BUSINESS

STATISTICS
STATISTICS FOR MANAGERS

SESSION - II

INSTRUCTOR: DR. ANKIT SHARMA

QUANTITATIVE METHODS & OPERATIONS MANAGEMENT

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SESSIO
N BINOMIAL
DISTRIBUTIO

FLOW PROBABILITY
N

CONDITIONA DISTRIBUTIO SUMMARY

L N FOR &
PROBABILITY DISCRETE WAY
VARIABLES FORWARD

BAYES’
THEOREM

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Conditional Probability
Conditional probability refers to the probability of event A, given information about the occurrence of another event,
B. 

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Conditional Probability
In previous table, you get the values in the cells of the table by subdividing the sample space of 1,000 households according to
whether someone planned to purchase and actually purchased a large TV. For example, 200 of the respondents planned to
purchase a large TV and subsequently did purchase the large TV.

Suppose you were told that a household planned to purchase a large TV. Now, what is the probability that the household
actually purchased the television?
the objective is to find P(Actually purchased | Planned to purchase)

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Conditional Probability

The table below, is a contingency table for whether a household purchased a television with a faster refresh rate and whether the
household purchased a streaming media player. If a household purchased a television with a faster refresh rate, what is the
probability that it also purchased a streaming media player?

You know that the household purchased a television with a faster refresh rate, the sample space is reduced to 80 households.
Of these 80 households, 38 also purchased a streaming media player.

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 Independence

When the outcome of one event does not affect the probability of occurrence of another event, the events are said to be
independent
Two events, A and B, are independent if and only if
𝑃  ( 𝐴|𝐵 ) =𝑃( 𝐴)¿
P(A|B) = Conditional probability of A when B has occurred
P(A) = Probability of event A
In the follow-up survey of the 300 households that actually purchased large TVs, the households were asked if they were
satisfied with their purchases. Table below cross-classifies the responses to the satisfaction question with the responses to
whether the television had a faster refresh rate.
Determine whether being satisfied with the purchase and the refresh
rate of the television purchased are independent.

Thus, being satisfied with the purchase and the refresh rate of
the television purchased are independent. Knowledge of one
event does not affect the probability of the other event.
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Multiplication Rule
The general multiplication rule is derived using Equation
  𝑃 ( 𝐴 𝑎𝑛𝑑 𝐵)
𝑃 ( 𝐴|𝐵 ) =
𝑃( 𝐵)
and solving for the joint probability P(A and
B).
𝑃
  ( 𝐴 𝑎𝑛𝑑 𝐵 )=𝑃 ( 𝐴|𝐵 ) 𝑃(𝐵)
Consider the 80 households that purchased televisions that had a faster refresh rate. In the table, you see that 64
households are satisfied with their purchase, and 16 households are dissatisfied. Suppose 2 households are randomly
selected from the 80 households. Find the probability that both households are satisfied with their purchase.

Here you can use the multiplication rule in the following way. If

A = second household selected is satisfied

B = first household selected is satisfied

The probability that the first household is satisfied with the purchase is 64/80.
However, the probability that the second household is also satisfied with the purchase depends on the result of the
1.first selection.
sampling without replacement, P(S) = 63/79
𝑃
  ( 𝐴 𝑎𝑛𝑑 𝐵 )=𝑃 ( 𝐴|𝐵 ) 𝑃(𝐵)
2. sampling with replacement, P(S) = 64/80
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Independence
If A and B are independent, the probability of A and B is equal to the probability of A times the probability
of B.
𝑃
  ( 𝐴 𝑎𝑛𝑑 𝐵 )=𝑃 ( 𝐴 ) 𝑃(𝐵)

What business and technical skills are critical for today’s business intelligence/analytics and information management
professionals? As part of InformationWeek’s 2014 U.S. IT Salary Survey, business intelligence/analytics and data
integration/warehousing professionals, both staff and managers, were asked to indicate what business and technical
skills are critical to their job. The list of business and technical skills included Analyzing Data. The following table
summarizes
a. Given that thea responses to this
professional skill:what is the probability that the
is staff,
professional indicates analyzing data as critical to his or her job?

b. Given that a professional is staff, what is the probability that the

professional does not indicate analyzing data as critical to his or her
job?

c. Given that a professional is a manager, what is the probability that

the professional indicates analyzing data as critical to his or her job?

d. Given that a professional is a manager, what is the probability that

the professional
10/22/21 does not indicate analyzingBusiness
dataStatistics:
as critical to his- SESSION
MAIN MODULE or II 8
A standard deck of cards is being used to play a game. There are four suits (hearts, diamonds, clubs, and spades),
each having 13 faces (ace, 2, 3, 4, 5, 6, 7, 8, 9, 10, jack, queen, and king), making a total of 52 cards. This
complete deck is thoroughly mixed, and you will receive the first 2 cards from the deck, without replacement (the
first card is not returned to the deck after it is selected).
a. What is the probability that both cards are queens?

b. What is the probability that the first card is a 10 and the second
card is a 5 or 6?

