Statistics for Business and

Economics
Session 4
RANDOM SAMPLE

Data display, exploration &

Variable relationship description

Andrianantenaina Hajanirina, B.A., B.Sc., M.M.

 Learning Objectives
1. What is a probability?
2. Contingency tables and tree diagrams
3. What is probability distribution?
4. The mean, variance, and standard deviation a
probability distribution
5. Binomial distribution
6. Besides, it also helps us to:
7. Define Experiment, Outcome, Sample Point, Sample
Space, Event, & Probability
8. Use a Venn Diagram, Two–Way Table, or Tree Diagram to
Find Probabilities
9. Describe & Use Probability Rules
Statistics for Business and
Economics

Probability
 Probability
• We now turn to the second facet of statistics, namely inferential
statistics, and computing the:
 Probability= chance, possibility, likelihood that something will occur
in the future.
 A Probability is a number that describes the chance that something
will happen.
• This facet of statistics is called statistical inference or inferential
statistics.
 A Probability is the value between zero and one, inclusive, describing
the relative possibility (chance or likelihood) an event will occur.
 Classical Probability: it is based on the assumption that the outcomes
of an experiment are equally likely.

 P=sum of outcomes=1,
 The outcome varies between 0 and 1
 Probability (cont’)
• Statistical inference deals with conclusions about a population
based on a sample taken from that population.
• Because there is uncertainty in decision making, it is
important that all the known risks involved be scientifically
evaluated. Helpful in this evaluation is probability theory, which
has often been referred to as the science of uncertainty.
• The use of probability theory allows the decision maker with
only limited information to analyze the risks and minimize the
gamble inherent, for example, in marketing a new product.
• Represented by figures in % (20%, 3%, 90%...), ratio (1/2, ¾,)
 Thinking Challenge
• What’s the probability
of getting a head on Head-H
the toss of a single fair
coin? Use a scale from
0 (no way) to 1 (sure
thing).
• So toss a coin twice.
Do it! Did you get one
head & one tail? Tail-T
What’s it all mean?
 Many Repetitions!*
Total Heads
Number of Tosses
1.00

0.75

0.50

0.25

0.00
0 25 50 75 100 125
Number of Tosses
Events, Sample Spaces,
and Probability
 Experiments & Sample Spaces
1. Experiment
• Process of obtaining an observation, outcome or
simple event
2. Sample point
Sample Space
• Most basic outcome of an
Depends on
experiment Experimenter!
3. Sample space (S)
• Collection of all possible outcomes
 Definition
• Event is a collection of one or more
outcomes of an experiment.
• Sample is the representative elements of
the population.
• Experiment is a process that leads to the
occurrence of one and only one of several
possible observations.
• Outcome is a particular result of an
experiment.
Illustration of the terms
 Sample Space Properties
1. Mutually Exclusive
Experiment: Observe Gender
• 2 outcomes can not
occur at the same
time
— Male & Female in
same person
2. Collectively Exhaustive
• One outcome in
sample space must
occur.
— Male or Female
© 1984-1994 T/Maker Co.
 Visualizing
Sample Space
1. Listing
 S = {Head, Tail}

2. Venn Diagram

T
H
S
 Sample Space Examples
Experiment Sample Space
• Toss a Coin, Note Face {Head, Tail}
• Toss 2 Coins, Note Faces {HH, HT, TH, TT}
• Select 1 Card, Note Kind {2♥, 2♠, ..., A♦} (52)
• Select 1 Card, Note Color {Red, Black}
• Play a Football Game {Win, Lose, Tie}
• Inspect a Part, Note Quality {Defective, Good}
• Observe Gender {Male, Female}
 Events
1. Any collection of sample points
2. Simple Event
• Outcome with one characteristic
3. Compound Event
• Collection of outcomes or simple events
• Two or more characteristics
• Joint event is a special case
— Two events occurring simultaneously
 Venn Diagram
Experiment: Toss 2 Coins. Note Faces.
Sample Space S = {HH, HT, TH, TT}
Compound
Event: At
least one
TH Tail
Outcome HH HT
TT
S
 Event Examples
Experiment: Toss 2 Coins. Note Faces.
Sample Space: HH, HT, TH, TT
Event Outcomes in Event
• 1 Head & 1 Tail HT, TH
• Head on 1st Coin HH, HT
• At Least 1 Head HH, HT, TH
• Heads on Both HH
Probabilities
 What is Probability?
1. Numerical measure of the
likelihood that event will 1 Certain
cccur
• P(Event)
• P(A)
.5
• Prob(A)
2. Lies between 0 & 1
3. Sum of sample points is 1
0 Impossible
 Probability
P(Event) = X / T
• X = Number of event outcomes
• T = Total number of sample points
in Sample Space
• Each of T sample points is equally
likely © 1984-1994 T/Maker Co.

