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Definitions
►Random Experiment
►A process leading to an uncertain outcome
►Example: Flip a coin
►Sample space
►All possible outcomes of a random experiment
►Flip a coin, the sample space consists of 2 outcomes S
= {H, T}.
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Definitions
►Event
►One or more outcomes of an experiment.
►Any subset of outcomes in the sample space.
►Simple Event (elementary event)
►is a single outcome.
►Flip a coin,
►The sample space consists of 2 simple events: S = {H,
T}
►An event of getting one Head: E = {H}
►Flip a coin twice,
►The sample space consists of 4 simple events:
S = {HH, HT, TH, TT}
► An event of getting one Head is a compound event:
E = {HT, TH}
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Probability
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Probability
► A probability is a numerical value ranging from 0 to 1.
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Assigning Probability
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Classical methods
► Used when the number of possible outcomes of the event of
interest is known.
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Classical methods
► P(A)=1/6=16.7 %
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Classical methods
► Example: There are 5 red and 3 blue balls in a bag. One ball is
taken at random. What’s the probability it is a red ball?
► P(A) = ?
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Empirical methods
► Empirical probability describes the relative frequency of actual
observations of an event in experiment.
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Empirical methods
► UEH university surveys monthly salary of 100 graduates and get
the following results :
Salary frequency
$ 600 and more 25
$400 - $599 43
$200 - $399 10
Less than $200 22
► Find the probability of a graduate who has a monthly salary
between $200 - $399.
► Find the probability of a graduate who has a monthly salary over
$ 400.
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Laws of Large Numbers
► The laws of large number states that as sample size grows, the
empirical probabilities of the process will converge to the
classical probabilities.
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Subjective Probability
► Used when classical or empirical probabilities are not
available.
► Use individuals’ opinion, experience, belief to estimate the
probabilities.
► Example
► I think that the inflation rate in 2024 is 5%.
► I guess the probability of raining today is 40%.
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Probability Rules
► If P(A)=1, then Event A must occur with certain.
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Probability Rules
► The complement of an event A is denoted by Aʹ (or Ā)
and consists of everything in the sample space except
event A.
► A and Aʹ together comprise the entire sample space:
P(A) + P(Ā) = 1 or
P(A) = 1 - P(Ā )
► For example, about 40% of small firms went bankrupt
after Covid-19. The probability that a business will
survive after Covid is: !(#$%&'()) = 1 − !(.(/0%$12) = 60%
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Probability Rules
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Intersection of Two Events
► The intersection of two events A and B (denoted A ∩ B or “A
and B”) represents the number of instances in which Events A
and B occur at the same time.
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Intersection of Two Events
► The probability of the intersection of two events is known as a joint
probability.
► Contingency Table for Students’ major:
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The Union of Two Events
► Contingency Table for Students’ major:
Major Females Males Total
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The Addition Rule
► Two events are considered to be mutually exclusive if
they cannot occur at the same time.
► Event A = customer satisfied. Even B = customer unsatisfied
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Conditional Probability
Major Females Males Total
► What is the probability that a student studies finance (Event A), given that a
student’s gender is male (Event B)? We want to find P(Finance|Males)
-./
► ! "#$%$&'| )%*'+ = 012 =0.252
-(/012134∩62748)
► ! "#$%$&'| )%*'+ = -(62748)
:;<
► ! "#$%$&' ∩ )%*'+ = :<<< = 0.12
ABC
► ! )%*'+ = :<<< = 0.475
<.:;
► ! "#$%$&'| )%*'+ = <.ABC =0.252
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Independent and Dependent Events
► Events A and B are independent when the probability/
occurrence of one event is not affected by the other event. If A
and B are independent, then
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Independent and Dependent Events
►Example: Favorite course and Performance
►Event A: Pass the course; Event B: Favorite Course
Favorite Not Favorite Total
Pass 25 18 43
Fail 10 27 37
Total 35 45 80
%&
►! " # = '& = 0.71
.'
►!(") = /0 = 0.54
►! " # ≠ ! " ➔ the favorite course and course
performance are dependent.
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Multiplication Rule
Because P(B|A)=P(B)
► If multiple events are all independent, the probability of them
all occurring is simply the product of their individual
probabilities:
! "# ∩ "% ∩ "& … ∩ "( = !("# ) !("% ) !("& )…. !("( )
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Multiplication Rule
Major Females Males Total
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Contingency tables with probabilities
Major Females Males Total
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Contingency tables with probabilities
Major Females (F) Males (M) Total
'()*∩,) ..0
► ! "#| % = '(,)
= ..121 = 0.19
'()*∩7) ..021
► ! "#| 6 = '(7) = ..891 = 0.26
'(,∩>?) ..021
► ! %| <= = = = 0.61
'(>?) ..2.1
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Decision Tree
►Decision Trees are used to display marginal and joint
probabilities from a contingency table.
Favorite (C) Not Favorite (D) Total
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Bayes’ Theorem
► Goal: to calculate P(A|B) based on P(B|A). So, the Bayes’
formula is:
! # " !(")
! "# =
!(#)
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General Forms of Bayes’ Theorem
► Suppose two events have prior probabilities P(A1) and P(A2)
► Call prior probabilities because we can determine
without any other information.
► A1 and A2 are mutually exclusive events.
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General Forms of Bayes’ Theorem
! $ "# !("#)
! "# $ =
! $ "1 ! "1 + ! $ "2 ! "2 + ⋯ + +! $ ", !(",)
where:
Ai = The ith event of interest from a choice of n events.
B = An event that has already occurred.
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Example
►Suppose that a company has two machines, Machine A
(MA) and Machine B (MB), both producing product A.
►40% of their products come from Machine A and 60% of
their touch screens come from Machine B.
►10% percent of the products produced by Machine A are
defective (D) and 5% of the products from Machine B are
defective.
►If I randomly choose a product from a company and find
that it is defective, what is the probability that it came from
machine A?
►We would like to calculate P(MA|D).
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Example
►P(MA)=.4 P(MB)=.6
►P(D|MA)=0.1 => P(ND|MA)=0.9
►P(D|MB)=0.05 => P(ND|MA)=0.95
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Example
►P(MA)=.4 P(MB)=.6
►P(D|MA)=0.1 => P(ND|MA)=0.9
►P(D|MB)=0.05 => P(ND|MA)=0.95
P(MA|D)???
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Example
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Counting Rules
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Counting Rule 1
(k1)(k2)(k3)…(kn)
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Counting Rule 2 – Permutations
►Example:
►You have five books to put on a bookshelf. How many
different ways can these books be placed on the shelf?
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Counting Rule 2 – Permutations
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Counting Rule 2 – Permutations
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Counting Rule 3 – Combinations
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Counting Rule 3 – Combinations
► Homework.
► Reading Chapter 5.
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