QMB 3200 Chapter 4

Chapter 4
Copyright ©2015 Pearson Education, Inc.

4-1
Chapter 4
Introduction to Probabilities
CHAPTER 4 MAP
4.1 An Introduction to Probabilities
4.2 Probability Rules for More Than One Event
4.3 Counting Principles

4-2
4.1 An Introduction to Probabilities
A probability is a numerical value ranging

from 0 to 1
Probability indicates the chance, or likelihood,
of a specific event occurring
• If there is no chance of the event occurring, the
probability is 0
• If the event is absolutely going to occur, the
probability of it occurring is 1

4-3
Definitions
Experiment
• The process of measuring or observing an activity
for the purpose of collecting data
• An example is rolling a single six-sided die
Sample space
• All the possible outcomes, or results, of an
experiment
• The sample space for our single-die experiment is
{1, 2, 3, 4, 5, 6}

4-4
Definitions
Event
• One or more outcomes of an experiment
• The outcome, or outcomes, is a subset of the
sample space
• An example of an event is rolling a pair with two
dice
Simple event
• An event with a single outcome in its most basic
form that cannot be simplified
• An example of a simple event is rolling a five with a
single die
4-5
Sample Space Examples

4-6
Methods of Assigning Probability
Classical Empirical Subjective

4-7
Classical Probability
• Used when the number of possible outcomes of the event of interest is known
• Requires that you know the number of outcomes that pertain to a particular event. You
also need to know the total number of possible outcomes in the sample space
• Formula for classical probability
Number of possible outcomes that constitute Event A

P(A) =
Total number of possible outcomes in the sample space
where:
P(A) = The probability that Event A will occur
4-8
https://www.youtube.com/
watch?v=CDwZKyxk6Q4

4-9
Classical Probability Example
Experiment: Roll a die once

Sample space = {1, 2, 3, 4, 5, 6}
Define Event A as rolling a five

• There are six possible outcomes in the sample space
• Event A (rolling a five) can happen one way
P(A) = 1/6 = 0.167, or a 16.7% probability

• This is a Simple Probability: it represents the
likelihood of a single (simple) event occurring by itself

4-10
Classical Probability Example
Experiment: Roll a die once

Sample space = {1, 2, 3, 4, 5, 6}
Classical probability assumes that each event

in the sample space has the same likelihood
of occurring (the chance of rolling a one is the
same as rolling a two and so on.
The set of events is collectively exhaustive if
the sample space includes every possible
simple event that can occur (grender)
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Empirical Probability
• With Classical probability “There are 4 aces in a deck of 52 cards, so the probability of drawing an
ace is 4/52.
- Empirical probability: Involves conducting an experiment to observe the frequency with which an
event occurs. Requires that you count the frequency that an event occurs through an experiment
and calculate the probability form the experiment’s relative frequency distribution.
Frequency in which Event A occurs

P(A) =
Total number of observations

4-12
watch?v=jWEOCDZ91aU
https://www.youtube.com/watch?v=WidrP1eKV4Y

4-13
Example: A survey of 400 new graduates asked how much they

owed in student loans. The results are shown in the following table:
Amount Frequency
$30,000 or more 47
$20,000–$29,999 66
$10,000–$19,999 144
$5,000–$9,999 102
Less than $5,000 41
Total 400
a) What is the probability that a randomly selected graduate has between

$5,000–$9,999 in student loans?
b) What is the probability that a randomly selected graduate has $20,000

or more in student loans?

