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Conditional probability explained!

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Session 1

Probability

Probability

Probability is

is aa numerical

numerical measure

measure of

of the

the likelihood

likelihood

that

that an

an event

event will

will occur.

occur.

Probability

Probability values

values are

are always

always assigned

assigned on

on aa scale

scale

from

from 0

0 to

to 1.

1.

A

A probability

probability near

near zero

zero indicates

indicates an

an event

event is

is quite

quite

unlikely

unlikely to

to occur.

occur.

A

A probability

probability near

near one

one indicates

indicates an

an event

event is

is almost

almost

certain

certain to

to occur.

occur.

of the Likelihood of Occurrence

Increasing Likelihood of Occurrence

Probability

:

0

The event

is very

unlikely

to occur.

.

5

The occurrence

of the event is

just as likely as

it is unlikely.

1

The event

is almost

certain

to occur.

Statistical Experiments

In

In statistics,

statistics, the

the notion

notion of

of an

an experiment

experiment differs

differs

somewhat

somewhat from

from that

that of

of an

an experiment

experiment in

in the

the

physical

physical sciences.

sciences.

In

In statistical

statistical experiments,

experiments, probability

probability determines

determines

outcomes.

outcomes.

Even

Even though

though the

the experiment

experiment is

is repeated

repeated in

in exactly

exactly

the

the same

same way,

way, an

an entirely

entirely different

different outcome

outcome may

may

occur.

occur.

For

For this

this reason,

reason, statistical

statistical experiments

experiments are

are somesometimes

times called

called random

random experiments.

experiments.

An

An experiment

experiment is

is any

any process

process that

that generates

generates wellwelldefined

defined outcomes.

outcomes.

The

The sample

sample space

space for

for an

an experiment

experiment is

is the

the set

set of

of

all

all experimental

experimental outcomes.

outcomes.

An

An experimental

experimental outcome

outcome is

is also

also called

called aa sample

sample

point.

point.

Experiment

Experiment Outcomes

Toss a coin

Inspection a part

Conduct a sales call

Roll a die

Play a football game

Head, tail

Defective, non-defective

Purchase, no purchase

1, 2, 3, 4, 5, 6

Win, lose, tie

Assigning Probabilities

Basic Requirements for Assigning Probabilities

1.

1. The

The probability

probability assigned

assigned to

to each

each experimental

experimental

outcome

outcome must

must be

be between

between 0

0 and

and 1,

1, inclusively.

inclusively.

0 < P(Ei) < 1 for all i

where:

Ei is the ith experimental outcome

and P(Ei) is its probability

Assigning Probabilities

Basic Requirements for Assigning Probabilities

2.

2. The

The sum

sum of

of the

the probabilities

probabilities for

for all

all experimental

experimental

outcomes

outcomes must

must equal

equal 1.

1.

P(E1) + P(E2) + . . . + P(En) = 1

where:

n is the number of experimental outcomes

Assigning Probabilities

Classical Method

Assigning probabilities based on the assumption

of equally likely outcomes

Relative Frequency Method

Assigning probabilities based on experimentation

or historical data

Subjective Method

Assigning probabilities based on judgment

Subjective Method

When economic conditions and a companys

circumstances change rapidly it might be

inappropriate to assign probabilities based solely on

historical data.

We can use any data available as well as our

experience and intuition, but ultimately a probability

value should express our degree of belief that the

experimental outcome will occur.

The best probability estimates often are obtained by

combining the estimates from the classical or relative

frequency approach with the subjective estimate.

An event is a collection of sample points.

The probability of any event is equal to the sum of

the probabilities of the sample points in the event.

If we can identify all the sample points of an

experiment and assign a probability to each, we

can compute the probability of an event.

Complement of an Event

The complement of event A is defined to be the event

consisting of all sample points that are not in A.

c

The

The complement

complement of

of A

A is

is denoted

denoted by

by A

Ac..

Event A

Venn

Diagra

m

Ac

Sample

Space S

Two

Two events

events are

are said

said to

to be

be mutually

mutually exclusive

exclusive if

if the

the

events

events have

have no

no sample

sample points

points in

in common.

common.

Two

Two events

events are

are mutually

mutually exclusive

exclusive if,

if, when

when one

one event

event

occurs,

occurs, the

the other

other cannot

cannot occur.

occur.

Event A

Event B

Sample

Space S

Independent Events

If

If the

the probability

probability of

of event

event A

A is

is not

not changed

changed by

by the

the

existence

existence of

of event

event B,

B, we

we would

would say

say that

that events

events A

A

and

and B

B are

are independent.

independent.

Do

Do not

not confuse

confuse the

the notion

notion of

of mutually

mutually exclusive

exclusive

events

events with

with that

that of

of independent

independent events.

events.

Two

Two events

events with

with nonzero

nonzero probabilities

probabilities cannot

cannot be

be

both

both mutually

mutually exclusive

exclusive and

and independent.

independent.

If

If one

one mutually

mutually exclusive

exclusive event

event is

is known

known to

to occur,

occur,

the

the other

other cannot

cannot occur.;

occur.; thus,

thus, the

the probability

probability of

of the

the

other

other event

event occurring

occurring is

is reduced

reduced to

to zero

zero (and

(and they

they

are

are therefore

therefore dependent).

dependent).

Two

Two events

events that

that are

are not

not mutually

mutually exclusive,

exclusive, might

might

or

or might

might not

not be

be independent.

independent.

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