PROBABILITIES AND

INDUCTIVE LOGIC
WEEK 6 – PROBABILITY, THE RULES OF PROBABILITY, DECISION THEORY
AIMS

• To understand the basics of probability

• The understand the importance of probability in inductive reasoning
• To understand the rule of probability
• To understand the basics of decision theory
INDUCTIVE ARGUMENTS

• In an inductive argument, true premises and a correct form make it likely that
the conclusion is true as well
• We know that inductive arguments can vary in strength
• The evidence presented make some highly probable their conclusion are true
• Others provide less support
• The probabilities we are talking about here refer to the degree of support
premises provide for a conclusion
PROBABILITIES

• What do the words probable and probability mean to you?

• Can you think of examples of when you might have used them?
• When we want to invest money or place a bat, we have a practical interest in
knowing how to assess probabilistic support in a precise, numerical way
• Consider this sentence;
• ‘A blind draw from a standard deck of cards will result in a non heart card’
EXAMPLE

Most cards in a standard deck are non heart cards

A card is drawn ‘blind’ from a standard deck
The card drawn is a non heart card
PROBABILITIES

• The argument is reasonably strong

• If however, we are interested in placing a bet on a non heart card, we might
prefer to assign a numerical probability
• To do this we would use background information about a standard deck of cards
• A deck has 52 cards divided evenly among four suits
• So the first premise can be stated quantitatively;
• The non hearts cards are 39/52 (or ¾ or 75%)
• So the probability of drawing a non heart card is 0.75 or ¾
PROBABILITIES

• This probability determines proper betting odds

• In an even-money bet, the amount won or lost is equal to the ‘stake’ (the amount
put at risk)
• An even-money bet is proper when two equally likely outcomes are possible
• E.g. tossing a coin
• If you win such a bet, your stake is returned along with an equal amount, so you
double your money
• If you lose, you also lose your original stake
• In such cases the odds are even, or 1 to 1
PROBABILITIES

• When the probabilities of various outcomes are not equal, the betting odds can be
altered in a appropriate way to assure fairness
• E.g. betting odds of 3 to 1, in which the return for a winning bet is three times the
stake, are fair for an outcome with a probability of ¼ or 0.25
• In such cases, there are three times as many ways of losing as there are of winning
• Odds refers to the difference in favour of one side and against the other
• For an outcome with a probability of ¼, e.g. drawing a heart from a deck, the odds
are 3 to 1 against winning
• So a pay off of 3 to 1 balances this disadvantage and makes the bet fair
PROBABILITY AND INDUCTIVE REASONING

• We often use numerical probabilities to assess the strength of inductive

generalisations
• The properties of random samples rarely match exactly the properties of the
populations from which they are selected
• But within a margin of error, samples should resemble the population most
of the time
• We are now going to look at some examples that involve tossing a coin and
counting the number of times it comes up heads and tails
EXAMPLE

• Begin a series of tosses, and stop after 5 tosses

• This series is your sample
• Suppose the samples contains no heads (TTTTT)
• This does not happen often, but it is possible
• There are 32 possible outcomes from tossing a coins 5 times
• Only one of these options contains no heads
• When the numbers involved are not large, we can display all the possible
arrangements and count the favourable cases
EXAMPLE
No. 5 Heads 4 Heads, 1 Tails 3 Heads, 2 Tails 2 Head, 3 Tails 1 Head, 4 5 Tails
Tails
1 HHHHH HHHHT HHHTT TTTHH TTTTH TTTTT
2 HHHTH HHTHT TTHTH TTTHT
3 HHTHH HHTTH TTHHT TTHTT
4 HTHHH HTTHH THHTT THTTT
5 THHHH HTHHT THTTH HTTTT
6 HTHTH THTHT
7 THTHH HTHTT
8 THHHT HTTTH

9 THHTH HTTHT
10 TTHHH HHTTT
EXAMPLE CONTINUED

•
PROBABILITY AND INDUCTIVE REASONING

• By counting cases, we can see that the probability of getting no heads in five tosses of
a fair coin 1/32 (just over 3%)
• Our sample of five tosses of a coin that resulted in all tails is said to be statistically
significant a the 0.05 level
• Because it is the kind of sample you would expect less than 5 percent of the time with
a fair coin
• Statistical significance is dependent on sample size
• In a series of two tosses of a fair coin, an outcome of no heads would not be
significant at the 0.05 level
• HH, HT, TH, TT – head fail to turn up about 25% of the time
PROBABILITY IN AN ACTUARIAL CONTEXT

