BUSINESS STATISTICS

Probability & Conditional Probability

Anand Desai
 Probability

An estimate
Probability is a measure of
that is associated with
how certain we are of occurrence
outcomes of a particular
of
experiment or activity.
an event
 Probability
Sure-shot v/s Chance (Probability)

Sure-shot: Probability will be 1

No Chance of something happening: 0
Hence, Probability always lies between 0 & 1
 Key Terms used
Experiment
An Activity that produces an Event resulting in 2 or more outcomes
Random Experiment
Any well-defined process of observing a given chance phenomena thru’ a
series of trials that are finite or infinite & each of which leads to a single
outcome
Possible Outcome
Result of a Random Experiment
Sample Space
Set of all possible Outcomes of an Experiment
Event
One or more possible outcomes of an Experiment or a result of a trial or an
observation
 Key Terms used
Mutually Exclusive Event
If only one Event can take place at a time
2 or more events are said to be so if the happening of one precludes the
happening of the other
i.e. Both the events cannot happen simultaneously

Dependent / Independent Events

2 or more events said to be so if the happening of an event is not affected
by the knowledge of occurrence of any of the remaining events

Complementary Event
Unfavourable cases in an Experiment

Collectively Exhaustive Outcomes

When a list of possible events that can result from an event includes every
possible outcome
 Approaches to Probability
CLASSICAL Approach
Probabilities already known prior to the experiment - also termed as a
priori approach
Experiment need not be performed
Everyone correctly using the method assigns an identical probability –
i.e. each outcome is equally likely
 Approaches to Probability
EMPIRICAL Approach
Basis Historical Data
Probabilities computed after performing an Experiment
Relative frequencies of the past occurrences are the probabilities
No. of Times an Event occurs / Total No. of Trials
 Approaches to Probability
SUBJECTIVE Approach
Based on general evidence
Basis individual intuition / reasoning / confidence placed by a decision-
maker in occurrence of an event
Different people may assign different numeric probabilities to same
event
E.g. New Product Introductions, Site Selection decisions, Sporting
events
 Approaches to Probability
EMPIRICAL Approach
Probability of Bandra-Jaipur Exp reaching Jaipur in a day is 0.95

CLASSICAL Approach
Probability of getting a King of Heart from a Pack of Cards is 1/52

EMPIRICAL Approach
Probability of a student getting a CGPA of 8.0 is 0.98

EMPIRICAL Approach
Probability of Akshay Kumar’s latest film being a big hit at the BO is 0.7

SUBJECTIVE Approach
Probability of Life on Mars is 0.45
 Random Variables
RANDOM
Word means ‘done without a deliberate order or without having control’
A Random variable is a variable that assumes different numerical values as a
result of random experiments

2 Types
Discrete Random Variables
Continuous Random Variables

Discrete Random Variable

Assumes a limited no. of values which can be listed
E.g. in tossing a coin: HH, HT, TH, TT

Continuous Random Variable

Assumes any value within a given range
E.g. Rainfall measured in cms of each day of the Monsoon season
 Probability
P (Event A)

No. of Favourable Outcomes for A

Total No. of Outcomes

P(Head) = 1 / (1+1) = 1/2

In the rolling of a die, P(5) = 1 / (1+1+1+1+1+1+1) = 1/6

0 ≤ P(A) ≤ 1
Mutually Exclusive / Disjoint Events
Events A & B are said to be MUTUALLY EXCLUSIVE
If only one Event can take place at a time
i.e. NO COMMON ELEMENT
i.e. Both the events cannot happen simultaneously

If A & B are mutually exclusive, then

𝑃 𝐴∩𝐵 =0

But, converse not necessarily true

 Exhaustive Events
Events A & B on the Sample Space are Exhaustive

When a list of possible events that can result from an event includes
every possible outcome

P(A ∪ 𝐵) = 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑝𝑎𝑐𝑒

 Independent Events
2 or more events said to be so if the happening of an event is not affected
by the knowledge of occurrence of any of the remaining events
 ADDITION Theorem
P(A ∪ B) = P(A) + P(B) − P(A ∩ B)

P(A ∪ B ∪ C) = P(A) + P(B) + P(C) − P(A ∩ B) − P(A ∩ C) − P(B ∩

B) + P(A ∩ B ∩ C)
MULTIPLICATION Theorem
𝑃 𝐴 ∩ 𝐵 = 𝑃 𝐴 ∗ 𝑃(𝐵)

