Statistics for Business and

Economics

Chapter 3
Probability
 Learning Objectives

1. Define Experiment, Outcome, Sample Point,

Sample Space, Event, & Probability
2. Use a Venn Diagram, Two–Way Table, or
Tree Diagram to Find Probabilities
3. Describe & Use Probability Rules
 Thinking Challenge
• What’s the probability
of getting a head on
the toss of a single fair
coin? Use a scale from
0 (no way) to 1 (sure
thing).
• So toss a coin twice.
Do it! Did you get one
head & one tail?
What’s it all mean?
 Many Repetitions!*
Total Heads
Number of Tosses
1.00

0.75

0.50

0.25

0.00
0 25 50 75 100 125
Number of Tosses
Events, Sample Spaces,
and Probability
 Experiments & Sample Spaces
1. Experiment
• Process of obtaining an observation, outcome or
simple event
2. Sample point
Sample Space
• Most basic outcome of an
Depends on
experiment Experimenter!
3. Sample space (S)
• Collection of all possible outcomes
 Sample Space Properties
1. Mutually Exclusive
Experiment: Observe Gender
• 2 outcomes can not
occur at the same
time
— Male & Female in
same person
2. Collectively Exhaustive
• One outcome in
sample space must
occur.
— Male or Female
© 1984-1994 T/Maker Co.
 Visualizing
Sample Space
1. Listing
 S = {Head, Tail}

2. Venn Diagram

T
H
S
 Sample Space Examples
Experiment Sample Space
• Toss a Coin, Note Face {Head, Tail}
• Toss 2 Coins, Note Faces {HH, HT, TH, TT}
• Select 1 Card, Note Kind {2♥, 2♠, ..., A♦} (52)
• Select 1 Card, Note Color {Red, Black}
• Play a Football Game {Win, Lose, Tie}
• Inspect a Part, Note Quality {Defective, Good}
• Observe Gender {Male, Female}
 Events
1. Any collection of sample points
2. Simple Event
• Outcome with one characteristic
3. Compound Event
• Collection of outcomes or simple events
• Two or more characteristics
• Joint event is a special case
— Two events occurring simultaneously
 Venn Diagram
Experiment: Toss 2 Coins. Note Faces.
Sample Space S = {HH, HT, TH, TT}
Compound
Event: At
least one
TH Tail
Outcome HH HT

TT
S
 Event Examples
Experiment: Toss 2 Coins. Note Faces.
Sample Space: HH, HT, TH, TT
Event Outcomes in Event
• 1 Head & 1 Tail HT, TH
• Head on 1st Coin HH, HT
• At Least 1 Head HH, HT, TH
• Heads on Both HH
Probabilities
 What is Probability?
1. Numerical measure of the
likelihood that event will 1 Certain
cccur
• P(Event)
• P(A)
.5
• Prob(A)
2. Lies between 0 & 1
3. Sum of sample points is 1
0 Impossible
 Probability
P(Event) = X / T
• X = Number of event outcomes
• T = Total number of sample points
in Sample Space
• Each of T sample points is equally
likely © 1984-1994 T/Maker Co.

— P(sample point) = 1/T

Compound Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

Unions & Intersections
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Unions & Intersections
1. Union
• Outcomes in either events A or B or Both
• ‘OR’ statement
•  symbol (i.e., A  B)
2. Intersection
• Outcomes in both events A and B
• ‘AND’ statement
•  symbol (i.e., A  B)
 Event Union:
Venn Diagram
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Event
Ace Black Black:
Sample
Space: 2B,
2R, 2R, 2B, ...,
2B, ..., AB AB
S
Event Ace: Event Ace  Black:
AR, AR, AB, AB AR, ..., AB, 2B, ..., KB
 Event Union:
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color Simple
Sample Space Type Red Total
Black Event
(S): Ace:
Ace Ace & Ace & Ace
2R, 2R, AR,
Red Black
2B, ..., AB AR,
Non-Ace Non & Non & Non-
AB,
Red Black Ace AB
Event Total Red Black S
Ace  Black:
Simple Event Black:
AR,..., AB, 2B, ..., KB
2B, ..., AB
 Event Intersection:
Venn Diagram
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Event
Ace Black Black:
Sample
Space: 2B, ...,
2R, 2R, AB
2B, ..., AB
S
Event Ace: Event Ace  Black:
AR, AR, AB, AB AB, AB
 Event Intersection:
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color Simple
Sample Space Type Red Total
Black Event
(S): Ace:
Ace Ace & Ace & Ace
2R, 2R, AR,
Red Black
2B, ..., AB AR,
Non-Ace Non & Non & Non-
AB,
Red Black Ace AB
Event Total Red Black S
Ace  Black:
Simple Event Black: 2B, ..., AB
AB, AB
 Compound Event Probability
1. Numerical measure of likelihood that
compound event will occur
2. Can often use two–way table
• Two variables only

