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A Decision-Making Approach
6th Edition
Chapter 4
Using Probability and
Probability Distributions
probabilities
Apply common rules of probability
probability distributions
Compute the expected value and standard
Black 2 24 26
Red 2 24 26
Total 4 48 52
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Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc.
A ce 24 Chap 4-6
Elementary Events
A automobile consultant records fuel type and
vehicle type for a sample of vehicles
2 Fuel types: Gasoline, Diesel
3 Vehicle types: Truck, Car, SUV
k e1
6 possible elementary events: Truc
e1 Gasoline, Truck Car e2
ol i ne
s
e2 Gasoline, Car Ga SUV
e3
e3 Gasoline, SUV k
Die Truc e4
e4 Diesel, Truck sel Car
e5 Diesel, Car e5
SUV
e6 Diesel, SUV e6
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 4-7
Probability Concepts
k
0 ≤ P(ei) ≤ 1
P(e ) 1i
For any event ei i1
where:
k = Number of elementary events
in the sample space
ei = ith elementary event
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 4-12
Addition Rule for Elementary Events
P( E ) 1 P(E) E
Or, P(E) P( E ) 1
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 4-14
Addition Rule for Two Events
■ Addition Rule:
P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)
E1 + E2 = E1 E2
So
0 utualvlye
= if m lusi
P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2) ex
c
= P(E1) + P(E2)
P(E1 and E 2 )
P(E1 | E 2 )
P(E 2 )
where P(E2 ) 0
CD No CD Total
AC .2 .5 .7
No AC .2 .1 .3
Total .4 .6 1.0
P(Ei )P(B | Ei )
P(Ei | B)
P(E1 )P(B | E1 ) P(E 2 )P(B | E 2 ) P(Ek )P(B | Ek )
where:
Ei = ith event of interest of the k possible events
B = new event that might impact P(Ei)
Events E1 to Ek are mutually exclusive and collectively
exhaustive
Sum = .36
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 4-28
Introduction to Probability
Distributions
Random Variable
Represents a possible numerical value from
a random event
Random
Variables
Discrete Continuous
Random Variable Random Variable
.50
H H .25
σx {x E(x)} P(x) 2
where:
E(x) = Expected value of the random variable
x = Values of the random variable
P(x) = Probability of the random variable having
the value of x
σx {x E(x)} P(x) 2
where:
xi = possible values of the x discrete random variable
yj = possible values of the y discrete random variable
P(xi ,yj) = joint probability of the values of xi and yj occurring
σxy
ρ
σx σy
where:
ρ = correlation coefficient (“rho”)
σxy = covariance between x and y
σx = standard deviation of variable x
σy = standard deviation of variable y
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 4-39
Interpreting the
Correlation Coefficient
The Correlation Coefficient always falls
between -1 and +1
=0 x and y are not linearly related.