4-5

Chapter 4 Student Lecture Notes

Example
(continued)
spent 20 to 40
tol4
L)lfAmrte And :1:
|

of
rnth on
mon
user
. Conditional ProbabilitY for
!i?iiiT:ffi;'*5ro no\er .nyt6 o" lti. lnternet independent events E. , Ezl
)&
@Bq
Total
Hours Per month \Femate
Less than 20 \ 0.18
/ Q.?a where P(Er) > 0
a.32 0.r14
20 to 40 \0.12'
More than 40 Q.04 ai4 oJ8
Total f.34 u.oa 1.00
lP(E" lE.,) = P(Er)i where P(E1)'o
iRulez I

othat
and female) Independ€ntevents do not influence each
_ P(20 to 40 hrs = 99 = o.r5
- P/famale\ 0 34

I
i'
l.L

Multiplication Rules
Tree Diagram ExamPle
I t t:J
FROM SLIDE NO:
P(E1 and E.) = 0.8 x 0'2 E 0'15
Multiplication rule for two events Et and Er:
' P(E1 and Er) B 0.8 x 0'5 '0'40
= P(E,,)P(E, lE1
6asoline
ffi,andEr) 4" P(E,|. 9.3 P(E1and Ei) = O'8 r O'3 = O'2!

P(E2and E!) = 0.2 x 0'6 = 0'12

Note: lf E, and E2 are independent, then P(E, I E1) = P(E, )
Y(
Dierel
and the multiplication rule simplifles to P(E2and Er) = 0'2 x 0 1 = 0'02
P(Er) = 0.2

P(E3and El) = {r.2 x 0'3 = 0'06

P(E,, andEr) = P(E1)P(E2 )

rr
\l lL' h'r-
0lulAc1''

Business APPIicatlon ExamPle Multiplication And Addition Rule

for individuals and comPanles
P(< 20 and Ml = 0.20 An acmunting company Prepares tax relums
^' ffi;;;;ih;i 1're i,itnd inoiuiouaL feturns hav€ b-fl :"1:31911:li:11the
tax client' interested in
bv the lRS. The fiffi .lgn.o t*o-!9*individual
-
P(20 to 40 and M) ' 0,32 il"'i5uil ii i'i,i"Gg"ig!.rs,q[@aa* ii t i?
Let El = both are audlled
>40hF P{>40and M} = 0.14 E2 = 1't ollsnt being audit
P(>401M)E0.2121 Er r ?n clent being audited
o1i,; = p11u 2"1 = 0.12 x 0.12 = 0 01-41
"n6 0 1056
<20h8 P(< 20 and F) = 0'18 P(EJ = P(onlv1'b€rng aldned) = orLaxb SS=
I P(Eri = P(onlv z' ueing audited) = 0 8E t CJz' 0 1 056
P(<201F)
P( at least one being auditod) = P(Ei at Ez or E-j
0.0144+0105€+0.015€
P(20 to 40 and F) = 0,12 = 0 2256
being audited is 0 2256
Thus,the chance of one or both ofthe cients

P(>40 and F) = 0.04

O 2008 Prentice-Hall, lnc.

7e
Business $tatistics: A Decision-Making Approach'
t_
Student Lecture Notes 4-6
Chapter 4

Bayes' Theorem Equation

(continued)

A special application of conditional probability EIB)=

'
r Used to revised orig.iqal probabilities with the
"'rew
i ncorpora=tio n 6f fr farrnati on -- r where:
E = irh event of interest of the k pogsiblgevents
B = new fventthal mtstrlirnpactR(q)
. Can be displayed in-tgbglar orequation form Events-Ef6E. are mutually exclusive and collectively
exhaustive

Bayes' Theorem ExamPle

Bayes' Theorem Table
(continued)
#.
*I'.pfw
. IRS expert project that a0"%-oJ-a[laxpayeff"this
year will file an-_ilcorre.ot taxLeturn.

Event
Prior Conditlonal
Prob.
Joint
Prob.
Rsvised
Prob'
. IRS auditor claim there is aq eqgr when no
Prob, problem e-xisl ah-o-utl0% of the time, and 30% of
F(Er) P(Bl E1i P(E1)* P(B I E1) PiEl lB)
ihe time when in fact there really is a problem.
E2 P(Er) P(Bl E2) P(Er)-P(BlEr) P(Ez I B) The IRS has just notified a taxpayer there is an error
in his return.
r What is the probability that the return adlgellLhgs
anerror? o u*!lo,
r{7''':'l

Bayes'Theorem ExamPIe f,J Bayes'Theorem Example

(continued) *eitr"- laontinued)

r Let E = the return actually contains an error and Apply Bayes'Theorem:

NE = the return contains no error
AE = audit says an enor exist
ANE = audit says no error
r We are interested in P(EIAE)
P(E) = 0.20 , P(NE) = 9 66
(prior probabiliiies)
. Conditional Probabilities:
Q.S6
P(ANEIE) = P(AEINE) = 0'10
P(AEIE)=6.79 P(ANEINE)=090
So the revised probability of tax retum actually has error,
given that error exist is 0.64

@ 2008 Prentice-Hall, Inc,

Business Statistics: A Decision-Making Approach, 7e
Chapter 4 Student Lecture Notes

Bayes'Theorem ExamPle
USING Tree diagram

Errcr
P(E) o'20 x 0'30 = 0'06
the original estimate of 0'20
'0.20
ttlE:i=rB;- P(E and aNE) '

3(!'oB
iig'l:ry P(NE and AE) = o'80 x o"lo

No Eror
P{NE} - 0.80 0.8"0.1 =0.08
-
#ii;flI,* P(NE and ANE) 0'80 x 0'90 = 0'72
Sum = 0.22

Chapter Summary

.' Discussed probability terminology

probabilities
. Described approaches to determining
. Reviewed common rules of probability
. Addition Rules (Rules 1 - 5)
. MultiPlication Rules (Rules 8, 9)
Defined conditional probability (Rules 6'
7)
' probabilities
. Used Bayes' Theorem for conditional

@ 2008 Prentice-Hall, lr
7e
Business Statistics: A Decision-Making Approach'