3. Formula methods
• Additive rule
• Conditional probability formula
• Multiplicative rule
 Event Probability Using
Two–Way Table

Event
Event B1 B2 Total
A1 P(A 1  B1) P(A1  B2) P(A1)
A2 P(A 2  B1) P(A2  B2) P(A2)
Total P(B 1) P(B 2) 1

Joint Probability Marginal (Simple) Probability

 Two–Way Table Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2/52 2/52 4/52
Non-Ace 24/52 24/52 48/52 P(Ace)

Total 26/52 26/52 52/52

P(Red) P(Ace  Red)

 Thinking Challenge
What’s the Probability?
1. P(A) =
2. P(D) = Event
Event C D Total
3. P(C  B) = A 4 2 6
4. P(A  D) = B 1 3 4
5. P(B  D) = Total 5 5 10
 Solution*
The Probabilities Are:
1. P(A) = 6/10
2. P(D) = 5/10 Event
Event C D Total
3. P(C  B) = 1/10 A 4 2 6
4. P(A  D) = 9/10 B 1 3 4
5. P(B  D) = 3/10 Total 5 5 10
Complementary Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Complementary Events
Complement of Event A
• The event that A does not occur
• All events not in A: AC
• P(A) + P(AC) = 1

AC
A

S
 Complement of Event
Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Black
Sample
Space:
2R, 2R,
2B, ..., AB
S
Event Black: Complement of Event Black,
2B, 2B, ..., AB BlackC: 2R, 2R, ..., AR, AR
Additive Rule & Mutually
Exclusive Events
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Mutually Exclusive Events
Mutually Exclusive Events
• Events do not occur
simultaneously

• A  B does not contain
any sample points
 Mutually Exclusive
Events Example
Experiment: Draw 1 Card. Note Kind & Suit.

Sample
 Outcomes
in Event
Space: Heart:


2, 2, 2, 3, 4
2, ..., A , ..., A
S
Event Spade:
2, 3, 4, ..., A Events  and are Mutually Exclusive
 Additive Rule
1. Used to get compound probabilities for
union of events
2. P(A OR B) = P(A  B)
= P(A) + P(B) – P(A  B)
3. For mutually exclusive events:
P(A OR B) = P(A  B) = P(A) + P(B)
 Additive Rule Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52

P(Ace  Black) = P(Ace) + P(Black) – P(Ace  Black)

4 26 2 28
= + – =
52 52 52 52
 Thinking Challenge
Using the additive rule, what is the probability?

1. P(A  D) = Event
Event C D Total
2. P(B  C) = A 4 2 6
B 1 3 4
Total 5 5 10
 Solution*
Using the additive rule, the probabilities are:

1. P(A  D) = P(A) + P(D) – P(A  D)

6 5 2 9
= + – =
10 10 10 10

2. P(B  C) = P(B) + P(C) – P(B  C)

4 5 1 8
= + – =
10 10 10 10
Conditional Probability
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Conditional Probability
1. Event probability given that another event
occurred
2. Revise original sample space to account for
new information
• Eliminates certain outcomes

3. P(A | B) = P(A and B) = P(A  B)

P(B) P(B)
Conditional Probability Using
Venn Diagram
Black ‘Happens’:
Eliminates All
Ace Black Other Outcomes

Black
S (S)

Event (Ace  Black)

 Conditional Probability Using
Two–Way Table
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total Revised
Sample
Ace 2 2 4 Space
Non-Ace 24 24 48
Total 26 26 52
P(Ace  Black) 2 / 52 2
P(Ace | Black) =  
P(Black) 26 / 52 26
 Statistical Independence
1. Event occurrence does not
affect probability of another
event
• Toss 1 coin twice
2. Causality not implied
3. Tests for independence
• P(A | B) = P(A)
• P(A  B) = P(A)*P(B)
 Thinking Challenge
Using the table then the formula, what’s the
probability?