• Probability in an actuarial context is concerned with the observed relative

frequency with which events of a certain type occur
• Life insurance policies are decided based in this way
• A persons age, along with their occupation, where they live and their lifestyle can
be put together to predict how long they will live for
• Based on this their insurance policies are decided through mortality tables
PROBABILITY IN AN ACTUARIAL CONTEXT

• E.g. it could be observed that 90% of the 25 year old carpenters living in
London had survived their 30th Birthdays
• So a insurance company may assign a probability of 0.9 that Luke, a 25 year
old carpenter from London, would be able to pay dues to the company for at
least 5 years and so could be charged accordingly for his 5 year membership
PROBABILITIES

• From this we can see that probability has at least 2 different meanings
1. The ratio of favourable to other equally possible outcomes
2. The relative frequency of events of a particular type in some reference class of event
• Both senses of probability lend themselves naturally to quantitative expressions of
probability values
• When probability values are expressed quantitatively, the probability of a sentence
that describes an event is stated as a single real number between 0 and 1
• Or as a ratio between two numbers, as decimal (0.25), a fraction (¼ ) or a percentage
(25%)
PROBABILITY

• Probability is also commonly stated qualitatively

• Suppose you assign a very low probability to the statement that your grandmother
will go to a Burna Boy concert if he ever performs in Freetown
• Here probability does not mean ratio of favourable to possible outcomes
• Your probability assignment is not based on relative frequency of her attendance
• Instead, it is used as a measure of the degree to which it is rational to believe certain
statements
• Your belief that your grandmother will not go to a Burna Boy concert is based on your
knowledge of her taste in music
PROBABILITY

• The ‘degree of rational belief’ concept of probability can be expressed

numerically
• But it does not lead itself so naturally to quantification as the other meanings
of probability do
• As such these degrees of rational belief are usually stated in terms such a
likely, unlikely, probably, almost always etc.
THE RULES OF PROBABILITY

• Any assignment of probability values is based on general background information or

on evidence regarding specific conditions
• Probability assignments are always conditional on the assumed truth of some such
information
• E.g. the probability of ‘a coin toss resulting in heads’ being equal to ½ is conditional
on the coin having the usual design and being balanced
• The probability of the 25 year old carpenter surviving his 30th birthday, is conditional
on there being no evidence he has a fatal disease
• The low probability of your grandmother attending the Burna Boy concert is
conditional on no one offering her a large sum of money to attend
STATEMENTS OF PROBABILITY

Statements of probability values are standardly written as follows:

Pr(h|e) = n
Which can be read, The probability of a statement h, on evidence e, is equal to n
Sometimes, when it is clearly understood that a probability value is conditional
on general background information and no on any special evidence, we write:
Pr(h) = n
Omiting any reference to evidence
RULE 1 OF PROBABILITY

The value n in a sentence of the form

Pr(h|e) = n
Must be a single real number between 0 and 1
• The rule expresses the convention of using 0 and 1 as the lower and
upper limits of probability values
• And of assigning a unique probability value to any sentence in a given
context
• No probability values can be less or greater than 1
RULE 2 OF PROBABILITY

• If h follows deductively from e, then

Pr(h|e) = 1
• To say that h follows deductively from e means that is e is true, then h must also be
true
• If this is so, then the probability of h, on evidence e, takes the highest possible value –
that is 1
• E.g. Pr(Mrs. Bangura is married| Mrs. Bangura has a spouse) = 1
• The probability value of 1 is not just reserved for sentences that follow deductively
from the available evidence
RULE 2 OF PROBABILITY

• Sentences that are certainly true are assigned a probability equal to 1 also
• The type of certainty involved may be practical certainty rather than certainty
based on strict deductive knowledge
• E.g. Pr(A six year old child using materials found in at home cannot build a
spaceship that will reach Mars) = 1
• Notice that no statement of evidence e is given, but the probability is conditional
on general background information
• It has practical certainty so we can assign probability of 1
• The lowest probability value (0) is assigned to sentences that either are
inconsistent with the evidence or are false as a matter of practical certainty
RULE 3 OF PROBABILITY

• If two sentences h1 and h2 are mutually exclusive (if they cannot both be
true), then, on the same evidence in both cases
• Then the probability that one or the other is true is equal to the some of their
individual probability
• These compound sentences (disjunction) are usually connective sentences,
connect with or and unless
• E.g. the coin came up heads or the coin came up tails
Pr(h1 or h2|e) = Pr(h1|e) + Pr(h2|e)
RULE 3 OF PROBABILITY

