Ch4 Statistics

10/25/2022
Business
STATISTICS Tenth Edition
CHAPTER 4 Introduction to Probability
STATISTICS - FALL 2022 211
OUTLINE
4-1
The Basics of Probability
4-2
The Rules of Probability
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OUTLINE
4-1
The Basics of Probability
 Three approaches to assessing probabilities
4-2
The Rules of Probability
 Addition Rule
 Multiplication Rule
 Bayes’ Theorem STATISTICS - FALL 2022 213
4.1 THE BASICS OF PROBABILITY
Probability
 The chance that a particular event will occur
 The probability value will be in the range 0 to 1.
Experiment
 A process that produces a single outcome whose result cannot be predicted with
certainty.
Sample Space
 The collection of all outcomes that can result from a selection, decision, or experiment.
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 Sample Space Examples

 All 6 faces of a die (6 outcomes from 1 experiment)
 All 52 cards of a deck of cards (52 outcomes)
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3 possible outcomes
(burgers)
3x3 = 32 = 9
possible
outcomes
(combinations)
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23 =
8 possible outcomes
(combinations)
TYPES OF EVENTS
Experimental outcomes could be:
Mutually Exclusive Events

• Two events are mutually exclusive if the occurrence of one event
precludes the occurrence of the other event.
Independent Events
• Two events are independent if the occurrence of one event has no
influence on the probability of the occurrence of the other event.
Dependent Events
• Two events are dependent if the occurrence of one event affects
the probability of the other event occurring.
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1 - (2/3)2 = 5/9
1 – (Prob[On time OR Early])2 STATISTICS - FALL 2022 222
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INDEPENDENT EVENTS- EXAMPLE
Event A – Business is started by a person in North Carolina

Event B – Business is started by a person in Oregon
Whether or not the business in Oregon (Event B) is successful is

in no way influenced by whether the North Carolina business
(Event A) is successful. – Events are Independent
DEPENDENT EVENTS- EXAMPLE
A Company has 10 employees – 3 male and 7 female.

Two employees are selected at random to attend a
conference.
 Event A – First person selected is female.
 Event B – Second person selected is male.
Events A and B are dependent because the chance of a

male selected second depends on whether a male or
female is selected first.
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TEA BREAK
METHODS OF ASSIGNING PROBABILITY
Methods of
Assigning Probability
Classical Relative Subjective

Probability Frequency Probability
Assessment Assessment Assessment
P(Ei) = Probability of event Ei occurring
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Classical Probability Assessment

 The method is based on the ratio of the number of ways an outcome
or event of interest can occur to the number of ways any outcome or
event can occur when the individual outcomes are equally likely.
(4.1)
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Classical probability is based on experiment design

Relative Frequency Assessment

 The method defines probability as the number of times an event
occurs divided by the total number of times an experiment is
performed in a large number of trials.
(4.2)
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Relative probability is based on actual

observations
Subjective Probability Assessment

 The method defines probability of an event as reflecting a decision
maker’s state of mind regarding the chances that the particular
event will occur.
 Represents a person’s belief that an event will occur.
based on personal
experience or guess
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TEA BREAK
4.2 THE RULES OF PROBABILITY
Possible Values Addition Rule for Any

Conditional Probability
Two Events
for Independent Events
Summation of
Possible Values Multiplication Rule for
Addition Rule for
Mutually Exclusive Any Two Events
Events
Addition Rule for
Individual Outcomes Multiplication Rule for
Independent Events
Conditional Probability
Complement Rule for Any Two Events Bayes’ Theorem
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BETWEEN 1 AND 0
• Probability of event occurring is always

between 0 and 1
Rule 1 (4.3)
• Sum of the probabilities of all possible

outcomes is 1
Rule 2
(4.4)
MEASURING PROBABILITIES
Addition Rule for Individual Outcomes

 The probability of an event Ei is equal to the sum of the
probabilities of the individual outcomes forming Ei
(4.5)
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Four different
programs each
covers a specific
period of time in a
day
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The probability that outage

occurs when the two
programs were on air.
Complement Rule
 The complement of an event E is the collection of all possible
outcomes not contained in event E
 This rule is corollary to Probability Rules 1 and 2
(4.6)
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The probability that the

profit is NOT $0
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Addition Rule for Any Two Events
(4.7)
The sum subtracts the

double-counting part
EXAMPLE WITH CARDS

Addition Rule for Individual Outcomes-Example
Example
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The sum subtracts the

joint probability
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Addition Rule for Mutually Exclusive Events
(4.8)
Joint probability = 0
Conditional Probability for Any Two Events

 The probability that an event will occur given that some other event has
already happened.
(4.9)
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Conditional Prob. =
EXAMPLE Joint Prob. / Marginal Prob.
 Addition Rule for Mutually Exclusive Events-Example
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Conditional Prob. = Joint

