Chapter 1 - Events and Probability of Events - Student

PROBABILITIES AND
STATISTICS
Instructor: Dao Minh Anh (PhD.)

Email: anhdm@ftu.edu.vn
Business Statistics: A Decision-Making Approach, 12e © 2015 Prentice-Hall, Inc. Chap 4-1
Highlights
 Syllabus: see more details
 Grading:
 Attendance: 10%
 Mid-term test: 30%
 Final Exam: 60%
Textbook:
Groebner, D., Shannon, P., Fry, P. (2018).
Business statistics: A decision-making
approach (10th ed.), Pearson Publishing.
Chapter 1
Events and Probability of Events
Chapter Goals
After completing this chapter, you should be able
to:
 Explain three branches of Probability and Statistics
 Explain three approaches to assessing probabilities
 Apply common rules of probability
 Use Bayes’ Theorem for conditional probabilities
Three branches of Probability and Statistics
 Probability
 the chance that an uncertain event will occur
(always between 0 and 1)
 Descriptive statistics
 Collecting, presenting, and describing data
 Inferential statistics
 Drawing conclusions and/or making decisions
concerning a population based only on sample data
Chap 1-5
Why Learn Probability?
 Nothing in life is certain. In everything we do, we gauge the
chances of successful outcomes, from business to medicine
to the weather
 A probability provides a quantitative description of the
chances or likelihoods associated with various outcomes
 It provides a bridge between descriptive and inferential
statistics
Probability
Population Sample
Statistics
Descriptive Statistics
 Collect data
 e.g., Survey, Observation,
Experiments
 Present data
 e.g., Charts and graphs
 Characterize data

e.g., Sample mean = x i
Data Sources
Primary Secondary
Data Collection Data Compilation
Print or Electronic
Observation Survey
Experimentation
Populations and Samples
Population A set of existing units (usually people,
objects or events)
Variable A measurable characteristic of the

population—ex. Labor, Manager…
Census An examination of the entire population of

measurements
Sample A selected subset of the units of a

population
Census
The process of collecting the population

of all measurements is a census.
 Census usually too expensive, too time

consuming, and too much effort for a large
population (i.e. spent too much cost)
 Ex: The 2009 Vietnam Population and Housing

census
Chap 1-10
Populations and Samples
 A Population is the set of all items or individuals of

interest
 Examples: All likely voters in the next election
All parts produced today
All sales receipts for November
 A Sample is a subset of the population

 Examples: 1000 voters selected at random for interview
A few parts selected for
destructive testing
Every 100th receipt selected for
audit
Chap 1-11
Population vs. Sample
Population Sample
a b cd b c
ef gh i jk l m n gi n
o p q rs t u v o r u
w
y
x y z
Why Sample?
 Less time consuming than a census

 Less costly to administer than a census
 It is possible to obtain statistical results of a
sufficiently high precision based on samples.
Key Definitions
 A population is the entire collection of things

under consideration
 A parameter is a summary measure computed to
describe a characteristic of the population
 A sample is a portion of the population

selected for analysis
 A statistic is a summary measure computed to
describe a characteristic of the sample
Descriptive Statistics
The science of describing the important
aspects of a set of measurements.
 Ex. For a set of annual starting salaries, want
to know:
 How much to expect
 What is a high versus low salary
 If the population is small, could take a census

and make statistical inferences
 But if the population is too large, then …use
sampling.
Chap 1-15
Statistical Inference
 The science of using a sample of measurements to
make generalizations about the important aspects of
a population of measurements.
Sample statistics Population parameters