• Although this rule is stated for two mutually exclusive sentences, it can be
generalised to any number of mutually exclusive sentences
• It allows us to calculate the unknown probability of a disjunction when each
disjunct is incompatible with all the other and the probabilities of all the
individual disjunct are known
EXAMPLE

Using as evidence the claim that a fair die is tossed a single time, we
know that the probability of throwing a six is equal to ⁄ and that
the probability of throwing a two is ⁄ . Since the sentences “A six is
thrown” and “A two is thrown” are mutually exclusive for a single
throw, rule 3 tells us that the probability of “A six is thrown, or a two
is thrown” is ( ⁄ 1 ⁄ ), or after performing the addition ( ⁄ ) and
reducing the fraction, ⁄ .
RULE 4 OF PROBABILITY

• The probability of the conjunction of two sentences is equal to the probability

of the first sentence multiplies by the probability of the second sentence on
the condition that the first sentence is true
• A conjunction is a compound sentence with its major components connected
by and or some other expression such as moreover
• This indicated that the sentence as a whole is true just in case all of its
components are true
• E.g. A six showed on one pair of ice, and a five showed on the other
RULE 4 OF PROBABILITY

• Rule 4 allows us to calculate the probability of a conjunction when the

probabilities of the individual conjunct are known
• Symbolically it is expressed as:
Pr(h1 and h2|e) = Pr(h1|e) x Pr(h2|e and h1)
• The rule says the probability that a conjunction is true is equal to the product
of the probability of the first conjunct and the probability that the second
conjunct is true if the first one is true
EXAMPLE

Suppose that a fair coin is tossed twice (the evidence sentence). What is the
probability that both tosses yield a head?
• Rule 4 tells us to multiply the probability the first toss will yield a head ( ⁄ ) by the
probability that the second toss will be a head on condition the first toss yields a
head.
• This probability is also ⁄ , because what happens on the first toss has no effect on
the second toss. (The probability of a head on the second toss is ⁄ regardless of
whether the first toss is a head or a tail—the outcomes of the first and second
tosses are independent of one another.) Multiplying ⁄ by ⁄ gives us ⁄ , which is
the probability that “two heads appear on two tosses of a fair coin.”
EXAMPLE

• suppose that two cards are drawn blindly from a standard deck and placed in a
drawer together (the evidence).
• What is the probability that both cards are aces?
• We want to know the probability of the conjunction “The first card is an ace, and
the second card is an ace.” The probability that the first card is an ace is ⁄ .
(There are four aces in a standard deck of 52 cards.) The probability that the
second card drawn is also an ace, if the first card drawn is an ace, is ⁄ . (At the
time of the second draw, the deck contains 51 cards; if the first card drawn is an
ace, only three aces remain in the deck.) The product of ⁄ and ⁄ is ⁄ ,652. This
fraction can be reduced to ⁄ , which is the probability of drawing two aces from
a standard deck in two draws (without replacing the first card drawn).
RULE 4 OF PROBABILITY

• In the second example the probabilities are not the same for the first and
second conjuncts
• When a fair coin is tossed what happened on a second or third toss is
independent of what happens on any previous toss
• When cards are drawn from a deck without replacement, the probabilities of
drawing a particular card are not the same for successive draws
• What happens on the second draw is then not independent of what happens
on the first draw
USING PROBABILITIES TO PLAN A COURSE OF ACTION
– DECISION THEORY
• None of us can see what the future holds
• We make most choices, decisions, and plans with limited knowledge about
what the state of the world will be and what others will do
• We can however, assign probabilities to various possible outcomes before we
make decisions
• For example, if we care about seeing a football match from the beginning, we
try to arrive at the cinema on before the match is schedules to begin, because
it will probably start on time
USING PROBABILITY TO PLAN A COURSE OF ACTION

• The probability that some event or condition will occur is not the only
consideration on which we base our decisions to act
• We are concerned with cost and benefits as well
• For example, even thought the probability of being caught from theft is low,
most people would not consider doing it because the potential cost is so high
• The term utility refers to the desirability or undesirability of a situation
• Thus, when contemplating an action that could result in a prison sentence,
the negative utility of serving time should be considered along with the
probability
DECISION THEORY

• Decision theory is the study of reasonable decision making in the context that
vary with respect to the knowledge available
• The aim of decision theory is to develop criteria for rational decision making
• We will consider three general contexts in which decisions occur:
1. Decision under risk
2. Decisions under certainty
3. Decisions under uncertainty
DECISION UNDER RISK

