Chapter 4
Introduction to Probabilities
CHAPTER 4 MAP
4.1 An Introduction to Probabilities
4.2 Probability Rules for More Than One Event
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4.1 An Introduction to Probabilities
A probability is a numerical value ranging
from 0 to 1.
Probability indicates the chance, or likelihood,
of a specific event occurring.
• If there is no chance of the event occurring, the
probability is 0.
• If the event is absolutely going to occur, the
probability of it occurring is 1.
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Definitions
Experiment
• The process of measuring or observing an activity
for the purpose of collecting data
• An example is rolling a single six-sided die
Sample space
• All the possible outcomes, or results, of an
experiment
• The sample space for our single-die experiment is
{1, 2, 3, 4, 5, 6}.
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Definitions
Event
• One or more outcomes of an experiment
• The outcome, or outcomes, is a subset of the
sample space.
• An example of an event is rolling a pair with two
dice
Simple event
• An event with a single outcome in its most basic
form that cannot be simplified
• An example of a simple event is rolling a five with a
single die.
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Sample Space Examples
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Methods of Assigning Probability
Methods of Assigning Probability
Classical Empirical Subjective
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Classical Probability
Methods of Assigning Probability
Classical Empirical Subjective
• Used when the number of possible outcomes of the event
of interest is known
• Formula for classical probability
Number of possible outcomes that constitute Event A
P(A) =
Total number of possible outcomes in the sample space
where:
P(A) = The probability that Event A will occur
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Classical Probability Example
Experiment: Roll a die once
Sample space = {1, 2, 3, 4, 5, 6}
Define Event A as rolling a five
• There are six possible outcomes in the sample space.
• Event A (rolling a five) can happen one way.
P(A) = 1/6 = 0.167, or a 16.7% probability
• This is a Simple Probability: it represents the
likelihood of a single (simple) event occurring by itself
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Classical Probability Example
Experiment: Roll a die once
Sample space = {1, 2, 3, 4, 5, 6}
Classical probability assumes that each event
in the sample space has the same likelihood
of occurring.
The set of events is collectively exhaustive if
the sample space includes every possible
simple event that can occur.
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Empirical Probability
Methods of Assigning Probability
Classical Empirical Subjective
• Involves conducting an experiment to observe the
frequency with which an event occurs
• Formula for empirical probability
Frequency in which Event A occurs
P(A) =
Total number of observations
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Empirical Probability
Example: A survey of 400 new graduates asked how much they
owed in student loans. The results are shown in the following table:
Amount Frequency
$30,000 or more 47
$20,000–$29,999 66
$10,000–$19,999 144
$5,000–$9,999 102
Less than $5,000 41
Total 400
a) What is the probability that a randomly selected graduate has between
$5,000–$9,999 in student loans?
b) What is the probability that a randomly selected graduate has $20,000
or more in student loans?
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Empirical Probability
Example: (Continued)
Amount Frequency
$30,000 or more 47
$20,000–$29,999 66
$10,000–$19,999 144
$5,000–$9,999 102
Less than $5,000 41
Total 400
a) What is the probability that a randomly selected graduate has between
$5,000–$9,999 in student loans?
b) What is the probability that a randomly selected graduate has $20,000
or more in student loans?
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Law of Large Numbers
The law of large numbers states that when an
experiment is conducted a large number of
times, the empirical probabilities of the process
will converge to the classical probabilities.
Example: Flip a coin a large number of times
• The observed number of heads would be very close
to 50%.
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Subjective Probability
Methods of Assigning Probability
Classical Empirical Subjective
Used when classical and empirical probabilities
are not available
• Instead use experience or intuition to estimate the
probabilities
• Example: The probability that inflation will be
greater than 4% next year
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Basic Properties of a Probability
Probability Rule 1
• If P(A) = 1, then with certainty, Event A must occur.
Probability Rule 2
• If P(A) = 0, then with certainty, Event A will not occur.
Probability Rule 3
• The probability of any event must range from 0 to 1.
Probability Rule 4
• The sum of all the probabilities for the simple events
in the sample space must be equal to 1.
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Basic Properties of a Probability
Probability Rule 5
• The complement to Event A is defined as all of
the outcomes in the sample space that are not
part of Event A.
• The complement is denoted as A'.
Formula for the complement rule:
P(A) + P(A' ) = 1
or
P(A) = 1 – P(A' )
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4.2 Probability Rules for More Than one Event
Many situations involve two or more events that
intersect with one another.
A contingency table can be used to show the
number of occurrences of events that are
classified according to two categorical variables.
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Contingency Tables
Use the contingency table to calculate the probability of events
A and B, where
Event A = a student living in the dorm being a female
Event B = a student living in the dorm being a freshman
Marginal probability is another term used for simple probability in the
margins, or row and column totals, of a contingency table.
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The Intersection of Events
The intersection of Events A and B represents
the number of instances in which Events A and
B occur at the same time.
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The Intersection of Events
The probability of the intersection of two events
is known as a joint probability.
Find the probability that a student will be a female and a freshman,
i.e. the intersection of events A and B.
The number of students that
meet the criteria is the
intersection of the Freshman
column and the Female row.
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The Union of Events
The union of Events A and B represents the
number of instances where either Event A or
B occur or both events occur together.
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The Union of Events
Using the same events, find the probability that a
student is a female (Event A) or a freshman (Event B).
Calculate the total
instances that include
either Event A or Event B.
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The Addition Rule
The addition rule for probabilities is used to
calculate the probability of the union of events.
