) of the deaths each year. If 2003 is like 2002, the probability that arandomly selected American will die of either a heart attack or cancer is the sum of these twoprobabilities.
0.33 + 0.20 = 0.53
Special Rule of Addition].
B) Events are
if two or more events happen at the same time. For example,driving autos is one event and talking on the cell phone is another event. Whenyou see someone talking on the cell phone while driving an automobile it is a joint event.
Example: If 90% of the Citibank customers have a saving account, 40% have a market rateaccount, and 60% have both, the probability that a randomly selected Citibank customer will haveeither saving or market rate account will be computed as:
0.90 + 0.40 – 0.60 = 0.70
General Rule of Addition].
C) Events are
if the occurrence of one event does not affect theoccurrence of another event.