Prepared by: Tommy A.

Ditucalan
At the end of the lesson, the students will:
1) Develop a solid understanding of the basics of probability theory,
including probability axioms, rules, and concepts, to make
probabilistic assessments in decision-making situations;
2) Acquire knowledge about discrete and continuous probability
distributions, their characteristics, and applications;
3) Calculate expected values and variances of random variables to
make informed decisions under uncertainty and assess the risk
associated with different outcomes.
Managers often base their decisions on an analysis of
uncertainties such as the following:
1) What are the chances that sales will decrease if we increase prices?
2) What is the likelihood a new assembly method will increase
productivity?
3) How likely is it when the project will be finished on time?
4) What is the chance that a new investment will be profitable?
Basics of Probability Theory
Probability is a numerical measure, between 0 and 1, of
the likelihood that an event will occur. It is frequently
expressed as decimal or in fraction.
The closer the probability is to 0, the more improbable it is
the event will happen. The closer the probability is to 1,
the more sure we are to happen.
Three key words in the study of probability:
1. Experiment – a process that leads to the occurrence of one
and only one of several possible observations.
2. Outcome – a particular result of experiment.
3. Event – a collection of one or more outcomes
of an experiment.
 Die rolling BOD of SSCR
experiment
Experiment Roll a die Count the number
of Board of
Directors
All possible Observe a 2 are over 50
outcome number 1 is over 50
1,2,3,4,5 and 6
Some Observe an More than 4 are
possible even number over 50
events Observe a Fewer than 4 are
number less over 50
than 4
Approaches to assigning probability: Classical Probability

Classical probability is based on the assumption that the

outcomes of an experiment are equally likely. The
probability of the event happening is computed below:
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑎𝑣𝑜𝑟𝑎𝑏𝑙𝑒 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠
𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 =
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠
Example 1: Consider an experiment of rolling a six-sided die. What is
the probability of getting an even number of spots appear face up?

There are three possible outcomes that

even number will appear: 2 - 4 – 6 .

Therefore, the probability of getting even number is

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑎𝑣𝑜𝑟𝑎𝑏𝑙𝑒 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠 3
= = = 0.5
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑐𝑜𝑚𝑒𝑠 6
Mutually Exclusive
Mutually Exclusive – the occurrence of one
event means that none of the other events
can occur at the same time.

Example:
 An employee selected at random is
either male or female but not both.
 A manufactured part is acceptable or
unacceptable. The part cannot be both
acceptable or unacceptable at the same
time.
Collectively Exhaustive
Collectively exhaustive – at least one of the events must occur when an
experiment is conducted.
For the die-tossing experiment, every outcome will be either even or odd.
So the set is collectively exhaustive.
If the set of events is collectively exhaustive and the events are mutually
exclusive, the sum of probabilities is 1
 Some Rules of Computing Probabilities
Rules of Addition:
1) Special Rule : When one event occurs, none of the other events can
occur at the same time.

2) General Rule : When one event occurs, other events may occur at the
same time.
Special Rule of Addition (To apply this rule, the event must be mutually
exclusive)
P (A or B) = P(A) + P(B) + …

The following Venn Diagram represents the mutually exclusive

concept. There is no overlapping of an events.
Example 2: An automatic Shaw machine fills plastic bags with a mixture of
beans, broccoli, and other vegetables. Most of the bags contain the
correct weight, but because of the variation in the size of the beans and
other vegetables, a package might be underweight or overweight. A check
of 4,000 packages filled in the past month revealed:

Weight Event Number of Probability of

packages occurrence
Underweight A 100 100/4000 =.025
Satisfactory B 3,600 3600/4000=.900
Overweight C 300 300/4000 =.075
What is the probability that a particular package will be either
underweight or overweight?
Weight Event Number of Probability of
packages occurrence
Underweight A 100 100/4000 =.025
Satisfactory B 3,600 3600/4000=.900
Overweight C 300 300/4000 =.075
Total : 4,000

P(A or C) = 100/4000 + 300/4000 = 0.025 + 0.075 = 0.10

Note that the events are mutually exclusive, meaning that a package of
mixed vegetables cannot be underweight, satisfactory and overweight.
Complement Rule: P(A) = 1- P(~A)
The probability that a bag of mixed vegetables selected as underweight,
P(A), plus the probability that it is not an underweight bag, written P(~A)
and read as “not A” must logically equal to 1.