If A & B are Independent Events

Converse is True as well

 Conditional Probability
Probability of something
GIVEN
We have some other piece of information that is likely to influence
the Probability of what we are investigating

Written as
P (A | B)
𝑃 𝐴∩𝐵
P(A | B) =
𝑃 (𝐵)
Similarly
𝑃 𝐵∩𝐴
P(B | A) =
𝑃(𝐴)
Conditional Probability
Written as
P (A | B)

P(A | B) = P(A∩B) / P(B)

P(B | A) = P(B∩A) / P(A)

P (A) P (B)
Conditional Probability
Written as
P (A | B)

P(A | B) = P(A∩B) / P(B)

P(B | A) = P(B∩A) / P(A)

Conditional Probability

P(A | B) = P(A∩B) / P(B)

P(B | A) = P(B∩A) / P(A)

These can also be written as follows:

P(A∩B) = P(A | B) x P(B)

P(B∩A) = P(B | A) x P(A)

Conditional Probability
P(A ∩ B)
can also be written as
P(A*B)
JOINT Probability
Conditional Probability: Example
Products Supplied
Company Total
Good (G) Defective (D)
A1 60 40 100
A2 75 75 150
A3 85 80 165
TOTAL 220 195 415
P(Defective item) = P(D) = 195/415

P(Item is Defective supplied by A1) = P(A1 | D)

𝑃 𝐴1∩𝐷 40
P(A1 | D) = =
𝑃 (𝐷) 195
 Conditional Probability: Example
Products Supplied
Company Total
Good (G) Defective (D)
A1 60 40 100
A2 75 75 150
A3 85 80 165
TOTAL 220 195 415
P(Item is supplied by A1 is Defective) = P(D | A1)
𝑃 𝐷∩𝐴1 40
P(D | A1) = =
𝑃 (𝐴1) 100
P(Item is Defective AND it is Supplied by A1) = P(A1 ∩ D)
40
P(A1 ∩ D) = P(A1*D) =
415
 JOINT Probability Table
Products Supplied
Company Total
Good (G) Defective (D)
A1 P(A1*G) = 60/415 P(A1∩D) = 40/415 P(A1) = 100/415
A2 P(A2*G) = 75/415 P(A1∩D) = 75/415 P(A2) = 150/415
A3 P(A3*G) = 85/415 P(A1∩D) = 80/415 P(A3) = 165/415

P(G) = 220/415 P(D) = 195/415 1

TOTAL

JOINT
Probability MARGINAL
Probability
 JOINT Probability Table
Products Supplied
Company Total
Good (G) Defective (D)
A1 P(A1*G) = 60/415 P(A1∩D) = 40/415 P(A1) = 100/415
A2 P(A2*G) = 75/415 P(A1∩D) = 75/415 P(A2) = 150/415
A3 P(A3*G) = 85/415 P(A1∩D) = 80/415 P(A3) = 165/415
TOTAL P(G) = 220/415 P(D) = 195/415 1
Total of JOINT Probability is MARGINAL Probability
&
Total of MARGINAL Probability is ALWAYS 1

𝐽𝑂𝐼𝑁𝑇 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦
∴ CONDITIONAL Probability =
𝑀𝐴𝑅𝐺𝐼𝑁𝐴𝐿 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦
 Conditional Probability: Example
Products Supplied
Company Total
Good (G) Defective (D)
A1 P(A1*G) = 60/415 P(A1∩D) = 40/415 P(A1) = 100/415
A2 P(A2*G) = 75/415 P(A1∩D) = 75/415 P(A2) = 150/415
A3 P(A3*G) = 85/415 P(A1∩D) = 80/415 P(A3) = 165/415
TOTAL P(G) = 220/415 P(D) = 195/415 1
In general,
𝑃 𝐴𝑖∗𝐷
P(Ai | D) = ∑𝑃(𝐴𝑖∗𝐷)

𝑃 𝐴𝑖) ∗ 𝑃 𝐷 𝐴𝑖 BAYES’
P(Ai | D) =
∑[𝑃 𝐴𝑖) ∗𝑃 𝐷 𝐴𝑖 ] Theorem
 Conditional Probability
Bayes’ Theorem
P(A | B) = P(AΩB) / P(B)  P(AΩB) = P(A | B) x P(B)