• the probability that Event A, or Event B, or both events
will occur
Two events are considered to be mutually exclusive if they
cannot occur at the same time during the experiment.
mutually exclusive not mutually exclusive
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The Addition Rule
For mutually exclusive events, the addition rule states
that the probability of two events occurring is simply
the sum of their individual probabilities:
P(A or B) = P(A) + P(B)
If Events A and B are not mutually exclusive:
P(A or B) = P(A) + P(B) - P(A and B)
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The Addition Rule
Calculate the probability that a student either
earned an A (Event A) or is female (Event B).
Consider the union of “A” students or Freshman students.
Don’t count the women
with six A grades twice.
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The Addition Rule
+ –
P(A or B) = P(A) + P(B) - P(A and B)
Don’t count common elements twice.
Note: P(A and B) = 0 if events A and B are mutually exclusive.
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Conditional Probability
Conditional probability is the probability of Event A occurring,
given the condition that Event B has occurred.
Example:
Event A = score in 601-800 range
Event B = Completed Prep Class
Given that event B has Called a Prior probability:
occurred, only look at the Determined without any
70 students who additional information that
completed the Prep Class could influence the event
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Conditional Probability
Formula for Calculating Conditional Probability
A conditional probability is also known as a posterior probability,
which is a revision of the prior probability using additional information.
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Conditional Probability
Example:
Event A = score in 601-800 range
Event B = Completed Prep Class
Same
value as
found
before
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Independent and Dependent Events
Two events are considered independent of one
another if the occurrence of one event has no
impact on the occurrence of the other event.
If the occurrence of one event affects the
occurrence of another event, the events are
considered dependent.
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Independent and Dependent Events
Formula for Determining if Events A and B are
independent
If P(A|B) ≠ P(A), then events A and B are not
independent.
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Independent and Dependent Events
Example: Event A = Grade of 80% or better
Event B = Interested in the subject
Interested Not Interested Total
80% or better 72 38 110
Less than 80% 42 48 90
Total 114 86 200
Since P(A|B) ≠ P(A), the grade in the course and the interest in
the subject are dependent.
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The Multiplication Rule
The multiplication rule is used to determine the
probability of the intersection (joint probability)
of two events occurring, or P(A and B).
Formula for the multiplication rule for dependent
events:
or
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The Multiplication Rule
Example for dependent events:
Event A = rain is forecasted
Event B = carry umbrella
Assume: P(rain forecasted) = 0.30
P(carry umbrella | rain forecasted) = 0.90
So there is a 27% probability that it will rain and you
will carry an umbrella.
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The Multiplication Rule
Formula for the multiplication rule for two
independent events:
• Since events A and B are independent,
P(B|A) = P(B).
When multiple events are all independent, the probability of
them all occurring is simply the product of their individual
probabilities:
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Contingency Tables with Probabilities
Convert table frequencies into probabilities by dividing each
number in the table by the total number of observations.
• Probability of customer satisfaction by entrée type:
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Contingency Tables with Probabilities
Probability of customer satisfaction by entrée choice
Customers Customers Total
Order Meat Order Fish
(Event C) (Event D)
Satisfied Customers
0.35 0.50 0.85
(Event A)
Not Satisfied Customers
0.05 0.10 0.15
(Event B)
Total 0.40 0.60 1.00
Joint Probabilities Marginal (Simple) Probabilities
Conditional Probabilities:
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Contingency Tables with Probabilities
Decision trees are used to display marginal
and joint probabilities from a contingency
table. P(A and C) = 0.35
C)
Meat (
Satisfied Fish ( These four
D) probabilities add
P(A) = .85
P(A and D) = 0.50 up to 1.0 because
they represent the
entire sample
space.
P(B and C) = 0.05
C)
Not Satisfied Meat (
P(B) = 0.15
Fish (
D)
P(B and D) = 0.10
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Mutually Exclusive Events
Mutually exclusive are those events that cannot
occur at the same time.
Using our previous example, events A and B would be
mutually exclusive events because a customer cannot
be both satisfied and unsatisfied at the same time:
Likewise, event C and D are mutually exclusive
because the entrée must be either meat or fish:
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Mutually Exclusive and
Independent Events
So, mutually exclusive events are dependent.
But two events cannot be both independent
and mutually exclusive – why is that?
By definition,
• Independent events can occur at the same time.
o This is what makes then independent!
• Mutually Exclusive Events cannot occur at the same time.
In other words, you cannot conclude that because events are
not independent they will be mutually exclusive.
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Bayes’ Theorem
Goal: develop a rule to calculate P(A|B) from information about
P(B|A)
Suppose two events have prior probabilities P(A1) and P(A2)
• called prior probabilities because they are determined without any other
information
• Let events A1 and A2 be mutually exclusive.
Assume the conditional probabilities P(B|A1) and
P(B|A2) are known, then:
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Bayes’ Theorem Example
Example: PNC Bank classifies its credit card
customers into three categories by their credit
scores.
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Bayes’ Theorem Example
Define Event B as follows:
Event B = Customer is late on his or her
current credit card payment
Suppose the following historical information is known:
• Customers with credit scores of less than 600 are late with their payments
40% of the time, or P(B | A1) = 0.40.
• Customers with credit scores between 600 and 700 are late with their
payments 10% of the time, or P(B | A2) = 0.10
• Customers with credit scores of more than 700 are late with their
payments 5% of the time, or P(B | A3) = 0.05.
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Bayes’ Theorem Example
Suppose PNC Bank wants to use Bayes’ Theorem to determine
the probability that a customer has a credit score of less than
600 given that he or she is late on his or her current credit
card payment, or P(A1 | B):
There is a 62.5% chance that a late payment is from a
customer with a credit score of less than 600.
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Bayes’ Theorem Example
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