Example 3: From example 2, show that the probability of a

satisfactory bag is 0.900.
Solution: P(B) = 1 – [P(A) + P(C)]
= 1 – [.025 + .075]
= 1 - 0.10 = 0.900
The General Rule of Addition
(The outcomes of an experiment may not be mutually exclusive)
To illustrate: Suppose that Tourist Commission selected a sample of 200
tourists who visited to some tourist attraction last year in Luzon. The
survey revealed that 120 tourist went to Enchanted Kingdom and 100
went to Star City. What is the probability that a person selected visited
either Enchanted Kingdom or Star City?
Using special rule: P(EK or SC) = 120/200 + 100/200
= 0.60 + 0.50 = 1.10 (there is no
probability greater than 1)
Many tourist visited both attractions and are being counted twice. A
check of survey revealed 60 out of 200 visit both attractions
To answer the question, “What is the probability a selected person visited
EK or SC?”
P(EK or SC) = P(EK) + P(SC) – P (both EK and SC)
= 0.60 + 0.50 – 60/200
= 0.60 + 0.50 – 0.30 = 0.80
When two events both occur, the probability is called joint probability.
The probability that tourist visits both attractions (0.30) is an example of
joint probability.
Joint Probability – a probability that measures the likelihood
two or more events will happen concurrently
General Rule of Addition:
P(A or B) = P(A) + P(B) – P(A and B)
Example 4: What is the probability that a card chosen at random from a
standard deck of cards will be either King or a heart?
P(King) = 4/52 …..4 King in a deck of 52 cards
P(Heart) = 13/52 …..13 hearts in a deck of 52 cards
P(King of Heart) = 1/52 ….1 king of heart in 52 cards
Thus, (King or Heart) = 4/52 + 13/52 – 1/52 = 0.3077
Rules of Multiplication
(In the rules of addition, we find the likelihood of combining
two events. In the rules of multiplication, we find the likelihood
that two events both happen.)

Two Rules of multiplication:

1) Special Rule : Two events are independent
(we assume that events A and B occurs at different times)
2) General Rule: Two events are dependent
 Special Rule of Multiplication
(Two events A and B are independent)
Independence : The occurrence of one event has no effect on the
probability of the occurrence of another event.

Special Rule of Multiplication: P(A and B) = P(A)P(B)

Example 5: A survey by the American Automobile Association revealed 60
percent of its members made airline reservations last year. Two members are
selected at random. What is the probability that

a. both made airline reservations last year?

Let A the reservations of one member, B the other
P(A and B) = P(A)P(B) = (0.60)(0.60) = 0.36

b. Neither member makes a reservation

P(~A and ~B) = P(~A)P(~B) = 0.40(0.40)= 0.16
General Rule of Multiplication
(Two events A and B are dependent with each other)

Joint Probability : The probability of a particular event

occurring,
given that another event has occurred.

General Rule of Multiplication: P(A and B) = P(A)P(B|A)

Example 6: A golfer has 12 golf shirts in his closet. Suppose 9 of these shirts
are white and the others blue. He gets dress in the dark, so he just grabs a
shirt and puts it on. He plays golf 2 days in a row and does not do laundry.
What is the probability that
a) both shirts selected are white?
P(W and W ) = (9/12)(8/11) = 0.55
b) 3 white shirts without replacement
P(W and W and W) = (9/12)(8/11)(7/10) = 0.38
c) both shirts selected are blue?
P(B and B) = (3/12)(2/11) = 0.049
Probability Distribution: Discrete and Continuous
A random variable x represents a numerical value
associated with each outcome of a probability
distribution.
A random variable is discrete if it has a finite or countable
number of possible outcomes that can be listed.

x
0 2 4 6 8 10

A random variable is continuous if it has an uncountable

number or possible outcomes, represented by the intervals on
a number line.
x
0 2 4 6 8 10
Example 1:
Decide if the random variable x is discrete or continuous.

a.) The distance your car travels on a tank

of gas
The distance your car travels is a continuous
random variable because it is a measurement that
cannot be counted. (All measurements are
continuous random variables.)
b.) The number of students in a statistics
class
The number of students is a discrete random
variable because it can be counted.
A discrete probability distribution lists each possible value the
random variable can assume, together with its probability. A
probability distribution must satisfy the following conditions.