P(B | A) = P(BΩA) / P(A)  P(BΩA) = P(B | A) x P(A)

P(AΩB) = P(BΩA)

Replacing P(AΩB) in above formula

P(A | B) = [P(B | A) x P(A)] / P(B)
and
P(B | A) = [P(A | B) x P(B)] / P(A)

This is also called the formula of the Bayes’ Theorem

 Conditional Probability
Bayes’ Theorem
If an event B can occur only in conjunction with one of the n mutually
exclusive and exhaustive events A1, A2, … An & if B actually happens, then
the probability that it was preceded by the particular event At (t=1, 2, …, n)
is given by

P(At | B) = P(At ∩ B) / P(B)  t = 1, 2, …, n

&
P(B) = P(A1 ∩ B) + P(A2 ∩ B) + … + P(An ∩ B)

P (A | B) = [ P (B | A) x P (A) ] / [ {P (B | A) x P (A)} + {P (B | C) x P (C)} ]

 Conditional Probability
Bayes’ Theorem
PRIORI Probability = P(D | A2)
POSTERIOR Probability = P(A2 | D)

BAYES’ Theorem can be used to calculate

POSTERIORI Probability
Using
PRIORI Probability

NOTE
P(A | D) = P(A)  If A & D are Independent
&
P(A*B) = P(A) * P(B)  If A & B are Independent
 Conditional Probability
Bayes’ Theorem
Box X contains 2 White & 3 Red Balls & Box Y contains 4 White & 5
Red Balls. One Ball is drawn at random from one of the bags & is
found to be Red. Find the Probability that it was drawn from Bag Y.
 Conditional Probability
Bayes’ Theorem
In a bolt factory, Machine A, B & C manufactures respectively 25%, 35%
& 40%. Of the total of the outputs 5% , 4% & 2% are defective bolts. A
bolt is drawn at random from the bunch & found to be defective.
What is the probability that it was manufactured by Machine B?
 Conditional Probability
Bayes’ Theorem
In 2022, there will be 3 candidates for the position of CEO: A, B & C,
whose chances of getting selected are in the proportion 4:2:3
respectively. The probability that A , if selected, would bring about
digitization in the company, is 0.3. The probability that B & C doing
the same are 0.5 & 0.8.
a)
What is the probability that there will be digitization in the company
in 2023
b)
If there is digitization in the company in 2023, what is the probability
that C will be the CEO?
 Conditional Probability
Bayes’ Theorem
Solution

Let PA, PB, & PC denote the events that the persons A, B & C respectively are
selected as CEO & let E be the event of introducing digitization in the
company

Hence,
P(A) = 4/9 P(B) = 2/9 P(C) = 3/9

P(E | A) = 0.3 P(E | B) = 0.5 P(E | C) = 0.8

The event E can materialize in the following mutually exclusive ways

i) Person A is selected & digitization is introduced, i.e. A ∩ E happens

ii) Person B is selected & digitization is introduced, i.e. B ∩ E happens
iii) Person A is selected & digitization is introduced, i.e. C ∩ E happens
 Conditional Probability
Bayes’ Theorem
Solution

Thus,
E = (A∩E) ∪ (B∩E) ∪ (C∩E)
where, A∩E, B∩E & C∩E are disjoint

Hence,
P(E) = P(A∩E) + P(B∩E) + P(C∩E)

P(E) = [P(A)*P(E | A)] + [P(B)*P(E | B)] + [P(C)*P(E | C)]

P(E) = [4/9*0.3] + [2/9*0.5] + [3/9*0.8]

P(E) = 0.133 + 0.111 + 0.267  0.511
Probability that digitization would be introduced in the Company = 0.511
 Conditional Probability
Bayes’ Theorem
3 persons, A, B & C are being considered for the appointment as Vice
Chancellor of a University. Their chances of being selected for the post are
in the proportion 4:2:3 respectively. The probability that A if selected will
introduce democratization in the University structure is 0.3; the
corresponding probabilities for B & C doing the same are 0.5 & 0.8
respectively. What is the probability that democratization would be
introduced in the University?
 Conditional Probability
Bayes’ Theorem
Solution

