Statistics for Business

and Economics

Chapter 1
Basic Probability

Dr. Vuong Thi Thao Binh

[email protected]
0983466899
 Learning Objectives

In this chapter, you learn:

 Basic probability concepts and definitions

 Basic Rules for Finding Probabilities
 Conditional probability
 To use Bayes’ Theorem to revise probabilities
 Various counting rules
 Some Additional Counting Rules

Multiplicative Rule: n = n1n2…nk

A B C
Draw one element from
each of k sets, sized n1, n2, n3, … nk
n!
A  k
n
k-permutations of n, partial permutation Chỉnh hợp: (n  k )!
Draw k elements, arranged in a distinct order, from a set of n elements
c) Chỉnh hợp lặp Bnk  n k

d) Permutations Hoán vị P(n) = n!

Combination Rule Tổ hợp

n! n(n  1)...( n  k  1)
C 
k
n 
k! (n  k )! k!
 1.1: Events and Probability

 An experiment is an act or process of

observation that leads to a single outcome that
cannot be predicted with certainty.
 1.1: Events, Sample Spaces and
Probability

 A sample point is the most basic outcome of

an experiment.

An Ace
A four
A Head
 1.1: Events, Sample Spaces and
Probability

 A sample space of an experiment is the

collection of all sample points.
 Roll a single die:

S: {1, 2, 3, 4, 5, 6}
 Sample Space
The Sample Space is the collection of all
possible events
e.g. All 6 faces of a die:

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

 1.1: Events, Sample Spaces and
Probability

 An event is a specific collection of sample points:

 Event A: Observe an even number.
 Mutually Exclusive Events
 Mutually exclusive events
 Events that cannot occur together

example:

A = queen of diamonds; B = queen of clubs

 Events A and B are mutually exclusive

 Collectively Exhaustive Events
 Collectively exhaustive events
 One of the events must occur
 The set of events covers the entire sample space

example:
A = aces; B = black cards;
C = diamonds; D = hearts
 Events A, B, C and D are collectively exhaustive
(but not mutually exclusive – an ace may also be
a heart)
 Events B, C and D are collectively exhaustive and
also mutually exclusive
 1.1: Events, Sample Spaces and
Probability
What is a PROBABILITY?
- Probability is the chance that some
event will happen

- It is the ratio of the number of

ways a certain event can occur to
the number of possible outcomes
 Probability of Simple Events

What is a PROBABILITY?

number of favorable outcomes

P(event)number
= of possible outcomes

Examples that use Probability:

(1) Dice, (2) Spinners, (3) Coins, (4) Deck of
Cards, (5) Evens/Odds, (6) Alphabet, etc.
 Probability of Simple Events
What is a PROBABILITY?
0% 25% 50% 75% 100%

0 ¼ or .25 ½ 0r .5 ¾ or .75 1

Impossible Not Very Equally Likely Somewhat Certain

Likely Likely
 Probability of Simple Events
Example 1: Roll a dice.
What is the probability of rolling a 4?

# favorable outcomes
P(event) = # possible outcomes
1
P(rolling a 4) =
6
The probability of rolling a 4 is 1 out of 6
 Probability of Simple Events
Example 2: Roll a dice.
What is the probability of rolling an even
number?

# favorable outcomes
P(event) =
# possible outcomes
3 1
P(even #)6 = 2 =

The probability of rolling an even number is 3 out of 6 or .5

or 50%
 Probability of Simple Events
Example 3: Spinners.
What is the probability of spinning green?

# favorable outcomes
P(event) = # possible outcomes
1 1
P(green)4 = 4=
The probability of spinning green is 1 out of 4 or .25 or 25%
 Probability of Simple Events
Example 4: Flip a coin.
What is the probability of flipping a tail?

# favorable outcomes
P(event) = # possible outcomes
1 1
P(tail) = =
2 2
The probability of spinning green is 1 out of 2 or .5 or 50%
 Probability of Simple Events
Example 5: Deck of Cards.
What is the probability of picking a heart?
# favorable outcomes 13 1
P(heart) = = =
# possible outcomes 52 4
The probability of picking a heart is
1 out of 4 or .25 or 25%
What is the probability of picking a non heart?
# favorable outcomes 39 3
P(nonheart) = # possible outcomes
= = 52 4
The probability of picking a heart is
3 out of 4 or .75 or 75%
 Probability of Simple Events

Key Concepts:

- Probability is the chance that some

event will happen

- It is the ratio of the number of

ways a certain even can occur to
the total number of possible
outcomes
 1.1: Events, Sample Spaces and
Probability
 Probability is the numerical measure
of the likelihood that an event will 1 Certain

occur

 The probability of any event must be

between 0 and 1, inclusively 0.5

0 ≤ P(A) ≤ 1 For any event A

0 Impossible
 Assessing Probability
 There are three approaches to assessing the probability
of an uncertain event:
1. The Classical Approach
X number of ways the event can occur
probability of occurrence  
T total number of elementary outcomes

2. The Relative Frequency Approach

number of favorable outcomes observed
probability of occurrence 
total number of outcomes observed

3. The Subjective Approach

an individual judgment or opinion about the probability of occurrence
1.2: Unions and Intersections
Compound Events
Made of two or
more other events

Union Intersection
A B A B
Either A or B, Both A and B
or both, occur occur
1.2: Unions and Intersections
1.2: Unions and Intersections

AB AC

A BC

B BC
C
 1.3: Complementary Events

 The complement of any event A is the event

that A does not occur, AC.

