ETX1100/ETX5900 Business Statistics

Week 2
General Probability & Normal Distribution
Charanjit Kaur
Learning Outcomes for Week 3
• Understand the concept of probability
• Calculate and interpret probabilities:
• Marginal probability
• Joint probability
• Conditional probability
• Evaluate the relationship between variables
• Understand the concept of a continuous random variable
• Identify the characteristics of a normal distribution
• Find probabilities using Excel
What is PROBABILITY?
• Probability = quantification of chance / likelihood of an occurrence

Probability statements:

✓ Event A has zero probability P(A) = 0 → There is no chance that event A will occur

✓ Event B has probability of one P(B)=1 → Event B will occur with 100% certainty

Probability of all possible events add to 1

• Eg Experiment: Toss a fair coin

• P 𝐻𝑒𝑎𝑑 = 0.5 P 𝑇𝑎𝑖𝑙 = 0.5

• What is the total probability? 𝑷 𝑯𝒆𝒂𝒅 + 𝑷 𝑻𝒂𝒊𝒍 = 𝟏

Intersection (Joint probability) & Union

Intersection (joint probability)

Helps us understand the nature of the relationship between two events
• P(A and B) or P 𝐴 ∩ 𝐵 - known as “JOINT” probability

Union
• P(A or B) or P 𝐴 ∪ 𝐵 describes either A OR B
• P 𝐴 𝑜𝑟 𝐵 = 𝑃 𝐴 + 𝑃 𝐵 − Pr 𝐴 𝑎𝑛𝑑 𝐵
• Note: P(A) and P(B) are referred to as marginal probabilities
Conditional Probability
Conditional Probability
Probability of an event (A) given that (conditional on) another event (B) having occurred.
P(A given B) or P (A|B) is known as conditional probability

Joint probability of the two events

Conditional Probability =
Marginal probability of the condition

𝐏(𝐀 ∩ 𝐁)
𝐏 𝐀𝐁 =
𝐏(𝐁)
 Mutually Exclusive and Independent Events
Mutually exclusive:

• Definition: Events that cannot occur together

We know that P(A or B) = P(A) + P(B) – P(A and B). For mutually exclusive events, P(A and B) = 0

➢ Example: Toss a fair coin P(Not Head) = P(Tail) = 1-P(Head)

Independent:

• Definition: Probability of one event occurring unaffected by the outcome of the other

Event A is independent of event B if:

P(A|B) = P(A) OR P 𝐴 ∩ 𝐵 = P 𝐴 × P(𝐵)

Frequency Table

Open“Heart Disease” sheet in Week 2 Seminar Data.xlsx. It contains data on the diagnosis

of heart disease and exercise levels. Generate 2 relative frequency tables

• Exercise level

• Medical condition

What information do the tables convey?

Instructions:
Exercise Level
1. Place the cursor in any cell within the data
2. Drag & drop Exercise under 1. Rows & 2. Values.
3. Right-click on Exercise entries > Value Field Setting >
4. Summarize value by > Count;
5. Show Values As > % of Column Total

Medical Condition
1. Place the cursor in any cell within the data
2. Drag & drop Heart Disease under 1. Rows & 2. Values.
3. Right-click on Heart Disease entries > Value Field Setting >
4. Summarize value by > Count;
5. Show Values As > % of Column Total
 Calculating Joint Probabilities
Construct a two-way frequency table (contingency table/Pivot table) by placing

Heart Disease in rows and Exercise in Columns. Display as “count”

Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 2996 1741 4737
Yes 220 43 263
Grand Total 3216 1784 5000

Convert to probabilities
Probabilities Exercise Level
Heart Disease Minimal Moderate Grand Total
No
Yes
Grand Total
 Calculating Joint Probabilities: Manual Calculations
Construct a two-way frequency table (contingency table/Pivot table) by placing

Heart Disease in rows and Exercise in Columns. Display as “count”

Count of Heart Disease Exercise Level

Heart Disease Minimal Moderate Grand Total
No 2996 1741 4737
Yes 220 43 263
Grand Total 3216 1784 5000

Probabilities Exercise Level

Heart Disease Minimal Moderate Grand Total
No =2996/5000 =1741/5000 =4737/5000
Yes =220/5000 =43/5000 =263/5000
Grand Total =3216/5000 =1784/5000 1
 Pivot table: % of Grand Total
Construct a pivot table by placing Heart Disease in rows and Exercise in

Columns. Display as “% of Grand Total”

Count of Heart Disease Exercise Level

Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%
In-class Practise
Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%