Let PA, PB, & PC denote the events that the persons A, B & C respectively are
selected as VC & let E be the event of introducing democratization in the
university structure

Hence,
P(A) = 4/9 P(B) = 2/9 P(C) = 3/9

P(E | A) = 0.3 P(E | B) = 0.5 P(E | C) = 0.8

The event E can materialize in the following mutually exclusive ways

i) Person A is selected & democratization is introduced, i.e. A ∩ E happens

ii) Person B is selected & democratization is introduced, i.e. B ∩ E happens
iii) Person A is selected & democratization is introduced, i.e. C ∩ E happens
 Conditional Probability
Bayes’ Theorem
Solution

Thus,
E = (A∩E) ∪ (B∩E) ∪ (C∩E)
where, A∩E, B∩E & C∩E are disjoint

Hence,
P(E) = P(A∩E) + P(B∩E) + P(C∩E)

P(E) = [P(A)*P(E | A)] + [P(B)*P(E | B)] + [P(C)*P(E | C)]

P(E) = [4/9*0.3] + [2/9*0.5] + [3/9*0.8]

P(E) = 0.133 + 0.111 + 0.267  0.511
Probability that democratization would be introduced in the University =
0.511
SUMS
 Set 3, Sum 1
From the following Venn diagram, which indicates the number of
outcomes of an experiment corresponding to each event and the number
of outcomes that do not correspond to either event, give the possibilities
indicated.

P (A) = ? P(B) = ? P (A or B) = ?
P (A) = P (Only A) + P (A&B)  8/50 + 6/50  14/50 = 0.28
P (B) = P (Only B) + P (A&B)  13/50 + 6/50  19/50 = 0.38
P (A or B) = P (A) + P (B) – P (A&B) = 14/50 + 19/50 – 6/50 = 27/50 = 0.54
Or
P (A or B) = 1 – P (Neither A nor B) = 1 – (23/50) = 27/50 = 0.54
 Set 3, Sum 2
The leader of MP Fiber Plant, Sid, has drafted a set of wage & benefit
demands to be presented to the management. To get an idea of worker
support for the package, he randomly polls the two largest groups of
workers at his plant, the Machinists (M) & the Inspectors (I). He polls 30 of
each group with the following results: Opinion of Package M I
Strongly Support 9 10
Mildly Support 11 3
Undecided 2 2
Mildly Oppose 4 8
Strongly Oppose 4 7
TOTAL 30 30

• What is the probability that a machinist randomly selected from the

polled group mildly supports the package?
• What is the probability that an inspector randomly selected from the
polled group is undecided about the package?
• What is the probability that a worker (machinist or inspector) randomly
selected from the polled group strongly or mildly supports the package?
 Set 3, Sum 2
The leader of MP Fiber Plant, Sid, has drafted a set of wage & benefit
demands to be presented to the management. To get an idea of worker
support for the package, he randomly polls the two largest groups of
workers at his plant, the Machinists (M) & the Inspectors (I). He polls 30 of
each group with the following results: Opinion of Package M I TOTAL
Strongly Support 9 10 19
Mildly Support 11 3 14
Undecided 2 2 4
Mildly Oppose 4 8 12
Strongly Oppose 4 7 11
TOTAL 30 30 60

• What is the probability that a machinist randomly selected from the

polled group mildly supports the package? [ 11/30 ]
• What is the probability that an inspector randomly selected from the
polled group is undecided about the package? [ 2/30 = 1/15 ]
• What is the probability that a worker (machinist or inspector) randomly
selected from the polled group strongly or mildly supports the package?
[ 33/60 = 11/20 ]
 Set 3, Sum 3
Friendly’s Department Store has been the target of many shoplifters during the
past month, but, owing to increased security precautions, 250 shoplifters have
been caught. Each shoplifter’s gender is noted; also noted is whether the
perpetrator was a first-time or repeat offender. The data is summarized in the
table below: Gender First-time Offender Repeat Offender
Male 60 70
Female 44 76
TOTAL 104 146