4-14
Example: (Continued)
Amount Frequency
$30,000 or more 47
$20,000–$29,999 66
$10,000–$19,999 144
$5,000–$9,999 102
Less than $5,000 41
Total 400
a) What is the probability that a randomly selected graduate has between

$5,000–$9,999 in student loans?
102
P($5,000  $9,999)   0.255
400
b) What is the probability that a randomly selected graduate has $20,000
or more in student loans?
66  47
P( $20,000)   0.2825
400
4-15
Law of Large Numbers
The law of large numbers states that when an

experiment is conducted a large number of
times, the empirical probabilities of the process
will converge to the classical probabilities
Example: Flip a coin a large number of times

• The observed number of heads would be very close
to 50%

4-16
Subjective Probability
Used when classical and empirical probabilities

are not available
• Instead use experience or intuition to estimate the
probabilities
• Example: The probability that inflation will be
greater than 4% next year

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watch?v=ugeD294BzKA

4-18
Basic Properties of a Probability
Probability Rule 1
• If P(A) = 1, then with certainty, Event A must occur
• Ex: rolling a single six-sided die and observing 1,2,3,4,5,6
Probability Rule 2
• If P(A) = 0, then with certainty, Event A will not occur
Probability Rule 3
• The probability of any event must range from 0 to 1
• Probabilities can never be negative or greater than 1. The probability that I will
buy a pair of shoes next month could be 0 (0%) or 1 (100%). Not 1 (-100%) or 2
(200%).
Probability Rule 4
• The sum of all the probabilities for the simple events in the sample
space must be equal to 1
• refer to pg. 153 table 4.5

4-19
Basic Properties of a Probability
Probability Rule 5
• The complement to Event A is defined as all of the outcomes in the
sample space that are not part of Event A. The complement is
denoted as A'
Probability of the complement of an event occurring is 100% minus
the probability of the event itself occurring.
• Page 154 cookie example
Formula for the complement rule:

P(A) + P(A' ) = 1
or
P(A) = 1 – P(A' )

4-20
4.2 Probability Rules for More Than
One Event
Many situations involve two or more events that

intersect with one another
A contingency table can be used to show the
number of occurrences of events that are
classified according to two categorical variables
Contingency tables show the actual or relative
frequency of two categorical variables at the
same time.

4-21
Contingency Tables
Contingency table for two events from a deck of 52

cards:
Event A = card is an Ace
Event A’ = card is not an Ace
Event B = card is a Red card
Event B’ = card is a Black card
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
4-22
Contingency Tables
Can use the contingency table to calculate

simple probabilities
Color
4
Ace 2 2 4 P(Ace)   0.077
Non-Ace 24 24 48 52
Total 26 26 52
26
P(Red)   0.50
52 Marginal probability is another
term used for simple probability

4-23
The Intersection of Events
The intersection of Events A and B represents

the number of instances in which Events A
and B occur at the same time

4-24
watch?v=kpu97wxXmzQ

4-25
The Intersection of Events
The probability of the intersection of two

events is known as a joint probability
Color
2
Ace 2 2 4 P(Ace and Red)   0.038
Non-Ace 24 24 48 52
Total 26 26 52
P(Ace and Red ) is also denoted as P(Ace  Red )

4-26
The Union of Events
The union of Events A and B represents the

number of instances where either Event A or
B occur or both events occur together

4-27
watch?v=bHQoOPAgcpM

4-28
The Union of Events
Consider the union of “Ace” or “Red card”

• 28 of the cards are either Aces or Red
Color
28
Ace 2 2 4 P(Ace or R ed)   0.538
Non-Ace 24 24 48 52
Total 26 26 52
P(Ace or R ed ) is also denoted as P(Ace  Red )

4-29
The Addition Rule
The addition rule for probabilities is used to

calculate the probability of the union of events
• the probability that Event A, or Event B, or both events
will occur
Two events are considered to be mutually exclusive if they
cannot occur at the same time during the experiment
mutually exclusive not mutually exclusive

4-30
watch?v=DOooyE6liLY

4-31
The Addition Rule
For mutually exclusive events, the addition rule states
that the probability of two events occurring is simply
the sum of their individual probabilities:
P(A or B) = P(A) + P(B)
If Events A and B are not mutually exclusive:

P(A or B) = P(A) + P(B) - P(A and B)