— P(sample point) = 1/T

Summary of Approaches to
Probability
Compound Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

Unions & Intersections
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Unions & Intersections
1. Union
• Outcomes in either events A or B or Both
• ‘OR’ statement
•  symbol (i.e., A  B)
2. Intersection
• Outcomes in both events A and B
• ‘AND’ statement
•  symbol (i.e., A  B)
 Event Union:
Venn Diagram
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Event
Ace Black Black:
Sample
Space: 2B,
2R, 2R, 2B,...,
2B, ..., AB AB
S
Event Ace: Event Ace  Black:
AR, AR, AB, AB AR, ..., AB, 2B, ..., KB
 Event Union:
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color Simple
Sample Space Type Red Total
Black Event
(S): Ace:
Ace Ace & Ace & Ace
2R, 2R, AR,
2B, ..., AB
Red Black
AR,
Non-Ace Non & Non & Non-
AB,
Red Black Ace AB
Event Total Red Black S
Ace  Black:
Simple Event Black:
AR,..., AB, 2B, ..., KB
2B, ..., AB
 Event Intersection:
Venn Diagram
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Event
Ace Black Black:
Sample
Space: 2B, ...,
2R, 2R, AB
2B, ..., AB
S
Event Ace: Event Ace  Black:
AR, AR, AB, AB AB, AB
 Event Intersection:
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color Simple
Sample Space Type Red Total
Black Event
(S): Ace:
Ace Ace & Ace & Ace
2R, 2R, AR,
2B, ..., AB
Red Black
AR,
Non-Ace Non & Non & Non-
AB,
Red Black Ace AB
Event Total Red Black S
Ace  Black:
Simple Event Black: 2B, ..., AB
AB, AB
 Compound Event Probability
1. Numerical measure of likelihood that
compound event will occur
2. Can often use two–way table
• Two variables only

3. Formula methods
• Additive rule
• Conditional probability formula
• Multiplicative rule
 Event Probability Using
Two–Way Table

Event
Event B1 B2 Total
A1 P(A 1  B1) P(A1  B2) P(A1)
A2 P(A 2  B1) P(A2  B2) P(A2)
Total P(B 1) P(B 2) 1

Joint Probability Marginal (Simple) Probability

 Two–Way Table Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2/52 2/52 4/52
Non-Ace 24/52 24/52 48/52 P(Ace)

Total 26/52 26/52 52/52

P(Red) P(Ace  Red)

 Thinking Challenge
What’s the Probability?
1. P(A) =
2. P(D) = Event
Event C D Total
3. P(C  B) = A 4 2 6
4. P(A  D) = B 1 3 4
5. P(B  D) = Total 5 5 10
 Solution*
The Probabilities Are:
1. P(A) = 6/10
2. P(D) = 5/10 Event
Event C D Total
3. P(C  B) = 1/10 A 4 2 6
4. P(A  D) = 9/10 B 1 3 4
5. P(B  D) = 3/10 Total 5 5 10
Complementary Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Complementary Events
Complement of Event A
• The event that A does not occur
• All events not in A: AC
• P(A) + P(AC) = 1

AC
A

S
 Complement of Event
Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Black
Sample
Space:
2R, 2R,
2B, ..., AB
S
Event Black: Complement of Event Black,
2B, 2B, ..., AB BlackC: 2R, 2R, ..., AR, AR
Additive Rule & Mutually
Exclusive Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Mutually Exclusive Events
Mutually Exclusive Events
• Events do not occur
simultaneously

• A  B does not contain
any sample points
 Mutually Exclusive
Events Example
Experiment: Draw 1 Card. Note Kind & Suit.

