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LEARNING
OBJECTIVES
 Understand what is probability and its examples

 Learn about the types of probability and their examples

 Understand what are mutually exclusive events and

Collective exhaustive events.

 Learn the types of probability.

 To understand the Venn Diagram, And its examples.

 To understand the statistical Dependence and

independence events.

 To learn about the Joint probabilities in Dependent

events.

 To Learn about Bayes Theorem and its concept.

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INTRODUCTION

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UNIONS AND
INTERSECTIONS OF EVENTS
EXAMPLE

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 What is a Venn
diagram?

A Venn diagram uses overlapping circles or other

shapes to illustrate the logical relationships
between two or more sets of items. Often, they
serve to graphically organize things, highlighting
how the items are similar and different.
Venn diagrams, also called Set diagrams or
Logic diagrams, are widely used in mathematics,
statistics, logic, teaching, linguistics, computer
science, and business.
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 Bayes' Theorem
What Is Bayes' Theorem?
Bayes' Theorem, named after 18th-century
British mathematician Thomas Bayes, is a
mathematical formula for determining 
conditional probability. Conditional probability
is the likelihood of an outcome occurring, based
on a previous outcome having occurred in
similar circumstances. Bayes' theorem provides
a way to revise existing predictions or theories
(update probabilities) given new or additional
evidence.
In finance, Bayes' Theorem can be used to rate
the risk of lending money to potential
borrowers. The theorem is also called Bayes'
Rule or Bayes' Law and is the foundation of the
field of Bayesian statistics.
2.4 Random Variables

A random variable assigns a real number to every

possible outcome or event in an experiment. It is
normally represented by a letter such as X or Y.
When the outcome itself is numerical
or quantitative, the outcome numbers can be
random variables. For example, consider
refrigerator sales at an appliance store.

The number of refrigerators sold during a given

day can be a random variable. Using X to
represent this random variable. we can express
this relationship as follows: X = number of
refrigerators sold during the day
PROBABILITY
DISTRIBUTION

What Is a Probability Distribution?

A probability distribution is a statistical function that
describes all the possible values and likelihoods that a 
random variable can take within a given range. This range
will be bounded between the minimum and maximum
possible values, but precisely where the possible value is
likely to be plotted on the probability distribution depends on
several factors. These factors include the distribution's mean
(average), standard deviation, skewness, and kurtosis.

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 PROBABILITY DISTRIBUTION FUNCTION

The probability distribution function is also known as the

cumulative distribution function (CDF). If there is a random
variable, X, and its value is evaluated at a point, x, then the
probability distribution function gives the probability that X
will take a value lesser than or equal to x. It can be written
as F(x) = P (X ≤ x). Furthermore, if there is a semi-closed 
interval given by (a, b] then the probability distribution
function is given by the formula P(a < X ≤ b) = F(b) - F(a).
The probability distribution function of a random variable
always lies between 0 and 1. It is a non-decreasing function.

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 PROBABILITY DISTRIBUTION FORMULA

The probability distribution of a random variable can be

described by a probability distribution function (CDF)
and a probability mass function (for discrete random
variables) or a probability density function (for
continuous random variables). Depending upon the type
of distribution a random variable follows there can be
different formulas for a probability distribution.

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Probability Distribution of a Normal Distribution
A normal distribution is a type of continuous probability
distribution. The mean and the variance are the two parameters
required to describe such a distribution. If X is a random
variable that follows a normal distribution, then it is denoted
as X∼N(μ,σ2)X∼N(μ,σ2). The probability distribution
formulas are given below:
•Probability Distribution Function: F(x)
= P=(Z≤x−μσ)=Φ(x−μσ)P=(Z≤x−μσ)=Φ(x−μσ)
•Probability Density Function: f(x) = 1σ√2Πe−(x−μ)22σ2

Probability Distribution of a Geometric Distribution

A geometric distribution is a type of discrete probability
distribution where the random variable, X, represents the
number of Bernoulli trials required till the first success is
obtained. The outcome of each trial can either be a success (p)
or a failure (1 - p). Given below are the formulas for the
probability distribution of a geometric distribution.
Probability Mass Function: P(X = x) = (1 - p)x - 1p

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Probability Distribution of a Binomial Distribution
A binomial distribution is another type of discrete probability
distribution that gives the number of successes when a sequence
of n independent experiments is conducted. The outcome of
each experiment can be either a success or a failure. It is
denoted as X∼Bin(n,p)X∼Bin(n,p)The formulas for the
probability distribution of a binomial distribution are given
below:
•Probability Distribution Function: F(x) = P (X ≤ x)
= ∑xi=0(ni)pi(1−p)n−i∑i=0x(ni)pi(1−p)n−i
•Probability Mass Function: P(X = x) = (nx)px(1−p)n−x

Probability Distribution Graph

A probability distribution graph helps to give a visual approach
to the distribution that a given random variable follows. For
continuous distributions, the area under a probability
distribution curve must always be equal to one. This is
analogous to discrete distributions where the sum of all
probabilities must be equal to 1.
For a continuous random variable, X, the probability density
function is used to obtain the probability distribution graph.
Suppose X lies between a and b, then the probability
distribution graph is given as follows: 51
Probability Distribution Function and Probability
Density Function

Both the probability distribution function and the

probability density function are used to describe a
probability distribution. A probability distribution
function is used to summarize the probability
distribution of a random variable. Such a function is
well-defined for both continuous and discrete
probability distributions. A probability density function
(pdf), on the other hand, can only be used for continuous
distributions. It can be defined as the likelihood that a
continuous random variable, X, will take on a value that
lies between a given range of values. For discrete
distributions, a probability mass function (pmf) is used
which is analogous to the probability density function.
This function gives the probability that a random
variable will exactly take on a specific value.

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A PINCH OF
PROBABILITY IS
WORTH A POUND
OF PERHAPS” –
JAMES
THURBER.

END OF CHAPTER TWO