In Words In Symbols
1. The probability of each value of the 0 ≤ P (x ) ≤ 1
discrete random variable is between
0 and 1, inclusive.
2. The sum of all the probabilities is 1. ΣP (x) = 1
Developing a Discrete Probability Distribution
Example 2:
The spinner below is divided into two sections. The
probability of landing on the 1 is 0.25. The probability of
landing on the 2 is 0.75. Let x be the number the spinner
lands on. Construct a probability distribution for the random
variable x.

1 x P (x )
1 0.25 Each probability is
2 between 0 and 1.
2 0.75
The sum of the probabilities is 1...
(0.25+0.75)
Example 2:
The spinner below is spun two times. The probability of landing
on the 1 is 0.25. The probability of landing on the 2 is 0.75. Let x
be the sum of the two spins. Construct a probability distribution
for the random variable x.
The possible sums are 2, 3, and 4.

1 P (sum of 2) = 0.25 × 0.25 = 0.0625

Spin a 1 on “and” Spin a 1 on the

2
the first spin. second spin.
Example 2 continued:

P (sum of 3) = 0.25 × 0.75 = 0.1875

1
Spin a 1 on “and” Spin a 2 on the
2 the first spin. second spin.
“or”

P (sum of 3) = 0.75 × 0.25 = 0.1875

Sum of
P ( x)
spins, x
2 0.0625 Spin a 2 on “and” Spin a 1 on the
3 0.375 the first spin. second spin.
4
0.1875 + 0.1875
Example 2 continued:

1 P (sum of 4) = 0.75 × 0.75 = 0.5625

2 Spin a 2 on “and” Spin a 2 on the
the first spin. second spin.

Sum of Spin
spins, x P ( x)
Each probability is between
2 1 and 1 0.0625 0 and 1, and the sum of the
3 1 and 2 or 0.375 probabilities is 1.
2 and 1
4 2 and 2 0.5625
Example 3:
Graph the following probability distribution using a histogram.

Sum of P(x)
P ( x) Sum of Two Spins
spins, x 0.6
2 0.0625 0.5
3 0.375

Probability
4 0.5625 0.4

0.3

0.2

0.1
0 x
2 3 4
Sum
The mean of a discrete random variable is given by μ=
ΣxP(x).

Each value of x is multiplied by its corresponding probability

and the products are added.
Example:
Find the mean of the probability distribution for the sum of
the two spins.
x P ( x) xP (x)
2 0.0625 2(0.0625) = 0.125 ΣxP(x) = 3.5
3 0.375 3(0.375) = 1.125 The mean for the
4 0.5625 4(0.5625) = 2.25 two spins is 3.5.
The variance of a discrete random variable is given by
σ2 = Σ(x – μ)2P (x).

Example:
Find the variance of the probability distribution for the sum
of the two spins. The mean is 3.5.

x P ( x) x – μ (x – μ)2 P (x)(x – μ)2 ΣP(x)(x – 2)2

2 0.0625 –1.5 2.25 ≈ 0.141 ≈ 0.376
3 0.375 –0.5 0.25 ≈ 0.094
The variance for the
4 0.5625 0.5 0.25 ≈ 0.141 two spins is
approximately 0.376
The standard deviation of a discrete random variable is
given by

Example:
Find the standard deviation of the probability distribution
for the sum of the two spins. The variance is 0.376.

x P ( x) x – μ (x – μ)2 P (x)(x – μ)2

2 0.0625 –1.5 2.25 0.141
Most of the sums
3 0.375 –0.5 0.25 0.094 differ from the
4 0.5625 0.5 0.25 0.141 mean by no more
than 0.6 points.
The expected value of a discrete random variable
is equal to the mean of the random variable.
Expected Value = E(x) = μ = ΣxP(x).

Example:
At a raffle, 500 tickets are sold for $1 each for two
prizes of $100 and $50. What is the expected value
of your gain?
Your gain for the $100 prize is $100 – $1 =
$99.
Your gain for the $50 prize is $50 – $1 = $49.
Write a probability distribution for the
possible gains (or outcomes).
Example continued:
At a raffle, 500 tickets are sold for $1 each for two
prizes of $100 and $50. What is the expected value
of your gain?
Gain, x P ( x)
E(x) = ΣxP(x).
$99

$49

–$1
Because the expected value is
Winning negative, you can expect to lose
no prize
$0.70 for each ticket you buy.