Basic Probability

Statistics for Managers Using Microsoft Excel®7e Copyright ©2014 Pearson Education, Inc. 1
 Learning Objectives

In this chapter, you learn:

■ Basic probability concepts

■ Conditional probability
■ Bayes’ Theorem to revise probabilities

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 2
 Basic Probability Concepts

■ Probability – the chance that an uncertain event

will occur (always between 0 and 1)

■ Impossible Event – an event that has no chance

of occurring (probability = 0)

■ Certain Event – an event that is sure to occur

(probability = 1)

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 3
 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:

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 4
 Events
Each possible outcome of a variable is an event. A subset of the
sample space is called an event.
■ Simple event
■
An event described by a single characteristic or outcome
■
e.g., A day in January from all days in 2013

■ Joint event
■
An event described by two or more characteristics
■
e.g. A day in January that is also a Wednesday from all days in 2013

■ Complement of an event A (denoted A’ and read “A prime” )

■
All events in the sample space that are not part of event A
■
e.g., All days from 2013 that are not in January
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 5
 Experiment

An experiment is a repeatable procedure with a

known set of outcomes. For ex:

Experiment Outcomes
Flip a coin H,T
Grades in exams A+,A,B+,B,C+……F
Rolling a die 1,2,3…..6

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Assessing Probability
There are three approaches
1. a priori/ Classical : based on prior knowledge of the process i.e.
No. of outcomes favorable to Event X / total no. of outcomes

probability of occurrence
Assuming
all
outcomes
are equally 2. empirical probability: based on repetition of experiments
likely
probability of occurrence

3. subjective probability
based on a combination of an individual’s past experience,
personal opinion, and analysis of a particular situation
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 7
 Example of a priori probability

When randomly selecting a day from the year 2013

what is the probability the day is in January?

Ex 2 Rolling a die
What is the probability of getting a 2 when we roll a die once?
Sample space = 1,2,3,4,5,6
Prob of getting any no. is equal
= 1/6

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 8
 Empirical Probability

The empirical approach to probability is based on what is called the law of large
numbers. The key to establishing probabilities empirically is that more
observations will provide a more accurate estimate of the probability.

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Example of empirical probability

Find the probability of selecting a male taking statistics

from the population described in the following table:

Taking Stats Not Taking Total

Stats
Male 84 145 229
Female 76 134 210
Total 160 279 439

Probability of male taking stats

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 1
 Subjective probability

■ Subjective probability may differ from person to person

■ A media development team assigns a 60% probability

of success to its new ad campaign.

■ The chief media officer of the company is less

optimistic and assigns a 40% of success to the same

campaign
■ The assignment of a subjective probability is based on a
person’s experiences, opinions, and analysis of a
particular situation
■ Subjective probability is useful in situations when an
empirical or a priori probability cannot be computed

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 1
 Summary of Types of Probability

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Mutually Exclusive Events
■ Mutually exclusive events are the events who have nothing in common ie
disjoint.
■
Events that cannot occur simultaneously
■
A clear example is the set of outcomes of a single coin toss, which
can result in either heads or tails, but not both.

Example: Randomly choosing a day from 2013

A = day in January; B = day in February
Events A and B are mutually exclusive

■ A ■ B

■
When A∩B = ∅ (empty)
■
P(A or B)= P(A)+P(B)
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 13
 Complementary Events
The complement of Event E is the set of all outcomes in
the sample space that are not included in event E.
(Denoted E′ or Ec and read “E prime.”)
P(E) + P (E′ ) = 1 P(E) = 1 – P (E′ ) P (E′ ) = 1 – P(E)

Example:
There are 5 red chips, 4 blue chips, and 6 white chips in a
basket. Find the probability of randomly selecting a chip
that is not blue.
4
P (selecting a blue chip)  0.267
15
4 11
P (not selecting a blue chip) 1   0.733
15 15
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Collectively Exhaustive Events
■
At least one of the events must occur. For example, when rolling a six-
sided die, the outcomes 1, 2, 3, 4, 5, and 6 are collectively exhaustive,
because they cover the entire range of possible outcomes.

■
Another way to describe collectively exhaustive events, is that their union
must cover all the events within the entire sample space.