4-32
The Addition Rule
Consider the union of “Ace” or “Red card”
P(Ace or R ed)  P(Ace)  P(Red)  P(Ace and Red)
4 26 2 28
     0.538
52 52 52 52
Color Don’t count

Type Red Black Total the two red
Ace 2 2 4 aces twice!
Non-Ace 24 24 48
Total 26 26 52

4-33
The Addition Rule
A + B = A B
P(A or B) = P(A) + P(B) - P(A and B)
Don’t count common elements twice
Note: P(A and B) = 0 if events A and B are

mutually exclusive

4-34
Conditional probability is the probability of Event A
occurring, given the condition that Event B has
occurred
https://www.youtube.com/watch?v=H02B3aMNKzE

4-35
Conditional Probability
Conditional probability is the probability of Event A occurring,
given the condition that Event B has occurred
Example:
Event A = score in 601-800 range
Event B = Completed Prep Class
22 42
P(A | B)   0.314 P(A)   0.168
70 250
Given that event B has Called a Prior probability:
occurred, only look at the Determined without any
70 students who additional information that
completed the Prep Class could influence the event
4-36
Formula for Calculating Conditional

Probability
P(A and B)
P(A|B) 
P(B)
or
P(A and B)
P(B|A) 
P(A)
A conditional probability is also known as a posterior probability,
which is a revision of the prior probability using additional information

4-37
Example:
Event A = score in 601-800 range
Event B = Completed Prep Class
Same
value as
found
before

4-38
Independent and Dependent Events
Two events are considered independent of one

another if the occurrence of one event has no
impact on the occurrence of the other event
If the occurrence of one event affects the
occurrence of another event, the events are
considered dependent

4-39
watch?v=Za7G_eWKiF4

4-40
Formula for Determining if Events A and B are

independent
P(A|B)  P(A)
If P(A|B) ≠ P(A) then events A and B are not

independent

4-41
Example: Event A = Grade of 80% or better
Event B = Interested in the subject
Interested Not Interested Total

80% or better 72 38 110
Less than 80% 42 48 90
Total 114 86 200
72 110
P(A | B)   0.632 ≠ P(A)   0.55
114 200
Since P(A|B) ≠ P(A), the grade in the course and the interest in
the subject are dependent
4-42
The Multiplication Rule
The multiplication rule is used to determine the
probability of the intersection (joint probability)
of two events occurring, or P(A and B)
Formula for the multiplication rule for
dependent events:
P(A and B) P(A and B)
P(A|B)  P(B|A) 
P(B) or P(A)
P(A and B)  P( B) P(A|B) P(A and B)  P( A) P(B|A)

4-43
watch?v=Q_7PR9kRXWs

4-44
Example for dependent events:
Event A = rain is forecasted
Event B = carry umbrella
Assume: P(rain forecasted) = 0.30

P(carry umbrella | rain forecasted) = 0.90
P(A and B)  P( A) P(B|A)  (0.30)(0.90)  0.27
So there is a 27% probability that it will rain and you

will carry an umbrella

4-45
Formula for the multiplication rule for two

independent events:
P(A and B)  P( A) P(B )
• Since events A and B are independent,
P(B|A) = P(B)
When multiple events are all independent, the probability of
them all occurring is simply the product of their individual
probabilities:
P(A1 and A2 and ... and An )  P(A1 )P(A2 )...P(An )

4-46
Contingency Tables with Probabilities
Convert table frequencies into probabilities by dividing each
number in the table by the total number of observations
• Probability of course grade by course interest:
80% or better 72 38 110
Less than 80% 42 48 90
Total 114 86 200

80% or better 0.36 0.19 0.55
Less than 80% 0.21 0.24 0.45
Total 0.57 0.43 1.00

4-47
Contingency Tables with Probabilities
Decision trees are used to display marginal

and joint probabilities from a contingency
table P(A and B) = 0.36
80% or better These four

P(A) = .55 probabilities add
P(A and B’) = 0.19 up to 1.0 because
they represent the
entire sample
space
P(A’ and B) = 0.21
Less than 80%
P(A’) = 0.45
P(A’ and B’) = 0.24

