124 Business Statistics

USING STATISTICS
The Consumer Electronics Company

You are the marketing manager for the Consumer Electronics Company.
You are analyzing the survey results of 1,000 households concerning
their intentions to purchase a big-screen television set (defined as 31 inches
or larger) in the next 12 months. Investigations of this type are known as
intent to purchase studies. As a follow-up, you will survey the same house-
holds 12 months later to see whether they actually purchased the television
set. In addition, for those who did purchase a big-screen television set, you
are interested in whether they purchased a high-definition television
(HDTV) set, whether they also purchased a DVD player in the last
12 months, and whether they were satisfied with their purchase of the big-
screen television set. Some of the questions you would like to answer
include the following:
• What is the probability that a household is planning to purchase a big-screen television set
in the next year?
• What is the probability that the household will actually purchase a big-screen television set?
• What is the probability that a household is planning to purchase a big-screen television set
and actually purchases the television set?
• Given that the household is planning to purchase a big-screen television set, what is the
probability that the purchase is made?
• Does knowledge of whether the household plans to purchase the television set change the
likelihood of predicting whether the household will purchase the television set?
• What is the probability that a household that purchases a big-screen television set will
purchase an HDTV?
• What is the probability that a household that purchases a big-screen television set will also
purchase a DVD player?
• What is the probability that a household that purchases a big-screen television set will be
satisfied with their purchase?
Answers to these questions and others can help you develop future sales and marketing strate-
gies. For example, should marketing campaigns for your big-screen television sets target those
customers indicating intent to purchase? Are those individuals purchasing big-screen television
sets easily persuaded to buy a higher-priced HDTV and/or a DVD player?

he principles of probability help bridge the worlds of descriptive statistics and inferential
T statistics. Reading this chapter will help you learn about different types of probabilities and
how to revise probabilities in light of new information. These topics are the foundation for the
probability distribution, the concept of mathematical expectation, and the binomial and Poisson
distributions (topics that will be covered in Chapter 5).

4.1 BASIC PROBABILITY CONCEPTS

What is meant by the word probability? A probability is the numeric value representing the
chance, likelihood, or possibility a particular event will occur, such as the price of a stock
increasing, a rainy day, a nonconforming unit of production, or the outcome five in one toss
of a die. In all these instances, the probability attached is a proportion or fraction whose value
ranges between 0 and 1 inclusively. An event that has no chance of occurring (i.e., the