Example: Randomly choose a day from 2013

A = Weekday; B = Weekend;
C = January; D = Spring;

■
Events A, B, C and D are collectively exhaustive (but not mutually
exclusive ie Joint – a weekday can be in January or in Spring)

■
Events A and B are collectively exhaustive and also mutually exclusive.
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 15
 Probability Summary So Far
■ Probability is the numerical measure of the
likelihood that an event will occur 1 Certain
0 ≤ P(A) ≤ 1 For any event A

■ The probability of any event must be between

0 and 1, inclusively
0.5
■ The sum of the probabilities of all mutually
exclusive and collectively exhaustive events is
1

If A, B, and C are mutually exclusive and

collectively exhaustive 0 Impossible

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 16
 General Addition Rule
If A and B are two events that are not mutually exclusive(joint) , then P(A
or B) is given by the following formula:

P(A U B) = P(A) + P(B) - P(A and B)

AUB
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 17
 Mutually exclusive events

If A and B are mutually exclusive, the probability of one or the

other event’s occurring equals the sum of their probabilities.

A
B

Then, P(A and B) = 0, so the rule can be simplified:

P(A U B) = P(A) + P(B)

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Addition Rule - Example
What is the probability that a card chosen at random from a standard
deck of cards will be either a king or a heart?

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Addition Rule - Example
What is the probability that a card chosen at random from a standard
deck of cards will be either a king or a heart?

P(A or B) = P(A) + P(B) - P(A and B)

= 4/52 + 13/52 - 1/52
= 16/52, or .3077

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Marginal & Joint Probabilities in a
Contingency Table

Event
Event B1 B2 Total
A1 P(A1 and B1) P(A1 and B2) P(A1)

A2 P(A2 and B1) P(A2 and B2) P(A2)

Total P(B1) P(B2) 1

Joint Probabilities Marginal (Simple) Probabilities

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 21
 Contingency Tables -- For All
Days in 2013

Jan. Not Jan. Total

Wed. 5 47 52
Not Wed. 26 287 313

Total 31 334 365

Total Number of
Sample Space

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 22
 Marginal Probability Example

P(Wed.)

P(Jan and Wed.) + P(Not Jan and Wed.) = 5/365 +47/365 = 52/365

Jan. Not Jan. Total

Wed. 5 47 52
Not Wed. 26 286 313

Total 31 334 365

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 23
 Joint Probability Example

P(Jan. and Wed.)

Jan. Not Jan. Total

Wed. 5 47 52
Not Wed. 26 286 313

Total 31 334 365

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 24
 General Addition Rule Example

P(Jan. or Wed.) = P(Jan.) + P(Wed.) - P(Jan. and Wed.)

= 31/365 + 52/365 - 5/365 = 78/365
Don’t count
the five
Wednesdays
in January
Jan. Not Jan. Total twice!
Wed. 5 47 52
Not Wed. 26 286 313

Total 31 333 365

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 25
 Some more rules….

Complementary Probability
P(A')= 1- P(A)

Prob of neither A nor B = P(A' and B')= P(A U B)'= 1- P(A U B)

Prob of no A but just B = P(A' and B)= Only B= P(B) - P(B and A)

A B

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Venn Diagrams

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Example
In a medical trial there are 70 patients. 24 receive treatment B, 30
receive treatment A and 20 receive both treatment A and B.

a. Draw a Venn diagram to represent these data.

b. What is the probability that patient chosen is either receiving
Treatment A or B or both.
c. What is the probability that patient chosen is receiving neither
Treatment.
d. What is the probability that patient chosen is receiving at least
one of the treatments.
e. Only treatment A

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 P(A)= 30/70, P(B)= 24/70, P(A and B)= 20/70

a.

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 b. P(A U B) = 10/70 +20/70 +4/70 = 34/70

c. P(Ac and Bc) = 1- P(A U B) = 36/70

d. Atleast one of them = Either A or B or both = P(A U B)

= 10/70 +20/70 +4/70 = 34/70

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 e. Only receiving treatment A

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Special Rule of Multiplication

 The special rule of multiplication requires that two events A

and B are independent.

 Two events A and B are independent if the occurrence of one

has no effect on the probability of the occurrence of the other.

 This rule is written : P(A and B) = P(A)P(B)

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Multiplication Rule-Example
A survey by the American Automobile Association (AAA) revealed 60 percent of
its members made airline reservations last year. Two members are selected
at random. What is the probability both made airline reservations last year?

