Chapter 4: Probability Basics

and Bayes Theorem of revising

probabilities
Prof. Arnab Chakraborty
Basic Terms
• Deterministic Models – Covers those situations where everything
related to the situation is known with certainty to the decision maker
when the decision is to be made
• In these models descriptive statistics or frequency distribution measures are used
to arrive at a decision
• Random or Probabilistic Models – the totality of the outcomes is
known but it cannot be certain about which outcome will appear. So
there is always some uncertainty involved in decision making
• In these models probability and probability distributions are used to arrive at a
decision. So probability can also be defined as a measure of uncertainty
Basic Terms
• In general probability is the chance that something will happen. It is
either expressed in fractions or decimals. A probability of 0 means the
event will never occur. And a probability of 1 means the event will surely
occur
• Event – In probability an event is one or more of the possible outcomes
of doing something. If we toss a coin getting a tail would be an event.
Even you getting picked to answer a question out of the 60 students is
also an event. Even when we here the frightening predictions of highway
accidents we hope not to be one of those events.
• Experiment – The activity which produces such an event as mentioned
above is referred to in probability as an experiment
Basic Terms
• Using this formal language we can ask the question – “In a coin toss
experiment what is the probability of the event head?” And if it is a fair
coin with an equal chance of coming down on either side then we would
answer “1/2” or “.5”
• Sample Space – The set of all possible outcomes of an experiment is
known as the sample space for the experiment. In the coin toss
experiment the sample pace is S={head, tail}
• In a card drawing experiment the sample space has 52 members
• Mutually exclusive events – Events are said to be mutually exclusive if
one and only one of them can take place at a time
Basic Terms
• Collectively Exhaustive List – When a list of the possible events that can
result from an experiment includes every possible outcome the list is said to be
collectively exhaustive
• Odds in favor and against – Let us consider that total number of possible
outcomes related to the situation is “N” , out of them “m” are the number of
outcomes where the desired event “E” has occurred. So “N-m” is the number
of outcomes where the desired event has not occurred. Hence we may define
–
• Odds in favor of happening of E = m : N-m
• Odds against the happening of E = N-m : m
• This concept is related to the concept of probability as –
• Probability of happening of event E = m/N
Relative Frequency Approach
Subjective Probability Approach
Baye’s Theorem for Revising Probability
Estimates
End of Chapter 4