Assuming that an apprehended shoplifter is chosen at random, find

• The probability that the shoplifter is male
• The probability that the shoplifter is a first-time offender, given that the
shoplifter is male
• The probability that the shoplifter is female, given that the shoplifter is a repeat
offender
• The probability that the shoplifter is female, given that the shoplifter is a first-
time offender
• The probability that shoplifter is both male & a repeat offender
 Set 3, Sum 3
Friendly’s Department Store has been the target of many shoplifters during the
past month, but, owing to increased security precautions, 250 shoplifters have
been caught. Each shoplifter’s gender is noted; also noted is whether the
perpetrator was a first-time or repeat offender. The data is summarized in the
table below: Gender First-time Offender Repeat Offender TOTAL
Male 60 70 130
Female 44 76 120
TOTAL 104 146 250

Assuming that an apprehended shoplifter is chosen at random, find

• The probability that the shoplifter is male [ 130/250 = 13/25 = 0.52 ]
• The probability that the shoplifter is a first-time offender, given that the
shoplifter is male [ 60/130 = 6/13 = 0.46 ]
• The probability that the shoplifter is female, given that the shoplifter is a repeat
offender [ 76/146 = 38/73 = 0.52 ]
• The probability that the shoplifter is female, given that the shoplifter is a first-
time offender [ 44/104 = 11/26 = 0.42 ]
• The probability that shoplifter is both male & a repeat offender
[ 70/250 = 7/25 = 0.28 ]
 Set 3, Sum 4
In a study of speeding violations and drivers who use cell phones covering 700 cell
phone users, data has been collected as shown in the table
Speeding violation No speeding violation in Total
in the last year the last year
Cellphone user in a Car 25 275 300
Not Cellphone User in a Car 75 325 400
Total 100 600 700

• Find the probability that a randomly chosen driver is a cell phone user in a car
• Find the probability that a randomly chosen driver had no violation in the last
year
• Find the probability that a randomly chosen driver had no violation in the last
year and is a cell phone user
• Find the probability that a randomly chosen driver had no violation in the last
year or is a cell phone user
• Find the probability that a randomly chosen driver found to have violated the
rules is a cell phone user
 Set 3, Sum 4
In a study of speeding violations and drivers who use cell phones covering 700 cell
phone users, data has been collected as shown in the table
Speeding violation No speeding violation in Total
in the last year the last year
Cellphone user in a Car 25 275 300
Not Cellphone User in a Car 75 325 400
Total 100 600 700

• Find the probability that a randomly chosen driver is a cell phone user in a car
[ 300/700 = 3/7 = 0.43 ]
• Find the probability that a randomly chosen driver had no violation in the last
year [ 600/700 = 6/7 = 0.86 ]
• Find the probability that a randomly chosen driver had no violation in the last
year and is a cell phone user [ 275/700 = 11/28 = 0.39 ]
• Find the probability that a randomly chosen driver had no violation in the last
year or is a cell phone user [ 625/700 = 25/28 = 0.89 ]
• Find the probability that a randomly chosen driver found to have violated the
rules is a cell phone user [ 25/100 = 1/4 = 0.25 ]
 Set 3, Sum 5
Social class v Number of Children in the family is tabulated below. Find the
probabilities.
Number of Children Lower Middle Upper
0 7 18 6
1 9 38 23
2 34 97 58
3 47 31 30

• P (3 Children)
• P (Lower or 3 Children)
• P (Middle or 1 Child)
• P (Lower | 2 Children)
• P (0 Child | Middle)
 Set 3, Sum 5
Social class v Number of Children in the family is tabulated below. Find the
probabilities.
Number of Children Lower Middle Upper TOTAL
0 7 18 6 31
1 9 38 23 70
2 34 97 58 189
3 47 31 30 108
TOTAL 97 184 117 398

• P (3 Children)
• P (Lower or 3 Children)
• P (Middle or 1 Child)
• P (Lower | 2 Children)
• P (0 Child | Middle)
 Set 3, Sum 5
Social class v Number of Children in the family is tabulated below. Find the
probabilities.
Number of Children Lower Middle Upper TOTAL
0 7 18 6 31
1 9 38 23 70
2 34 97 58 189
3 47 31 30 108
TOTAL 97 184 117 398

• P (3 Children) [ 108/398 = 54/199 = 0.27 ]

• P (Lower or 3 Children) [ 158/398 = 79/199 = 0.40 ]
• P (Middle or 1 Child) [ 216/398 = 108/199 = 0.54 ]
• P (Lower | 2 Children) [ 34/189 = 0.18 ]
• P (0 Child | Middle) [ 18/184 = 9/92 = 0.098 ]