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# Probability

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.

## Probability as a Numerical Measure

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 Experiment and Its Sample Space

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.

## An Experiment and Its Sample Space

Experiment

Experiment Outcomes

Toss a coin
Inspection a part
Conduct a sales call
Roll a die
Play a football game

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.

## Events and Their Probabilities

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

## Mutually Exclusive Events

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.

## Mutual Exclusiveness and Independence

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.