Introduc)on
to
Probability
Module
2-1
Learning
Objec)ves
Roles
of
probability
in
decision
making
Develop
probability
as
a
measure
of
uncertainty
oAssign
probabili)es
Basic
rules
of
probabili)es
What
is
probability?
Probability
provides
a
numerical
measure
of
the
likelihood
of
an
event
occurring
Increasing
likelihood
0
0%
0.5
50%
1
100%
Lies
between
0
and
1
(inclusive)
In
an
experiment,
the
sum
of
the
probabili)es
for
all
possible
outcomes
is
1.
2
Why/when
do
we
use
probability?
A
measure
of
likelihood/uncertainty
that
can
be
used
to
improve
decisions
Examples
of
decisions
oChoose
inventory
levels
for
a
product
that
has
random
demand
oDetermine
how
much
to
charge
for
dierent
types
of
insurance
policies
oPerform
a
cost-benet
analysis
of
dierent
alterna)ves
3
Probability
Deni)ons:
What
is
an
experiment,
a
sample
point,
and
sample
space?
Experiment
Possible
outcomes
(sample
points)
Toss
a
coin
Inspec)on
a
part
Conduct
a
sales
call
Roll
a
die
Play
a
football
game
Head,
tail
Defec)ve,
non-defec)ve
Purchase,
no
purchase
1,
2,
3,
4,
5,
6
Win,
lose,
)e
Sample Space: the collection of all possible outcomes
Probability
Deni)ons
(Con)nued):
What
is
an
Event?
An
event
is
a
collec)on
of
sample
points,
i.e.,
a
subset
of
the
sample
space.
Example:
o Experiment:
Roll
a
fair
6-sided
die
o Sample
space:
S
=
{
1,
2,
3,
4,
5,
6}
o Let
Event
A
=
Ge`ng
an
even
number
when
rolling
a
die
o A
=
{2,
4,
6}
o P(A)
=
3/6
=
0.5
Note:
The
probability
of
any
event
is
equal
to
Probability
of
event
A
the
sum
of
the
probabili)es
of
the
sample
points
in
the
event.
Assigning
Probabili)es:
How?
Probability
rules
for
sample
points
1)
individual
probabili)es
must
lie
between
0
and
1
(inclusive)
2)
the
sum
of
probabili)es
of
all
sample
points
in
a
sample
space
must
equal
1
1. Classical
Method
o Assigning
probabili)es
based
on
the
assump)on
of
equally
likely
outcomes
2. Rela)ve
Frequency
Method
o Assigning
probabili)es
based
on
historical
data
3. Subjec)ve
Method
o Assigning
probabili)es
based
on
judgment
Classical
Method
If
an
experiment
has
n
possible
outcomes,
the
classical
method
would
assign
a
probability
of
1/n
to
each
outcome.
o Experiment:
rolling
a
die
o Sample
Space:
S
=
{1,
2,
3,
4,
5,
6}
o Probabili)es:
Each
sample
point
has
a
1/6
chance
of
occurring
Rela)ve
Frequency
Method
Rela)ve
frequency
of
an
event
=
#
of
sample
points
in
the
event
Total
#
of
sample
points
in
the
historical
data
Lucas
Tool
Rental
would
like
to
assign
probabili)es
to
the
number
of
car
polishers
it
rents
each
day.
Oce
records
show
the
following
frequencies
of
daily
rentals
for
the
last
40
days.
Number
of
polishers
Rented
Number
of
days
Probability
5/40
=
0.125
15
15/40
=
0.375
20
20/40
=
0.5
40
Total
Subjec)ve
Method
Express
our
degree
of
belief
that
the
experimental
outcome
will
occur
Tim
and
Judy
just
made
an
oer
to
purchase
a
house.
Two
outcomes
are
possible:
E1
=
their
oer
is
accepted
E2
=
their
oer
is
rejected
Judy
believes
the
probability
their
oer
will
be
accepted
is
0.8
Judy
would
set
P(E1)
=
0.8
and
P(E2)
=
0.2.
Tim,
however,
believes
the
probability
that
their
oer
will
be
accepted
is
0.6
Tim
would
set
P(E1)
=
0.6
and
P(E2)
=
0.4.
What
if?
Can
you
u)lize
the
deni)ons/concepts
for
probability,
experiment,
outcome,
and
event?
10
Example
Experiment:
Toss
a
fair
coin
twice
and
note
faces.
What
is
the
sample
space
for
this
experiment?
What
is
the
probability
of
ge`ng
two
tails?
11
Example
In
an
opaque
bag,
there
are
5
green
M&Ms,
2
red
M&Ms,
and
3
blue
M&Ms.
If
you
randomly
pick
1
M&M
from
the
bag,
what
is
the
probability
that
a) you
get
a
green
M&M?
b) you
get
a
blue
M&M?
c) you
get
a
red
M&M?
12
Example
The
table
below
provides
probabili)es
for
the
number
of
calls
received
by
the
Marke)ng
main
oce
during
lunch
)me
(12:00
1:00
PM)
on
a
given
workday.
The
oce
receives
at
most
4
calls
during
lunch
)me
per
day.
#
of
calls
0.4
0.2
Probability
0.1
1. P(3
calls)
=
?
2. P(At
least
1
call
during
lunch
)me)
=
?
4
0.1
13
Take
Aways
1) Probability
is
always
between
0
and
1,
inclusive.
2) The
Sum
of
the
probabili)es
of
all
sample
points
in
an
experiment
is
1.
3) Can
you
explain
how
to
assign
probabili)es?
4) What
do
the
following
terms
mean?
Experiment,
outcome
(sample
point),
sample
space,
event
14