Sample
 Outcomes
in Event
Space: Heart:


2, 2, 2, 3, 4
2, ..., A , ..., A
S
Event Spade:
2, 3, 4, ..., A Events  and are Mutually Exclusive
 Additive Rule
1. Used to get compound probabilities for
union of events
2. P(A OR B) = P(A  B)
= P(A) + P(B) – P(A  B)
3. For mutually exclusive events:
P(A OR B) = P(A  B) = P(A) + P(B)
 Additive Rule Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52

P(Ace  Black) = P(Ace) + P(Black) – P(Ace  Black)

4 26 2 28
= + – =
52 52 52 52
 Thinking Challenge
Using the additive rule, what is the probability?

1. P(A  D) = Event
Event C D Total
2. P(B  C) = A 4 2 6
B 1 3 4
Total 5 5 10
 Solution*
Using the additive rule, the probabilities are:

1. P(A  D) = P(A) + P(D) – P(A  D)

6 5 2 9
= + – =
10 10 10 10

2. P(B  C) = P(B) + P(C) – P(B  C)

4 5 1 8
= + – =
10 10 10 10
Conditional Probability
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Conditional Probability
1. Event probability given that another event
occurred
2. Revise original sample space to account for
new information
• Eliminates certain outcomes

3. P(A | B) = P(A and B) = P(A  B)

P(B) P(B)
Conditional Probability Using
Venn Diagram
Black ‘Happens’:
Eliminates All
Ace Black Other Outcomes

Black
S (S)

Event (Ace  Black)

 Conditional Probability Using
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total Revised
Sample
Ace 2 2 4 Space
Non-Ace 24 24 48
Total 26 26 52
P(Ace  Black) 2 / 52 2
P(Ace | Black) =  
P(Black) 26 / 52 26
 Statistical Independence
1. Event occurrence does not
affect probability of another
event
• Toss 1 coin twice
2. Causality not implied
3. Tests for independence
• P(A | B) = P(A)
• P(A  B) = P(A)*P(B)
 Thinking Challenge
Using the table then the formula, what’s the
probability?

1. P(A|D) = Event
Event C D Total
2. P(C|B) =
A 4 2 6
3. Are C & B B 1 3 4
Independent? Total 5 5 10
 Solution*
Using the formula, the probabilities Are:

P(A  D) 2 / 10 2
P(A | D) = = =
P(D) 5 / 10 5

P(C  B) 1 / 10 1
P(C | B) = = =
P(B) 4 / 10 4
5 1
P(C) = ≠ = P(C | B) Dependent
10 4
Multiplicative Rule
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Multiplicative Rule
1. Used to get compound probabilities for
intersection of events
• Called joint events

2. P(A and B) = P(A  B)

= P(A)*P(B|A)
= P(B)*P(A|B)
3. For Independent Events:
P(A and B) = P(A  B) = P(A)*P(B)
 Multiplicative Rule Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52

P(Ace  Black) = P(Ace)∙P(Black | Ace)

 4  2  2
    
 52  4  52
 Thinking Challenge
Using the multiplicative rule, what’s the
probability?
Event
1. P(C  B) =
Event C D Total
2. P(B  D) = A 4 2 6
3. P(A  B) = B 1 3 4
Total 5 5 10
 Solution*
Using the multiplicative rule, the probabilities
are:

P(C  B) = P(C)  P(B| C) = 5/10 * 1/5 = 1/10

P(B  D) = P(B)  P(D| B) = 4/10 * 3/4 = 3/10

P(A  B) = P(A)  P(B| A) = 0

 Tree Diagram
Experiment: Select 2 pens from 20 pens: 14
blue & 6 red. Don’t replace.
Dependent!
P(R|R) = 5/19 R P(R  R)=(6/20)(5/19) =3/38
P(R) = 6/20
R
P(B|R) = 14/19 B P(R  B)=(6/20)(14/19) =21/95
P(R|B) = 6/19 R P(B  R)=(14/20)(6/19) =21/95
B
P(B) = 14/20
P(B|B) = 13/19 B P(B  B)=(14/20)(13/19) =91/190
Bayes’s Rule
 Bayes’s Rule
• Allows computation of an unknown
conditional probability, P(B|A), by converting
it to a known conditional probability, P(A|B)
• For k mutually exclusive events,