1. P(A|D) = Event
Event C D Total
2. P(C|B) =
A 4 2 6
3. Are C & B B 1 3 4
Independent? Total 5 5 10
 Solution*
Using the formula, the probabilities Are:

P(A  D) 2 / 10 2
P(A | D) = = =
P(D) 5 / 10 5

P(C  B) 1 / 10 1
P(C | B) = = =
P(B) 4 / 10 4
5 1
P(C) = ≠ = P(C | B) Dependent
10 4
Multiplicative Rule
 Compound Events
Compound
Events

A or B A and B Not A A given B

 Multiplicative Rule
1. Used to get compound probabilities for
intersection of events
• Called joint events

2. P(A and B) = P(A  B)

= P(A)*P(B|A)
= P(B)*P(A|B)
3. For Independent Events:
P(A and B) = P(A  B) = P(A)*P(B)
 Multiplicative Rule Example
Experiment: Draw 1 Card. Note Kind, Color &
Suit.
Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52

P(Ace  Black) = P(Ace)∙P(Black | Ace)

 4  2  2
    
 52  4  52
 Thinking Challenge
Using the multiplicative rule, what’s the
probability?
Event
1. P(C  B) =
Event C D Total
2. P(B  D) = A 4 2 6
3. P(A  B) = B 1 3 4
Total 5 5 10
 Solution*
Using the multiplicative rule, the probabilities
are:

P(C  B) = P(C)  P(B| C) = 5/10 * 1/5 = 1/10

P(B  D) = P(B)  P(D| B) = 4/10 * 3/4 = 3/10

P(A  B) = P(A)  P(B| A) = 0

 Tree Diagram
Experiment: Select 2 pens from 20 pens: 14
blue & 6 red. Don’t replace.
Dependent!
P(R|R) = 5/19 R P(R  R)=(6/20)(5/19) =3/38
P(R) = 6/20
R
P(B|R) = 14/19 B P(R  B)=(6/20)(14/19) =21/95
P(R|B) = 6/19 R P(B  R)=(14/20)(6/19) =21/95
B
P(B) = 14/20
P(B|B) = 13/19 B P(B  B)=(14/20)(13/19) =91/190
Bayes’s Rule
 Bayes’s Rule
• Allows computation of an unknown
conditional probability, P(B|A), by converting
it to a known conditional probability, P(A|B)
• For k mutually exclusive events,

P( Bi ) P( A | Bi )
P( Bi | A) 
P( B1 ) P( A | B1 )  P( B2 ) P( A | B2 )  ...  P( Bk ) P( A | Bk )
 Bayes’s Rule Example
A company manufactures mp3 players at two factories.
Factory I produces 60% of the mp3 players and
Factory II produces 40%. Two percent of the mp3
players produced at Factory I are defective, while 1%
of Factory II’s are defective. An mp3 player is selected
at random and found to be defective. What is the
probability it came from Factory I?
 Bayes’s Rule Example
P(D|I) = .02 Defective
Factory
P(I) = .6 I
P(G|I) = .98 Good
P(D|II) = .01 Defective
P(II) = .4 Factory
II
P(G|II) = .99 Good

P( I ) P( D | I ) .6*.02
P ( I | D)    .75
P( I ) P( D | I )  P( II ) P( D | II ) .6*.02  .4*.01
 Conclusion

1. Defined Experiment, Outcome, Sample

Point, Sample Space, Event, & Probability
2. Used a Venn Diagram, Two–Way Table, or
Tree Diagram to Find Probabilities
3. Described & Use Probability Rules