(known) Inference (unknown, but can
be estimated from
sample evidence)
Sample
Population
Chap 1-16
Statistical Inference
Drawing conclusions and/or making decisions
concerning a population based on sample results.
 Estimation
 e.g., Estimate the population mean
weight using the sample mean
weight
 Hypothesis Testing
 e.g., Use sample evidence to test
the claim that the population mean
weight is 120 pounds
Important Terms
 Probability – the chance that an uncertain event

will occur (always between 0 and 1)
 Experiment – a process of obtaining outcomes
for uncertain events
 Elementary Event – the most basic outcome
possible from a simple experiment
 Sample Space – the collection of all possible
elementary outcomes
Sample Space
The Sample Space is the collection of all
possible outcomes
e.g. All 6 faces of a die:
e.g. All 52 cards of a bridge deck:
Events
 Elementary event – An outcome from a sample

space with one characteristic
 Example: A red card from a deck of cards
 Event – May involve two or more outcomes

simultaneously
 Example: An ace that is also red from a deck
of
cards
Visualizing Events
 Contingency Tables
Ace Not Ace Total
Black 2 24 26
Red 2 24 26
Total 4 48 52
 Tree Diagrams Sample
Sample
A ce 2 Space
Car d
Space
Bla c k
Full Deck N o t a n A ce 24
of 52 Cards Ace
R ed C 2
ar d
N o t an
Business Statistics: A Decision-Making Approach, 12e © 2015 Prentice-Hall, Inc.
Ace 24 Chap 4-21
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
Car
e1 Gasoline, Truck ine
e2
s ol
e2 Gasoline, Car Ga SUV
e3
e3 Gasoline, SUV k
Die Truc e4
e4 Diesel, Truck s el Car
e5
e5 Diesel, Car SUV
e6 Diesel, SUV e6
Business Statistics: A Decision-Making Approach, 12e© 2015 Prentice-Hall, Inc. Chap 4-22
Probability Concepts
 Mutually Exclusive Events

 If E1 occurs, then E2 cannot occur
 E1 and E2 have no common elements
E2 A card cannot be
E1
Black and Red at
Red the same time.
Black Cards
Cards
Probability Concepts
 Independent and Dependent Events

 Independent: Occurrence of one does not
influence the probability of
occurrence of the other
 Dependent: Occurrence of one affects the

probability of the other
Independent vs. Dependent Events
 Independent Events
E1 = heads on one flip of fair coin
E2 = heads on second flip of same coin
Result of second flip does not depend on the result of
the first flip.
 Dependent Events
E1 = rain forecasted on the news
E2 = take umbrella to work
Probability of the second event is affected by the
occurrence of the first event
Assigning Probability
 Classical Probability Assessment
Number of ways Ei can occur
P(Ei) =
Total number of elementary events
 Relative Frequency of Occurrence

Number of times Ei occurs
Relative Freq. of Ei =
N
 Subjective Probability Assessment

An opinion or judgment by a decision maker about
the likelihood of an event
Classical Probability Assessment -
Example
 Company with 10 employees – 7 female and 3
male. Assess the probability of a female employee
being selected at random to travel to a convention.
Even E  female
t 7
P( E )   0.70
10
Relative Frequency Probability
Assessment - Example
 A local pub has tracked beer purchases. Of the
past 500 purchases, 120 have been for “light”
beers. What is the probability that the next beer
ordered will be “light”?
120
P (light )   0.24
500
Subjective Probability Assessment
 A manager is asked to assess the chances that a
shipment from a new supplier will arrive on time.
Taking into account such factors as:

 Supplier’s reputation
 Weather conditions
 Size of the order
 Etc.
She might assess the probability as:
P (on time)  0.75

Rules of Probability
Rules for
Possible Values
and Sum
Individual Values Sum of All Values
k
0 ≤ P(ei) ≤ 1
 P(e )  1i
For any event ei i1
where:
k = Number of elementary events
in the sample space
ei = ith elementary event
Addition Rule for Elementary Events
 The probability of an event Ei is equal to the

sum of the probabilities of the elementary
events forming Ei.