Solution:

The probability the first member made an airline reservation last year is 0.60,
written as P(R1) = 0.60
The probability that the second member selected made a reservation is also
0.60, so P(R2) = 0.60.
Since the number of AAA members is very large, you may assume that
R1 and R2 are independent.

P(R1 and R2) = P(R1)P(R2) = (0.60)(0.60) = 0.36

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Conditional Probabilities
■ A conditional probability is the probability of one
event, given that another event has occurred:
The conditional
probability of A given
Given that B has occurred

The conditional
probability of B given
that A has occurred

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

P(A) = marginal or simple probability of A
P(B) = marginal or simple probability of B
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 34
 Contingency Table

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Conditional Probability Example

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

(AC) and 40% have a GPS. 20% of the cars have both.

■ What is the probability that a car has a GPS, given that it

has AC ?

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

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 36
 P(GPS and AC)= 0.2, P(AC)= 0.7

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Independent Events
■ Two events are independent if and only if the
occurrence of one of the events does not affect
the probability of the other event i.e.

P(B | A) = P(B)

■ Events A and B are independent when the probability of one

event is not affected by the fact that the other event has occurred
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 38
 Example

Are the events “male” and “left-handed”

independent? Justify your answer.

P(left-handed | male) = 3/23 = 0.13

P(left-handed) = 7/50 = 0.14

These probabilities are not equal, therefore the events

“male” and “left-handed” are not independent.

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Example
Example:
Two cards are selected, without replacement, from a
deck. Find the probability of selecting a diamond,
and then selecting a spade.

Because the card is not replaced, the events are

dependent.
P (diamond and spade)13 = P13(diamond)
169 · P (spade |
diamond).    0.064
52 51 2652

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Example

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 General Multiplication Rule -
Example
A golfer has 12 golf shirts in his closet. Suppose 9 of these
shirts are white and the others blue. He gets dressed in
the dark, so he just grabs a shirt and puts it on. He plays
golf two days in a row and does not do laundry(no
replacement).
What is the likelihood both shirts selected are white?

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
  The event that the first shirt selected is white is W1. The
probability is P(W1) = 9/12
 The event that the second shirt selected is also white is
identified as W2. The conditional probability that the
second shirt selected is white, given that the first shirt
selected is also white, is P(W2 | W1) = 8/11.
 To determine the probability of 2 white shirts being
selected we use formula: P(AB) = P(A) P(B|A)
 P(W1 and W2) = P(W1)P(W2 |W1) = (9/12)(8/11) = 0.55

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Bayes’ Theorem

■ Bayes’ Theorem is used to revise previously

calculated probabilities based on new information.

■ Developed by Thomas Bayes in the 18th Century.

■ It is an extension of conditional probability.

■ Basic idea is, if we know P(B | A), we can apply

Bayes’ Law to determine P(A | B).
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 45
 Bayes’ Theorem

■ where:
Bi = ith event of k mutually exclusive and collectively
exhaustive events
A = new event that might impact P(Bi)

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 46
 Example
A bag I contains 4 white and 6 black balls while
another Bag II contains 4 white and 3 black balls. One
ball is drawn at random from one of the bags, and it is
found to be black. Find the probability that it was
drawn from Bag I.

Let E1 be the event of choosing bag I, E2 the event of

choosing bag II, and A be the event of drawing a black
ball.

Then,
P(E1) = P(E2) = 1/2
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 By using Bayes’ theorem, the probability of drawing a
black ball from bag I out of two bags,

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 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?

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 50
 Bayes’ Theorem Example
(continued)

■ Let S = successful well

U = unsuccessful well
■ P(S) = 0.4 , P(U) = 0.6 (prior probabilities)
■ Define the detailed test event as D
■ Conditional probabilities:
P(D|S) = 0.6 P(D|U) = 0.2
■ Goal is to find P(S|D)

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 51
 Bayes’ Theorem Example
(continued)

Apply Bayes’ Theorem:

So the revised probability of success, given that this well

has been scheduled for a detailed test, is 0.667
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. 52
 Mutual exclusive vs Independent
events

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
 Mutual exclusive vs Independent
events

Summary: Mutually exclusive events are not

independent because if one occurs, the other cannot
occur.

If two events are not mutually exclusive then they

may or may not be independent.

Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
Statistics for Managers using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.