c. If you were sampling with replacement (the first card is returned

to the deck after it is selected), what would be the answer in (a)?

d. In the game of blackjack, the face cards (jack, queen, king)

count as 10 points, and the ace counts as either 1 or 11 points.
All other cards are counted at their face value. Blackjack is
achieved if 2 cards total 21 points. What is the probability of
getting blackjack in this problem?
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Conditional probability and multiplication rule
An online retailer sells three different brands of Bluetooth ear buds. Of its ear bud sales, 50% are brand 1 (the least expensive),
30% are brand 2, and 20% are brand 3. Each manufacturer offers a 1-year warranty. It is known that 25% of brand 1’s ear buds
will be returned within the 1-year warranty period, whereas the corresponding percentages for brands 2 and 3 are 20% and
10%, respectively.

1. What is the probability that a randomly selected purchaser has bought brand 1 ear buds that will be
returned while under warranty?

2. What is the probability that a randomly selected purchaser has ear buds that will be returned while
under warranty?

3. If a customer returns ear buds under warranty, what is the probability that they are brand 1 ear buds? Brand 2? Brand 3?
The first stage of the problem involves a customer selecting one of the three brands of ear bud
Let Ai = {brand i is purchased}, for i = 1, 2, and 3.

Then P(A1) = .50,

Once a brand of ear bud is selected, the second stage involves observing whether the
P(A2) = .30, and
selected ear buds get returned during the warranty period
P(A3) = .20
With B = {returned} and B′ = {not returned},
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 the given information implies that P(B|A1) = .25, P(B|A2) = .20, and P(B|A3) = .10

1. the probability that a randomly selected purchaser has bought brand 1 ear buds that will be returned while under
warranty
P(A1 ∩ B) = P(B|A1) . P(A1) = 0.25*0.50 = 0.125

2. the probability that a randomly selected purchaser has ear buds that will be returned while under warranty
P(A2 ∩ B) = P(B|A2) . P(A2) = 0.20*0.30 = 0.060
P (B) = P(A1 ∩ B) + P(A2 ∩ B) + P(A3 ∩ B) P(A3 ∩ B) = P(B|A3) . P(A3) = 0.10*0.20 = 0.020

P (B) = 0.125 + 0.060 + 0.020 = 0.205

3. If a customer returns ear buds under warranty, what is the probability that they are brand 1 ear buds? Brand 2?
Brand 3?
  𝑃 ( 𝐴 1 𝑎𝑛𝑑 𝐵) ¿  0.125 =0.61 Notice that the initial or prior probability of brand 1 is 0.50,
𝑃 ( 𝐴 1|𝐵 ) = 0.205
𝑃( 𝐵) whereas once it is known that the selected ear buds were
  𝑃 ( 𝐴 2 𝑎𝑛𝑑 𝐵)   0.060 returned, the posterior probability of brand 1 increases to 0.61.
𝑃 ( 𝐴 2|𝐵 ) = ¿
0.205
=0.29
𝑃( 𝐵)
This is because brand 1 ear buds are more likely to be returned
  𝑃 ( 𝐴 3 𝑎𝑛𝑑 𝐵)   0.020
𝑃 ( 𝐴 3|𝐵 ) = ¿ =0.10 under warranty than are the other brands.
𝑃 (𝐵) 0.205

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Bayes’ Theorem
Developed by Thomas Bayes in the eighteenth, Bayes’ theorem is an extension of what you previously learned
about conditional probability. Bayes’ theorem revises previously calculated probabilities using additional
information and forms the basis for Bayesian analysis.
To state it we first need another result.
Recall that events A1,…, Ak are mutually exclusive if no two have any common outcomes. The events are exhaustive if A1 U…U
Ak = S , so that one Ai must occur.

Law of total probability

Let A1, …, Ak be mutually exclusive and exhaustive events. Then for any other event B,
P (B) = P(A1 ∩ B) + P(A2 ∩ B) + P(A3 ∩ B) +.. P(Ak ∩ B)

P (B) = P(B|A1) . P(A1) + P(B|A2) . P(A2) +.. P(B|Ak) . P(Ak)

  P (B) =

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BAYES’ THEOREM

The proliferation of events and subscripts in can be a bit intimidating to probability newcomers. When k = 2, so that the
partition of S consists of just A1 = A and A2 = A′, Bayes’ Theorem becomes

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Bayes’ Theorem Example

Incidence of a rare disease. Only 1 in 1000 adults is afflicted with a rare disease for which a diagnostic test has
been developed. The test is such that when an individual actually has the disease, a positive result will occur 99%
of the time, whereas an individual without the disease will show a positive test result only 2% of the time. If a
randomly selected individual is tested and the result is positive, what is the probability that the individual has the
Todisease?
use Bayes’ theorem,
let A1 = {individual has the disease},
A2 = {individual does not have the disease}, and
B = {positive test result}.
P(A1) = 0.001 P(A2) = 0.999 P(B|A1) = 0.99 P(B|A2) = 0.02