Ei = {e1, e2, e3}

then:
P(Ei) = P(e1) + P(e2) + P(e3)
Addition Rule for Elementary Events -
Examples
Roll a 6 sided die. What is the probability that the value

will be an odd number? E = (1,3,5)
P(E) =
A sales manager has placed three products on display in a store.
The following shows the probabilities associated with the
number of these products that sell in the first 30 minutes on
display. What is the probability that 2 or more products will sell?
E = (2,3)
P(E) =
Complement Rule
 The complement of an event E is the collection of
all possible elementary events not contained in
event E. The complement of event E is
represented by E.
E
 Complement Rule:
P( E )  1  P(E) E
Or, P(E)  P( E )  1
Complement Rule - Example
Addition Rule for Two Events
■ Addition Rule:
P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)
E1 + E2 = E1 E2
P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)

Don’t count common
elements twice!
Addition Rule Example
P(Red or Ace) = P(Red) +P(Ace) - P(Red and Ace)
= 26/52 + 4/52 - 2/52 = 28/52

Don’t count
the two red
Color aces twice!
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
EXAMPLE
ADDITION RULE FOR TWO EVENTS
Addition Rule for
Mutually Exclusive Events
 If E1 and E2 are mutually exclusive, then
P(E1 and E2) = 0 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)
Addition Rule for Mutually Exclusive
Events – Example
A retail clothing store has three styles of work
boots. They currently have 6 pairs of style A, 12
pairs of style B and 2 pairs of style C. If a store
clerk randomly picks one pair to put on display,
what is the probability that boot is style A or style
C?
Because if one style boot is
selected, another style cannot also
be selected, the events are
mutually exclusive.
Conditional Probability
 Conditional probability for any

two events E1 , E2:
P(E1 and E 2 )
P(E1 | E 2 ) 
P(E 2 )
where P(E 2 )  0
P (E1 and E2): joint probability
P (E2): marginal probability
Conditional Probability Example
 Of the cars on a used car lot, 70% have air

conditioning (AC) and 40% have a CD player
(CD). 20% of the cars have both.
 What is the probability that a car has a CD

player, given that it has AC ?
i.e., we want to find P(CD | AC)
(continued)
 Of the cars on a used car lot, 70% have air conditioning
(AC) and 40% have a CD player (CD).
20% of the cars have both.
CD No CD Total
AC .2 .5 .7
No AC .2 .1 .3
Total .4 .6 1.0
P(CD and AC) .2

P(CD | AC)    .2857
P(AC) .7
(continued)
 Given AC, we only consider the top row (70% of the cars). Of these,
20% have a CD player. 20% of 70% is about 28.57%.
CD No CD Total
AC .2 .5 .7
No AC .2 .1 .3
Total .4 .6 1.0
P(CD and AC) .2

P(CD | AC)    .2857
P(AC) .7
For Independent Events:
 Conditional probability for
independent events E1 , E2:
P(E1 | E 2 )  P(E1 ) where P(E 2 )  0
P(E 2 | E1 )  P(E 2 ) where P(E1 )  0
Multiplication Rules
 Multiplication rule for two events E1 and E2:
P(E1 and E 2 )  P(E1 ) P(E 2 | E1 )
Note: If E1 and E2 are independent, then P(E 2 | E1 )  P(E 2 )

and the multiplication rule simplifies to
P(E1 and E 2 )  P(E1 ) P(E 2 )
Multiplication Rule for Any Two
Events-Example
A small boutique hotel has 20 rooms. Five of the

rooms are suites with a living room and bedroom
while the other 15 are traditional hotel rooms.
What is the probability that first two rooms
booked during the week of October 13-19 are both
suites if the bookings are assumed to be random?
Event: S = Suite T = Traditional

Multiplication Rule for
Independent Events
 The joint probability of two independent events
is simply the product of the probabilities of the
two events.
Probability Rule 9
For independent events E1, E2
P(E1 and E2) = P(E1) P(E2)