Prob. / Marginal Prob.
When contingency table is

unavailable, use event probabilities
to derive the conditional probability
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CONDITIONAL PROBABILITY USING TREE

DIAGRAMS
Conditional Prob. = Joint ≅1
Prob. / Marginal Prob.
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THE RULES OF PROBABILITY
Conditional Probability for Independent Events

 The conditional probability of one event occurring, given a second
independent event has already occurred, is simply the probability of the
first event occurring.
(4.10)
Whether the other event

happens or not, it doesn’t
matter
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The probability of E2: (length=10 feet) is higher when E5:

(dimension=2” x 5”) occurs
Multiplication Rule for Any Two Events

 If we do not know the joint relative frequencies the multiplication rule for
two events can be used.
(4.11)
Joint Prob. = Marginal Prob. x Conditional Prob.
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Multiplication Rule for Independent Events

 The joint probability of two independent events is simply the product of the
probabilities of the two events.
(4.12)
 Although
 Given independence,
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List all possible

outcomes
exhaustively
BAYES’ THEOREM
Prob[Ei]Prob[B|Ei]=Prob[Ei and B]
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Test results given

cancer or non-cancer
False positive
The belief (actually a

guess) based on the
general population.
Prob[Cancer]*Prob[Positive|Cancer]
Prob[Cr]*Prob[Positive|Cr]+Prob[Non-Cr]*Prob[Positive|Non-Cr]
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BAYES’ THEOREM
 A way to formally incorporate subjectivity and update it

with new information
 E.g. Test results revise upward the probability of cancer
 Probability assessment for events of interest may be
based on relative frequency or subjectivity.
BAYES’ THEOREM - EXAMPLES
1. A drilling company has estimated a 40% chance of

striking oil for their new well.
2. A detailed test has been scheduled for more
information.
3. Historically, 60% of successful wells have had detailed
tests, and 20% of unsuccessful wells have had
detailed tests.
4. Given that this well has been scheduled for a detailed
test, what is the probability that the well will be
successful?
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BAYES’ THEOREM - EXAMPLES 60% of wells: get tested

given it is successful
20% of wells get tested
 Let S = successful well and U = unsuccessful well given it is unsuccessful
 Prior probabilities: P(S) = 0.4 , P(U) = 0.6
 Define the detailed test event as D
 Conditional probabilities: P(D|S) = 0.6, P(D|U) = 0.2
 Revised probabilities
BREAKTIME
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10/25/2022

CHAPTER 4 Introduction to Probability

STATISTICS - FALL 2022 211

STATISTICS - FALL 2022 212

 Three approaches to assessing probabilities

4.1 THE BASICS OF PROBABILITY

STATISTICS - FALL 2022 214

4.1 THE BASICS OF PROBABILITY

 Sample Space Examples

 All 52 cards of a deck of cards (52 outcomes)

STATISTICS - FALL 2022 215

4.1 THE BASICS OF PROBABILITY

STATISTICS - FALL 2022 216

STATISTICS - FALL 2022 217

STATISTICS - FALL 2022 218

STATISTICS - FALL 2022 219

Experimental outcomes could be:

Mutually Exclusive Events

STATISTICS - FALL 2022 221

STATISTICS - FALL 2022 223

STATISTICS - FALL 2022 224

INDEPENDENT EVENTS- EXAMPLE

Event A – Business is started by a person in North Carolina

Whether or not the business in Oregon (Event B) is successful is

STATISTICS - FALL 2022 225

DEPENDENT EVENTS- EXAMPLE

A Company has 10 employees – 3 male and 7 female.

Events A and B are dependent because the chance of a

STATISTICS - FALL 2022 226

METHODS OF ASSIGNING PROBABILITY

Classical Relative Subjective

P(Ei) = Probability of event Ei occurring

STATISTICS - FALL 2022 228

METHODS OF ASSIGNING PROBABILITY

Classical Probability Assessment

STATISTICS - FALL 2022 229

STATISTICS - FALL 2022 230

Classical probability is based on experiment design

METHODS OF ASSIGNING PROBABILITY

Relative Frequency Assessment

STATISTICS - FALL 2022 232

Relative probability is based on actual

METHODS OF ASSIGNING PROBABILITY

Subjective Probability Assessment

STATISTICS - FALL 2022 234

4.2 THE RULES OF PROBABILITY

Possible Values Addition Rule for Any

STATISTICS - FALL 2022 236

• Probability of event occurring is always

• Sum of the probabilities of all possible

STATISTICS - FALL 2022 237

Addition Rule for Individual Outcomes

STATISTICS - FALL 2022 238

STATISTICS - FALL 2022 239

STATISTICS - FALL 2022 240

The probability that outage

STATISTICS - FALL 2022 242

STATISTICS - FALL 2022 243

The probability that the

STATISTICS - FALL 2022 244

Addition Rule for Any Two Events

The sum subtracts the