• Consider the example of a patient whose doctor suggests an ear operation

• The patient is faced with making a decision under risk
• If the patient decides to have the operation, three different states of the
world or conditions are relevant, each associated with a probability
• The condition of improved hearing; very good, 0.85, 85%
• The condition of no improvement: 0.10, 10%
• The condition of further damage to the ear: 0.05, 5%
DECISION UNDER RISK

• The probabilities in this case are relative frequencies based on statistics

gathered from similar operation
• No utilities for the various outcomes are mentioned, though clearly the first
outcome has the greatest utility, as well as the highest probability
• If the patients decides against the operation, it is almost certain that the ear
condition will stay about the same
• The utility of this outcome ranks higher than the utilities of having a successful
operation, but ranks lower than the outcome of a successful operation
• Should the patient have the operation or not?
DECISION UNDER RISK

• In light of the information available to the patient, several guides to action

can be considered
• The patient could act as if the most probable result of the operation will occur
and choose that one
• However, always act as if the most probable state will happen is a poor
decision making rule because it ignores the utilities of various states
• Following this rule for example could lead an immoral criminal to hold up the
local grocery store on the grounds that its most probable he wont her caught
DECISION UNDER RISK

• Another possible decision rule is to always choose the action that could result
in the a state with the highest utility
• If the patient follows this rule, the operation will be chosen as it clearly as the
highest utility
• But this rule ignores the known probabilities involved in making a decision
under risk
• It could lead to decisions that most of us would regard as foolish
DECISION UNDER RISK

• Imagine James has 20,000,000 to cover college costs

• He places high utility on having money but also strongly desired a college
education
• College would be out of the question if the 20,000,000 were lost
• Someone offers James to opportunity to invest that 20,000,000 for a possible
return of 100,000,000 within a year
• There is a 10% probability that the investment will work but a 90% probability to
original investment would be lost
• What should he do?
DECISION UNDER RISK

• To evaluate correctly these decisions under risk, a rule that accounts for both
utility and probability is required
• Choose an action that maximises expected utility is a rule
• This rule is a good way to think about decision problems and works well for
many decisions
• To understand the rule of expected utility, we need to know how to calculate
expected utilities
• First we need to find a way to quantify utilities
DECISION UNDER RISK

• Measuring utilities is not simples

• How can we assign a value of hearing or undergoing an unsuccessful
operation
• The measurements of utilities does not need to be objective in the
sense that it would be the same measurement for everybody
• All that is required is that the person confronted with the decision
assigns his or her own utility values
• But even that can be difficult
DECISION UNDER RISK

• When assigning values of utility we all will likely assign differently

• The units we would assign are units of utility
• The arithmetic operations of addition, subtraction, multiplication, and division can be
performed on these units of utility
• Units of utility of three states associated with decision to undergo operation:
• Hearing improvement: 10 (0.85)
• No improvement: - 2 (0.10)
• Further damage: -10 (0.05)
• Units of probability associated with the nonzero probability – no change – 0 (1)
DECISIONS UNDER CERTAINTY

• In some situations, we choose among various actions when each action is

associated with only one state of affairs
• These are called decisions under certainty
• However, we can never be absolutely certain
• The world around us might change in unpredictable ways between the time
of decision and the completion of the action
• E.g. you are deciding whether to study in your room or the library. It is
possible you chose the library but it closes due to a power failure before you
arrive
• Although we usually ignore these unusual possibilities
DECISIONS UNDER CERTAINTY

• The probability associated with the single state of affairs relevant to the
action in a decision under certainty is (almost) 1
• So, there is no need to calculate probabilities of various outcomes
• The rule to apply when making decisions under certainty is simple: choose an
action with the highest utility
• If no single action has the highest utility, it is reasonable to choose any of the
actions
DECISIONS UNDER CERTAINTY

• Even though calculated probabilities for decisions under certainty poses no

problems, assigning and comparing utilities can be difficult
• E.g. some products are sold at prices that depend on the length of the
guarantee period
• For example when deciding whether to buy new or used tires
• It may seem simple, but factors such has how long you plan to keep the car?
The prices difference, how many tires are you changing etc. may influence
your decision
DECISIONS UNDER CERTAINTY

• Because no probability calculations are involved in decisions under certainty,

utilities can be simply ordered by rank
• In a decision under certainty, we do not need to assign units of utility in the
way we need to for decisions under risk
• This is because we do not have to perform arithmetic operations
DECISIONS UNDER UNCERTAINTY