1. If you choose someone at random from the population, what is the probability that they
• have no heart disease
• do a moderate amount of exercise
• do a moderate amount of exercise and have no heart disease
• do a moderate amount of exercise or have no heart disease
2. Are Heart Disease and Exercise levels mutually exclusive events?
Solutions for Question 1
Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%
1. If you choose someone at random from the population, what is the probability that they
• have no heart disease
• P(No Heart Disease) = 94.74%

• do a moderate amount of exercise

P(Moderate) = 35.68%
Solutions for Question 1
Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%
1. If you choose someone at random from the population, what is the probability that they
• do a moderate amount of exercise and have no heart disease
• P(Moderate and No Heart Disease) = 34.82%

• do a moderate amount of exercise or have no heart disease

P(Moderate or No Heart Disease)
= P(Moderate) + P(No Heart Disease) – P(Moderate and No Heart Disease)
= 35.68% + 94.74% - 34.82% = 95.6%
Question 2
Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%

2. Are Heart Disease and Exercise levels mutually exclusive events?

Definition of mutually exclusive events: Events that cannot occur together
If A and B are mutually exclusive, P(A and B) = 0
Solutions for Question 2
Count of Heart Disease Exercise Level
Heart Disease Minimal Moderate Grand Total
No 59.92% 34.82% 94.74%
Yes 4.40% 0.86% 5.26%
Grand Total 64.32% 35.68% 100.00%

2. Are Heart Disease and Exercise levels mutually exclusive events?

Definition of mutually exclusive events: Events that cannot occur together
If A and B are mutually exclusive, P(A and B) = 0
P(Heart Disease and Minimal) = 4.4%
P(Heart Disease and Moderate) = 0.86%

Therefore Heart Disease and Exercise are not mutually exclusive.

Checklist: Normal Distribution
• Probability: as the area under a Probability density function (pdf)
• The normal distribution: shape, location and distribution.
• How to specify a particular normal distribution
• The effect of changing the mean and standard deviation
• Finding areas under the standard normal curve: Using Excel

17
Probability Distribution
• The histogram is a picture of the probability density in crude form
• Probability density describes how “dense” the distribution is over a data range
• Allows us to calculate the probability related to the variable of interest
• In statistics, we use a smooth mathematical function to model the probability density function
(pdf)
• The area under the curve represents the probability
Probability Distribution: Normal Distribution
• The most common distribution in statistics is the normal distribution
• It is a symmetric (bell-shaped) distribution
• The normal distribution has two features: Mean and Stdev
Normal Distribution
• Notation:
𝑿 ~ 𝑵 𝑴𝒆𝒂𝒏, 𝑺𝒕𝒅𝒆𝒗
𝑿 ~ 𝑵 𝝁, 𝝈
• Skewness = 0
• Mean = Median = Mode
STANDARD Normal Distribution
• A special case: STANDARD normal distribution
• Mean = 0 and Stdev = 1
• Used in statistics to assess statistical uncertainty

Standard Normal Distribution

• Notation: 𝑍 ~ 𝑁(0,1)
• Skewness = 0
• Mean = Median = Mode
Normal Distribution & Standard normal distribution

𝑋 ~ 𝑁(𝑀𝑒𝑎𝑛, 𝑆𝑡𝑑𝑒𝑣) 𝑍 ~ 𝑁(0,1)

Standard normal distribution: Excel

Question 1 P(Z<0)

Question 2 P(Z>0) Refer to the worksheet

labelled “Standard
Question 3 P(Z<-1) Normal Distribution”

Question 4 P(Z>-1)

Question 5 P(Z<2)

Question 6 P(Z>2)
Standard normal distribution: Excel

Question 1 P(Z<0) =NORM.S.DIST(0,TRUE) 0.5

Question 2 P(Z>0) =1-NORM.S.DIST(0,TRUE) 0.5

Question 3 P(Z<-1) =NORM.S.DIST(-1,TRUE) 0.158655254

Question 4 P(Z>-1) =1-NORM.S.DIST(-1,TRUE) 0.841344746

Question 5 P(Z<2) =NORM.S.DIST(2,TRUE) 0.977249868

Question 6 P(Z>2) =1-NORM.S.DIST(2,TRUE) 0.022750132

Checklist: General Probability & Normal Distribution

❖ Use contingency table to calculate marginal, joint and conditional probabilities

▪ % of Grand Total
▪ % of Column Total
▪ % of Row Total
❖ Interpreting the relationship between two categorical variables
▪ Rule of Independence
❖ Probability: as the area under a Probability density function (pdf)
❖ The normal distribution: shape, location and distribution.
❖ How to specify a particular normal distribution
❖ The effect of changing the mean and standard deviation
❖ Finding areas under the standard normal curve: Using Excel