Lesson 12: Basic Concepts of Probability

12.1: Basic Terminologies

What is Probability?
Probability is a ​numerical measure​ of how ​likely ​an ​event ​is to occur.

Examples:
● Weather forecasting: How likely is it to rain?
● Sports: How likely is Bangladesh to win against New Zealand?
● Financial markets: How likely is a stock price to increase on the next trading day.
● Business decisions: How likely is a new start-up to be profitable in the next 5 years?

Experiments
An experiment is an act/process that can be repeated under some given conditions.

Experiments can be of two types:

1. Deterministic or Predictable​: An experiment whose outcome is predictable in
advance is called deterministic experiment. Everyone conducting that experiment will
get the same outcome. Examples:
○ Measuring the aerial distance from Teknaf to Tetulia
○ Counting the number of floors in the Burj Khalifa

2. Random or Unpredictable​: An experiment whose outcome is not predictable with

certainty in advance is called a random experiment. If a random experiment is
performed then one of many possible outcomes will occur. Examples:
○ Rolling a die
○ Tossing a coin
○ Drawing a lottery number
○ Measuring the weight of a person throughout the day

Outcome and Sample Space

A possible ​result ​of a random experiment is known as an ​outcome​.

Sample Space​: The set of all possible outcomes of a random experiment is called sample
space of that experiment and is denoted by S. Each individual outcome is called a sample
point.

Examples:
● Tossing a coin: S = {H, T}
● Rolling a 6-sided die: S = {1, 2, 3, 4, 5, 6}
● Volume of NFLX shares traded on a given day: S = {x | 0 ≤ x < ∞} = [0, ∞)

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

Example: Consider the experiment of rolling two fair 6-sided dice, one black and one red,
and recording the numbers on the upper face of the dice. The sample space of the
experiment would be:
Black Die

1 2 3 4 5 6

1 (​1​,1) (​1​,2) (​1​,3) (​1​,4) (​1​,5) (​1​,6)

2 (​2​,1) (​2​,2) (​2​,3) (​2​,4) (​2​,5) (​2​,6)

3 (​3​,1) (​3​,2) (​3​,3) (​3​,4) (​3​,5) (​3​,6)

Red Die
4 (​4​,1) (​4​,2) (​4​,3) (​4​,4) (​4​,5) (​4​,6)

5 (​5​,1) (​5​,2) (​5​,3) (​5​,4) (​5​,5) (​5​,6)

6 (​6​,1) (​6​,2) (​6​,3) (​6​,4) (​6​,5) (​6​,6)

Events
An event E can be defined as a set of outcomes of an experiment. Or simply, an event E is
any subset of a sample space S

Example:
● For the experiment of throwing a 6-sided die,
● Sample space: S = {1, 2, 3, 4, 5, 6}
● Event E: The top face shows 3. Then E = {3}
● Event A: The top face is even. Then A = {2, 4, 6}

Mutually Exclusive Events

Two events are called mutually exclusive if both the events cannot occur simultaneously in a
single trial. In other words, if one of those events occurs, the other event will not occur.

For example:
● In a trial of a coin toss experiment, event E1= {Head} and event E2={Tail} will not
occur simultaneously. So, E1 and E2 are mutually exclusive events.
● On a day, Event E1={Rain} & event E2={Sunny} may occur simultaneously. These
are not mutually exclusive events.

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

Collectively Exhaustive Events
Collectively exhaustive​ events are those, which includes ​all possible outcomes​.

For example:
In a coin tossing experiment events E1={Head} and event E2={Tail} are collectively
exhaustive, because together they comprise all the outcomes that are possible in a coin
tossing experiment. There are no other possible outcomes of this experiment than these two.

Equally Likely Events

The events of a random experiment are called ​equally likely if the chances of those events
occurring are all equal.