• In a decision under uncertainty, as in decision under risk, our knowledge is

incomplete
• When we face decisions under conditions of uncertainty, we are aware that
different states are relevant to our decisions, but we are unable to assess the
probabilities of the various states
• We cannot even say whether one relevant state is more or less likely to occur
• Such situations are unusual, in most cases we have sufficient knowledge to
make at least very rough assignments of probabilities on the basis of past
experience
DECISIONS UNDER UNCERTAINTY

• In the absence of information about probabilities, we must base our choices entirely on the
utilities that are associated with various states of affairs
• In many cases of decision under uncertainty, a rank ordering of utilities is sufficient
• Some decisions under uncertainty are simple, for one of the action will have a better
outcome than the other
• For a simple decision between two actions, each associated with two states it can be
represented simply:
States of the World, Ordered by Rank:
Actions A B
I 4 3
II 2 1
DECISIONS UNDER UNCERTAINTY

• In the previous table, two possible states of affairs are associated with Action 1
• These are ranked the lowest (4th ) and second lowest (3rd ) in utility
• Action two also has two associated states ranked highest (1st) and Second highest
(2nd)
• In this situation Action 2 is said to dominate action 1
• Assuming that a decision has no effect on the probabilities of the states of the
world, it would seem irrational to choose action 1
• Because either state associated with action 2 is better than action 1
EXAMPLE

Mark, a football player, is offered two nonathletic scholarships—one at State

University and one at Out-of-State University (OSU ). The information he has
regarding the schools does not allow him to assign any probabilities of making
either football team. He would like to play ball, but he wants the best education
possible, regardless of whether he plays ball, and he believes the academic
program at State is better. His utilities are ranked (1) play ball at State, (2) do
not play ball at State, (3) play ball at OSU, and (4) do not play ball at OSU . Thus,
he will be better off at State, whether or not he plays ball. Going to State is the
rational decision for him.
EXAMPLE

Actions Make the team Do not make the team

Go to state 1 2
Go to OSU 3 4
EXAMPLE

Suppose, however, that Mohamed, another football player, has also

won scholarships. He really wants to play ball and perceives State as
the best place to play. If, however, he cannot play ball, he would
prefer an easier academic program so he will be free to pursue other
interests. Faced with the same offers as Mark, his ranking of utilities
are (1) play ball at State, (2) play ball at OSU, (3) do not play at OSU,
and (4) do not play at State.
EXAMPLE

Actions Make the team Do not make the team

Go to state 1 4
Go to OSU 2 3
DECISIONS UNDER UNCERTAINTY

• In this decision under uncertainty, neither action dominates

• Going to state is associated with the most highly values state but also the lowest
value
• Because no dominant action is available to next question is whether there is just
one satisfactory action
• That is an action that is not associated with any unacceptable state of affairs
• If Mohamed were satisfied with a utility ranks three or higher, then choose state
would not be satisfactory for him to take
• He should follow the rule, choose the action that is satisfactory and go for OSU
PERSONALITY IN DECISION MAKING

• The Gambler:
• In situations in which only one action is associated with the state
of affairs with the highest utility, one decision strategy is to take
that action
• The gambler is willing to take chance to get the best
• If Mohamed is a gambler he will go to state
THE CAUTIOUS PLAYER

• The Cautious Player: The cautious player focuses on the lowest, rather than
the highest, utility of each outcome.
• The choice is based on which action is associated with the highest of the low
utilities.
• The cautious player wants to protect against losses, to “maximize the
minimum.”
• Using this maxi-min strategy, Mohamed will choose OSU , for the lowest
utility associated with that action is 3, whereas the lowest utility associated
with State is 4.
THE CALCULATOR

• The calculator is not willing to gamble or to be satisfied with maximizing the

minimum. In an effort to steer between these two, the calculator tries to choose the
action associated with the highest average utility.
• An average utility cannot be determined merely on the basis of a rank ordering,
however, for calculating an average requires assigning units to utilities.
• In addition, the calculation also requires assigning some probability value to each
outcome.
• By definition, however, there are no known probabilities associated with the various
possible states of the world—if there were, this would be a decision under risk.
• The calculator responds to this difficulty by simply assuming that each state is
equally likely.
DECISIONS UNDER UNCERTAINTY

• If Mohamed is a calculator, on possible assignment that is consistent with his rank orderings
would be the following
• Play state (10)
• Do not play State (2)
• Play at OSU (8)
• Do not play at OSU (6)
• The average utility of an action can not be calculated by adding the utilities of each possible
outcome for that action and dividing the total by the number of possible outcomes
• The average utility of going to state is then (10+2)/2 = 6 and OSU is (8+6)/2=7
• So he would go to OSU