Multiplication Rule for Independent
Events - Example
A small mid-western city has three major airlines

that serve the airport. Suppose that 60% of the
passengers fly United Airlines, 30% fly Delta, and
10% fly Southwest. Further, suppose that 70% of
the fliers are flying for pleasure and 30% fly for
business. Assuming type of trip and the airline
used are independent, what is the probability that
a flier uses United and is a business traveler?
Bayes’ Theorem
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
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?
(continued)
 Let S = successful well and U = unsuccessful well
 P(S) = .4 , P(U) = .6 (prior probabilities)
 Define the detailed test event as D
 Conditional probabilities:
P(D|S) = .6 P(D|U) = .2
 Revised probabilities
Prior Conditional Joint Revised
Event Prob.
Prob. Prob. Prob.
S (successful) .4 .6 .4*.6 = .24 .24/.36 = .67
U (unsuccessful) .6 .2 .6*.2 = .12 .12/.36 = .33
Business Statistics: A Decision-Making Approach, 12e © 2015 Prentice-Hall, Inc.

Sum = .36 Chap 4-53
(continued)
 Given the detailed test, the revised probability

of a successful well has risen to .67 from the
original estimate of .4
Prior Conditional Joint Revised

Event Prob.
Prob. Prob. Prob.
S (successful) .4 .6 .4*.6 = .24 .24/.36 = .67
U (unsuccessful) .6 .2 .6*.2 = .12 .12/.36 = .33
Sum = .36

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PROBABILITIES AND

Instructor: Dao Minh Anh (PhD.)

 Explain three approaches to assessing probabilities

 Apply common rules of probability

 Use Bayes’ Theorem for conditional probabilities

Variable A measurable characteristic of the

Census An examination of the entire population of

Sample A selected subset of the units of a

The process of collecting the population

 Census usually too expensive, too time

 Ex: The 2009 Vietnam Population and Housing

 A Population is the set of all items or individuals of

 A Sample is a subset of the population

 Less time consuming than a census

 A population is the entire collection of things

 A sample is a portion of the population

 What is a high versus low salary

 If the population is small, could take a census

Sample statistics Population parameters

 Probability – the chance that an uncertain event

e.g. All 52 cards of a bridge deck:

 Elementary event – An outcome from a sample

 Event – May involve two or more outcomes

 Mutually Exclusive Events

 Independent and Dependent Events

 Dependent: Occurrence of one affects the

 Relative Frequency of Occurrence

 Subjective Probability Assessment

Taking into account such factors as:

 Size of the order

She might assess the probability as:

P (on time)  0.75

Individual Values Sum of All Values

 The probability of an event Ei is equal to the

Ei = {e1, e2, e3}

Roll a 6 sided die. What is the probability that the value

P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)

P(Red or Ace) = P(Red) +P(Ace) - P(Red and Ace)

= 26/52 + 4/52 - 2/52 = 28/52

P(E1 and E2) = 0 E1 E2

 Conditional probability for any

 Of the cars on a used car lot, 70% have air

 What is the probability that a car has a CD

i.e., we want to find P(CD | AC)

P(CD and AC) .2

P(CD and AC) .2

P(E1 | E 2 )  P(E1 ) where P(E 2 )  0

P(E 2 | E1 )  P(E 2 ) where P(E1 )  0

 Multiplication rule for two events E1 and E2:

P(E1 and E 2 )  P(E1 ) P(E 2 | E1 )

Note: If E1 and E2 are independent, then P(E 2 | E1 )  P(E 2 )

P(E1 and E 2 )  P(E1 ) P(E 2 )

A small boutique hotel has 20 rooms. Five of the

Event: S = Suite T = Traditional

For independent events E1, E2

P(E1 and E2) = P(E1) P(E2)

A small mid-western city has three major airlines

 A drilling company has estimated a 40%

Business Statistics: A Decision-Making Approach, 12e © 2015 Prentice-Hall, Inc.

 Given the detailed test, the revised probability

Prior Conditional Joint Revised

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