P( Bi ) P( A | Bi )
P( Bi | A) 
P( B1 ) P( A | B1 )  P( B2 ) P( A | B2 )  ...  P( Bk ) P( A | Bk )
 Bayes’s Rule Example
A company manufactures mp3 players at two factories.
Factory I produces 60% of the mp3 players and
Factory II produces 40%. Two percent of the mp3
players produced at Factory I are defective, while 1%
of Factory II’s are defective. An mp3 player is selected
at random and found to be defective. What is the
probability it came from Factory I?
 Bayes’s Rule Example
P(D|I) = .02 Defective
Factory
P(I) = .6 I
P(G|I) = .98 Good
P(D|II) = .01 Defective
P(II) = .4 Factory
II
P(G|II) = .99 Good

P( I ) P( D | I ) .6*.02
P ( I | D)    .75
P( I ) P( D | I )  P( II ) P( D | II ) .6*.02  .4*.01
 Conclusion

1. Defined Experiment, Outcome, Sample

Point, Sample Space, Event, & Probability
2. Used a Venn Diagram, Two–Way Table, or
Tree Diagram to Find Probabilities
3. Described & Use Probability Rules
 Objectives
•Develop probability as a measure of
uncertainty
•Introduce basic rules for finding
probabilities
•Use probability as a measure of reliability
for an inference
 Events, Sample Spaces and
Probability
•Experiment – process of observation that leads to
a single outcome with no predictive certainty
•Sample point – most basic outcome of an
experiment
•Sample Space – a listing of all sample points for
an experiment
•Experiment – tossing 2 coins
•A Sample Point – HT
•Sample Space – S: {HH, HT, TH, TT}
•Sample point probability – relative frequency of the
occurrence of the sample point
 Events, Sample Spaces and
Probability
•Venn Diagram

•Sampl
•H •T
e Space
H H
•H •T
T T
•S
•Sample •Name
Points of 0 and 1
•Sample Point Probabilities must lie between
Sampl
•The sum of all sample point probabilities must be one
e
Events, Sample Spaces and Probability

•How to assign Sample Point Probabilities?

– Prior knowledge/assumption
– Multiple repetitions of an experiment
– Estimation based on survey
•Event – a specific collection of sample points
•Probability of an event – the sum of the
probabilities of all sample points in the collection
Events, Sample Spaces and Probability

•How to assign Event Probabilities?

– Define experiment
– List sample points
– Assign probabilities to sample points
– Identify collection of sample points in Event
– Sum sample point probabilities
Events, Sample Spaces and Probability

•What is the probability of rolling an eight in a

single toss of a pair of dice?
– Experiment is toss of pair of dice

•1•1/36
•1
•1/36
•1
•1/36
•1
•1/36
•1
•1/36
•1•1/36

•2
,1
•1/36
•2
•1/36
,2 •2
•1/36
,3 •2
•1/36
,4 •2
•1/36
,5 •2
,6
•1/36

•3
,1
•1/36
•3
•1/36
,2 •3
•1/36
,3 •3
•1/36
,4 •3
•1/36
,5 •3
,6
•1/36

•4
,1
•1/36
•4
•1/36
,2 •4
•1/36
,3 •4
•1/36
,4 •4
•1/36
,5 •4
,6
•1/36

•5
,1
•1/36
•5
•1/36

,2 •5
•1/36

,3 •5
•1/36

,4 •5
•1/36

,5 •5
,6
•1/36

•6
,1
•1/36
•6
•1/36
,2 •6
•1/36
,3 •6
•1/36
,4 •6
•1/36
,5 •6
,6
•1/36

,1of rolling,2an 8 = 1/36+1/36+1/36+1/36+1/36

•Probability ,3 ,4 ,5 = 5/36=
,6.14
Events, Sample Spaces and Probability

•What is the probability of rolling at least a 9

with a single toss of two dice?
•P(at least 9) = P(9) + P(10) + P(11) + P(12)
• = 4/36 + 3/36 + 2/36 + 1/36
• = 10/36
• = 5/18 = .28
Events, Sample Spaces and Probability

•What do you do when the number of sample points is too

large to enumerate?
•Use the Combinations Rule to count number of sample
points when selecting sample of size n from N elements

N N!
  
 n  n!( N  n!)
•where
n! n(n  1)(n  2)...(3)(2)(1)
 Events, Sample Spaces and Probability

•In the dice throwing example, there are 36

pairings. How many different samples of 2
pairs can we select from those 36 pairs?