A: {Toss an even number}

AC: {Toss an odd number}

B: {Toss a number ≤ 3}
BC: {Toss a number ≥ 4}
A  B = {1,2,3,4,6}
[A  B]C = {5}
(Neither A nor B occur)
1.3: Complementary Events

( A  B )  A .B
C C C

P( A)  P( A )  1
C

P( A)  1  P( A ) C

P( A )  1  P( A)
C
 1.3: Complementary Events
A: {At least one head on two coin flips}
AC: {No heads}

A : {HH , HT , TH }
AC : {TT }
P( A)  1 4  1 4  1 4  3 4
P( A )  1 4
C

P( A)  1  P ( A )  1  1 4  3 4
C
 1.4. General Addition Rule

General Addition Rule:

P(A  B) = P(A) + P(B) - P(A  B)

If A and B are mutually exclusive, then P(A  B) = 0, so the rule can be simplified:

For mutually exclusive events A and B:

P(A  B) = P(A) + P(B)
 General 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
 1.5: Conditional Probability
 A conditional probability is the probability of one
event, given that another event has occurred:
P(A and B) The conditional
P(A | B)  probability of A given
P(B) that B has occurred

P(A and B) The conditional

P(B | A)  probability of B given
P(A) that A has occurred

Where P(A and B) = joint probability of A and B

P(A) = marginal probability of A
P(B) = marginal probability of B
 1.5: Conditional Probability

P(A  B)
P(A|B) 
P(B)

B BC
A A

• The sample space is reduced to only the conditioning event.

• To find P(A), once we know B has occurred (i.e., given B), we ignore B C (including the A
region within BC).
 1.5: Conditional Probability

P(A  B)
P(A|B) 
P(B)

B
A

• The sample space is reduced to only the conditioning event.

• To find P(A), once we know B has occurred (i.e., given B), we ignore B C (including the A
region within BC).
 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)

 Conditional Probability Example
(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 0.2 0.5 0.7

No AC 0.2 0.1 0.3
Total 0.4 0.6 1.0

P(CD and AC) 0.2

P(CD | AC)    0.2857
P(AC) 0.7
 1.6: The Multiplicative Rule

 Events A and B are independent when the

probability of one event is not affected by the
other event.
 Consider an experiment where we flip a
balanced coin twice and observe the results.
We can represent the events as
A: Head on the first time
B: Head on the second time.
 1.6: The Multiplicative Rule

 Multiplication rule for two events A and B:

P(A  B)  P(B)P(A|B)  P(A)P(B|A)
The conditional probability formula can be rearranged into the Multiplicative Rule of
Probability to find joint probability.

Note:
A and B are independent  P(A  B)  P(A) P(B)
 1.6: The Multiplicative Rule and
Independent Events
Assume three of ten workers give illegal deductions
 Event A: {First worker selected gives an illegal deduction}
 Event B: {Second worker selected gives an illegal deduction}
 P(A) = P(B) = .3
 P(B|A) has only nine sample points, and two targeted
workers, since we selected one of the targeted workers in the
first round:
 P(B|A) = .22
 The probability that both of the first two workers selected will
have given illegal deductions
 P(AB) = P(A) P(B|A) = .(3) (.22) = .066
 1.6: The Multiplicative Rule and
Independent Events

 Dependent Events Mutually exclusive events are

 P(A|B) ≠ P(A) dependent: P(B|A) = 0
 P(B|A) ≠ P(B)

 Independent Events
 P(A|B) = P(A) Since P(B|A) = P(B),
 P(B|A) = P(B) P(AB) = P(A)P(B|A)
= P(A)P(B)
 1.7. Marginal Probability

 Marginal probability for event A:

P(A)  P(A|H1 ) P(H1 )  P(A|H 2 ) P(H 2 )    P(A|H k ) P(H k )

 Where H1, H2, …, Hk are k mutually exclusive and

collectively exhaustive events
 1.8: Bayes’s Rule
 Given k mutually exclusive and exhaustive events
H1, H2,… Hk, and an observed event A, then

P( Hi | A)  P ( Hi  A) / P( A) 

P( Hi) P ( A | Hi )

P ( H 1) P( A | H 1)  P( H 2) P( A | H 2)  P ( Hk ) P ( A | Hk )
 1.8: Bayes’s Rule
 Suppose the events B1, B2, and B3, are mutually exclusive and
complementary events with P(B1) = .2, P(B2) = .15 and P(B3) = .65.
Another event A has these conditional probabilities: P(A|B1) = .4, P(A|
B2) = .25 and P(A|B3) = .6.What is P(B1|A)?

P( B1 | A)  P ( B1  A) / P ( A)
P ( B1) P ( A | B1)

P ( B1) P ( A | B1)  P ( B 2) P ( A | B 2)  P ( B 3) P ( A | B 3)
.2  .4 .08 .08
    .158
 .2  .4   .15  .25   .65  .6 .08  .0375  .39 .5075