P (B) = P(A1 ∩ B) + P(A2 ∩ B)

P (B) = P(B|A1) . P(A1) + P(B|A2) . P(A2) 𝑃 ( 𝐴 1 𝑎𝑛𝑑 𝐵)
 
𝑃 ( 𝐴 1|𝐵 ) =
P (B) = 0.99* 0.001+ 0.02*0.999 𝑃( 𝐵)
P (B) = 0.02097   0.00099
𝑃 ( 𝐴 1|𝐵 ) = =0.047
0.02097
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Bayes’ Theorem Example
A drilling company has estimated a 40% chance of striking oil for their new well. A detailed test has been
scheduled for more information. Historically, 60% of successful wells have had detailed tests, and 20% of
unsuccessful wells have had detailed tests.
Given that this well has been scheduled for a detailed test, what is the probability that the well will be successful?
To use Bayes’ theorem,
let A1 = {Successful well},
A2 = {Unsuccessful well}, and
B = {detailed test}.
P(A1) = 0.40 P(A2) = 0.60 P(B|A1) = 0.60 P(B|A2) = 0.20

P (B) = P(A1 ∩ B) + P(A2 ∩ B)   𝑃 ( 𝐴 1 𝑎𝑛𝑑 𝐵)

𝑃 ( 𝐴 1|𝐵 ) =
P (B) = P(B|A1) . P(A1) + P(B|A2) . P(A2) 𝑃( 𝐵)
P (B) = 0.60* 0.40+ 0.20*0.60  𝑃 𝐴 𝐵 = 0.24 =0.667
( 1| ) 0.36
P (B) = 0.36
posterior probability of success increases to 0.667
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Probability Distribution
Suppose a city’s traffic engineering department
monitors a certain intersection during a one-hour
period in the middle of the day.

Many characteristics might be of interest: the number

of vehicles that enter the intersection, the largest
number of vehicles in the left turn lane during a
signal cycle, the speed of the fastest vehicle going
through the intersection, the average speed x of all
vehicles entering the intersection.

The value of each one of the foregoing variable

quantities is subject to uncertainty i.e. we don’t know
a priori how many vehicles will enter, what the
maximum speed will be, etc.

So each of these is referred to as a random variable

i.e. a variable quantity whose value is determined by
what happens in a chance experiment.
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Random Variables
In general, each outcome of an experiment can be associated with a number by specifying a rule of association,
e.g., the number among the sample of ten components that fail to last 1000 h, or the total baggage weight for a sample of 25
airline passengers.
Such a rule of association is called a random variable—a variable because different numerical values are possible and random
because the observed value depends on the possible experimental outcomes results.
Random variables are customarily denoted by uppercase letters, such as X and Y, near the end of our alphabet.

In contrast to our previous use of a lowercase letter, such as x, to denote a variable, we will now use lowercase letters to
represent some particular value of the corresponding random variable.

The notation X(s) = x means that x is the value associated with the outcome s by the rv X.

When a student attempts to connect to a university’s WIFI network, either there is a failure (F) or there is a success (S).

With S = {S, F}, define a rv X by X(S) = 1, X(F) = 0.

The rv X indicates whether (1) or not (0) the student can connect.

Any random variable whose only possible values are 0 and 1 is called a Bernoulli random variable.
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Random Variables
Consider any general inspection process, wherein items are examined one by one until we find an item that falls within
required specification limits. The sample space of such an experiment is S = {S, FS, FFS, …}.

Define a rv X, where

X = {the number of items examined until a ‘‘good’’ one is found.}

X(S) = 1, X(FS) = 2, X(FFS) = 3 and so on. Any positive integer is a possible value of X, so the set of possible values
is infinite.

Suppose that in some random fashion, a location (latitude and longitude) in the continental USA is selected. Define a rv Y by

Y = the height above sea level at the selected location

For example, if the selected location were (39° 50′ N, 98° 35′ W), then it might be the case that Y((39° 50′ N, 98° 35′
W)) = 1748.26 ft. The largest possible value of Y is 14,494 (Mt. Whitney), and the smallest possible value is −282
(Death Valley). The set of all possible values of Y is the set of all numbers in the interval between −282 and 14,494—
that is,
{y: y is a number, 282 ≤ y ≤ 14,494 = {-282; 14,494}
and there are infinitely many numbers in this interval (an entire continuum).
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Two Types of Random Variables

A discrete random variable is a rv whose possible values constitute either a finite set or a countably infinite set. 1

Countably infinite set is one for which the elements can be enumerated: a first element, a second element, and so on.
The set of all positive integers and the set of all integers are both countably infinite, but an interval like [2, 5] on the
number line is not.

A random variable is continuous if both of the following apply:

i. Its set of possible values consists either of all numbers in a single interval on the number line (possibly
infinite in extent, e.g., from - infy to + infy) or all numbers in a disjoint union of such intervals (e.g., [0, 10]
U [20, 30] U…).

ii. No possible value of the variable has positive probability, that is, P(X = c) = 0 for any possible value c.

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