4-48
Permutations
Permutations are the number of different

ways in which objects can be arranged in
order: 123, 132, 213, 231, 312, 321
The number of permutations of n distinct
objects is n!
n! = n(n - 1)(n - 2)…(2)(1)
By definition, 0! = 1

4-49
Permutations
Formula for the Permutations of n Objects

Selected x at a Time
n!
n Px   n(n  1 )(n  2 )(n  x  1 )
(n  x)!
where:
n = The total number of objects
x = The number of objects to be selected

4-50
Permutations
Suppose that two letters are to be selected from

A, B, C, D and arranged in order. How many
permutations are possible?
Answer:
• The number of permutations, with n = 4 and x = 2 , is
4! (4)(3)(2)(1)
4 P2    12
(4  2)! (2)(1)
The permutations are
AB AC AD BA BC BD
CA CB CD DA DB DC

4-51
Computations
Combinations are the number of different

ways in which objects can be arranged
without regard to order
Formula for the Combinations of n Objects
Selected x at a Time:
n! n(n  1 )(n  2 )(n  x  1 )
n Cx  
(n  x)! x! x!
• When the order of objects is important, use
permutations. When the order of objects does
not matter, use combinations.

4-52
Combinations
Suppose that two letters are to be selected

from A, B, C, D. How many combinations are
possible (i.e., order is not important)?
Answer: The number of combinations is
4! (4)(3)(2)(1)
4 C2   6
(4  2)! 2! (2)(1)(2)(1)
The combinations are
AB (same as BA) BC (same as CB)
AC (same as CA) BD (same as DB)
AD (same as DA) CD (same as DC)

4-53

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Chapter 4

Copyright ©2015 Pearson Education, Inc.

4.2 Probability Rules for More Than One Event

4.3 Counting Principles

Copyright ©2015 Pearson Education, Inc.

A probability is a numerical value ranging

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Methods of Assigning Probability

Classical Empirical Subjective

Copyright ©2015 Pearson Education, Inc.

Classical Empirical Subjective

Number of possible outcomes that constitute Event A

Copyright ©2015 Pearson Education, Inc.

Experiment: Roll a die once

Define Event A as rolling a five

P(A) = 1/6 = 0.167, or a 16.7% probability

Copyright ©2015 Pearson Education, Inc.

Experiment: Roll a die once

Classical probability assumes that each event

Classical Empirical Subjective

Frequency in which Event A occurs

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Example: A survey of 400 new graduates asked how much they

a) What is the probability that a randomly selected graduate has between

b) What is the probability that a randomly selected graduate has $20,000

Copyright ©2015 Pearson Education, Inc.

a) What is the probability that a randomly selected graduate has between

The law of large numbers states that when an

Example: Flip a coin a large number of times

Copyright ©2015 Pearson Education, Inc.

Classical Empirical Subjective

Used when classical and empirical probabilities

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Formula for the complement rule:

Copyright ©2015 Pearson Education, Inc.

Many situations involve two or more events that

Copyright ©2015 Pearson Education, Inc.

Contingency table for two events from a deck of 52

Can use the contingency table to calculate

Copyright ©2015 Pearson Education, Inc.

The intersection of Events A and B represents

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

The probability of the intersection of two

P(Ace and Red ) is also denoted as P(Ace  Red )

Copyright ©2015 Pearson Education, Inc.

The union of Events A and B represents the

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

Consider the union of “Ace” or “Red card”

P(Ace or R ed ) is also denoted as P(Ace  Red )

Copyright ©2015 Pearson Education, Inc.

The addition rule for probabilities is used to

mutually exclusive not mutually exclusive

Copyright ©2015 Pearson Education, Inc.

Copyright ©2015 Pearson Education, Inc.

If Events A and B are not mutually exclusive:

Copyright ©2015 Pearson Education, Inc.

Consider the union of “Ace” or “Red card”