 36  36! 36! 36  35  34      3  2 1 1260

       630
 2  2!(36  2)! 2!34! 2 134  33      2 1) 2

•We have 630 possible samples of 2 pairs

from a group of 36 pairs
Events, Sample Spaces and Probability

•If you had 30 people interested in being in a

study and you needed 5, how many different
combinations of 5 are there?

 30  30! 30! 30  29  28  27  26  25....3  2 1

      142,506
 5  5!(30  5)! 5!25! 5  4  3  2 125  24...3  2 1)
 Unions and Intersections
•Compound Event – a composition of 2 or
more events
•Can be the result of a union or intersection
of events
 Unions and Intersections
•Event A – being over 50 years old
•Event B – earning between $25K and $50K

Two-way Table with Percentage of Respondents

in Age-Income Classes
Income
Age <$25K $25K - $50K >$50K
<30 yrs 5% 12% 10%
30-50 yrs 14% 22% 16%

>50 yrs 8% 10% 3%

P A)  .21 PB )  .44 P A  B )  .10

P A  B)  .08  .10  .03  .12  .22  .55
 Complementary Events
•Complementary Event – The complement
of Event A, AC is all sample points that do
not belong to Event A
 Complementary Events
•If A is having at least 1 head appear in the
toss of 2 coins, AC is having no heads
appear
 The Additive Rule and Mutually
Exclusive Events
•The Additive Rule

P  A  B )  P  A)  P  B )  P  A  B ) 
.08  .10  .03  .12  .22 
.10  .10  .55 Two-way Table with Percentage of Respondents
in Age-Income Classes
Income
Age <$25K $25K - $50K >$50K
<30 yrs 5% 12% 10%
30-50 yrs 14% 22% 16%

>50 yrs 8% 10% 3%

 The Additive Rule and Mutually
Exclusive Events
•Mutually Exclusive Events – Events are
mutually exclusive if they share no sample
points.

P A  B )  0
 The Additive Rule and Mutually
Exclusive Events
•The Additive Rule for Mutually Exclusive
Events

P A  B )  P A)  PB)
 Conditional Probability
•Conditional Probability – the probability that
event A occurs given that event B occurs

P A  B )
P A B ) 
P B )
•Conditional probability works with a
reduced sample space, the space that
contains B and
A B
 Conditional Probability
•Sample space for B  F

•Sample space for B F

•
 Conditional Probability
•Event A – cause of complaint is appearance
•Event B – complaint occurred during guarantee period
Distribution of Product Complaints
Reason for Complaint
Complaint Origin Electrical Mechanical Appearance Totals
During Guarantee Period 18% 13% 32% 63%
After Guarantee Period 12% 22% 3% 37%

Totals 30% 35% 35% 100%

P A  B ) .32
P A  B )  .32 P A B )    .51
P B ) .63
 The Multiplicative Rule and
Independent Events
•The Multiplicative Rule
P A  B )  P A)PB A) •or P A  B )  PB )PA B )
A  I1 , I 2 , I 3 
P  A)  P  I1 )  P  I 2 )  P  I 3 )  1  1  1  3
10 10 10 10

B A  I1 , I 2 
PB A)  PI1 )  PI 2 )  1  1  2
9 9 9
P A  B )  P A)  PB A)  3  2  6  1
10 9 90 15
 The Multiplicative Rule and
Independent Events
•Events A and B are independent if the
occurrence of one does not alter the
probability of the other occurring

PA B )  P A) •and PB A)  PB )

•If A and B are independent events

P A  B )  P A)  PB )
 The Multiplicative Rule and
Independent Events
•Event A – cause of complaint is appearance
•Event B – complaint occurred during guarantee period
Distribution of Product Complaints
Reason for Complaint
Complaint Origin Electrical Mechanical Appearance Totals
During Guarantee Period 18% 13% 32% 63%
After Guarantee Period 12% 22% 3% 37%

Totals 30% 35% 35% 100%

•Are A and B independent events?

PA B )  .51 P A)  .32  .03  .35

•A and B are not independent
 Random Sampling
•Assume a desired sample size of n
•Sample is random if every set of n elements
in the population has the same probability of
being selected

•Random number generators often used to

produce a random sample
 Bayes’s Rule
•Allows calculation of unknown conditional
probability from known conditional
probability

PBi A)  PBi  A) P A) 
PBi )PA Bi )
PB1 )PA B1 )  PB2 )PA B2 )      PBk )PA Bk )