For example;
● In a coin tossing experiment, the events E1= {Head} and event E2={Tail} are equally
likely, because the chance of E1 occurring is the same as the chance of E2
occurring.
● On a given day, Event E1={Rain} & event E2={No rain} may not be equally likely.

Disjoint and Joint Events

Two events are called ​disjoint​, if they have no common elements between them. Mutually
exclusive events are disjoint events.

Two events are called ​joint​, if they have some common elements between them.

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

Basic Set Operations
Union​: The union of two events A and B, denoted by A ⋃ B , include elements that belong to
either A, B or both.

Intersection​: The intersection of two events A and B, denoted by A ⋂ B , include elements

that must belong to both A and B.

Complement​: The complement of an event A, denoted by A′ or A ∁ , include all the

elements that do not belong to A. It is expressed as A∪B

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

12.2: Approaches and Axioms of Probability
Approaches of Assigning Probability
Assume we conduct an experiment, and now we want to assign a probability to a particular
favourable event.

● The first step is to identify the sample space S of the experiment

● We then define our favourable event and assign probability to the event using one of
the following 3 basic approaches-
○ Classical approach
○ Frequency approach / Empirical Approach
○ Subjective approach

Classical Approach
If a random experiment with a sample space S, has n(S) possible outcomes, all of which are
equally likely, mutually exclusive, and collectively exhaustive, and n(A) of those outcomes
are favourable to an event A, then the probability of the event A is defined by:
n(A)
P (A) = n(S)
or
N umber of F avourable Outcomes
P (A) = N umber of All P ossible Outcomes

Example: ​Consider the experiment of throwing a 6-sided die.

S = {1, 2, 3, 4, 5, 6}

Consider two events, E1={3} and E2={2, 4, 6}

Here, n(S)=6, n(E1)=1, and n(E2)=3

Therefore,
𝑃(𝐸1)= 𝑛(𝐸1) / 𝑛(𝑆) = 1/6

𝑃(𝐸2)= 𝑛(𝐸2) / 𝑛(𝑆) = 3/6 = 1/2

Frequency Approach
If a random experiment is repeated n times under the same conditions, and event E occurs f
times out of n times, then
f
P (E) = lim n
n→∞
That is, when n is very large, P(E) is very close to the relative frequency of event E.

Example:​ Consider the experiment of throwing a 6-sided die.

S = {1, 2, 3, 4, 5, 6}
Let the favourable event be E={3}

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

After repeating the experiment 1200 times, 3 occurred a total of 198 times
Therefore,
198
P (E) = lim 1200 ≈ 1/6
n→∞

Subjective Approach
Subjective probability is the probability that an individual assigns to an event E, based on
their judgement (personal experience, prior information and belief, etc.)

For example: You go out with a friend to a park, and seeing the clouds in the sky, your friend
says there is a 60% chance of it raining today.

Axioms of Probability

Example:​ In a particular locality of 700 people, 105 people were found to be infected with
COVID-19. If a person is selected at random from the locality, what is the probability that
s/he does not have COVID-19?

Solution:
Let, D = the randomly selected person has COVID 19. Here,
P (D) = f /n = 105/700 = 0.15 ∴P (D c ) = 1−0.15 = 0.85
So, the probability that s/he does not have the disease is 0.85.

Example:​ A bag contains 4 white and 6 black balls. If one ball is drawn at random from the
bag, what is the probability that it is:
1. Black
P(Black) = 6/10
2. White
P(White) = 4/10
3. White or Black
P(White or Black) = P(White) + P(Black) = 4/10 + 6/10 = 1
4. Red
P(Red) = 0

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022

Practice Problems
Statistical Techniques in Business and Economics (Lind & Marchal)​: Page 140.
Exercise - 1, 5, 7, 9 (Answers at the end of the book)

Statistics for Business and Economics (Anderson, Sweeney & Williams)​: Page 155.
Exercise - 14, 15, 16, 18, 20 (Answers at the end of the book)

STA101 (Introduction to Statistics) _Lesson Note 12_Fall 2022