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Business Statistics
BBM 12023

Ms. Sasini Fernando

School of Business
BCI campus
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Lesson 04:
Basic Probability Concepts in Decision Making

At the end of this lesson, you should be able to:

 demonstrate an understanding of basic probability concepts (including: events,
sample space, and probabilities)
 calculate probabilities using appropriate rules of probability
 calculate conditional probabilities for a given scenario
 differentiate independent and dependent events
 discuss the law of total probability
 calculate probabilities using Bayes’ theorem
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Events
 An event with one outcome is called a simple event.

 An event with more than one outcome is called a compound event.

List simple events and compound events separately when you are rolling a die.

Rolling a 1 Rolling a number greater than 4 (5 or 6)

Rolling a 6

Rolling a 4
Rolling an even number (2, 4, or 6)

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Introduction
 Probability is a numerical measure of the likelihood that an event will
occur.
• Likelihood is the chance of a particular event happening

 Thus, probabilities can be used as measures of the degree of uncertainty.

• Certain Event: The sun rising in the morning.
• Uncertain Event: Whether it will rain or not.

 Probability values are always assigned on a scale from 0 to 1.

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Experiments
 An experiment is a process that generates well-defined outcomes.
 On any single repetition of an experiment, one and only one of the
possible experimental outcomes will occur.

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 By specifying all possible experimental outcomes, we identify the

sample space for an experiment.

Sample Space
The sample space for an experiment is the set of all
experimental outcomes.

Ex: Tossing a coin, let S denote the sample space.

S = {Head, Tail}

Rolling a die. S = {1, 2, 3, 4, 5, 6}

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Counting Rules
Multiple-step Experiments

Consider the experiment of tossing two coins. How many experimental

outcomes are possible for this experiment?
The experiment of tossing two coins can be thought of as a two-step
experiment in which step 1 is the tossing of the first coin and step 2 is the
tossing of the second coin. If we use H to denote a head and T to denote
a tail, (H, H) indicates the experimental outcome with a head on the first
coin and a head on the second coin.

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The sample space (S) for this coin-tossing experiment as follows:

S = {(H, H), (H, T), (T, H), (T, T)}

Counting Rule For Multiple-step Experiments

If an experiment can be described as a sequence of k steps with n1
possible outcomes on the first step, n2 possible outcomes on the second
step, and so on, then the total number of experimental outcomes is given
by (n1) (n2) ... (nk).

Experimental outcomes when tossing two coins are (2)*(2) = 4.

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Tree Diagram for The Experiment of Tossing Two Coins

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The number of experimental outcomes in an experiment involving

tossing six coins are:

(2)*(2)*(2)*(2)*(2)*(2) = 64

Example:

An experiment has three steps with three outcomes possible for the first
step, two outcomes possible for the second step, and four outcomes
possible for the third step. How many experimental outcomes exist for
the entire experiment?

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Exercise:

1. How many permutations of three items can be selected from a group of

six? Use the letters A, B, C, D, E, and F to identify the items, and list
each of the permutations of items B, D, and F.

2. Consider the experiment of tossing a coin three times.

a) Develop a tree diagram for the experiment.
b) List the experimental outcomes.
c) What is the probability for each experimental outcome?

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Probability Rules:
 Rule 01: The probability of any event E is a number (either a fraction or

This is denoted by 𝟎 ≤ 𝑷(𝑬) ≤ 1

decimal) between and including 0 and 1.

 Rule 02: If an event E cannot occur (i.e., the event contains no members
in the sample space), its probability is 0.

words, if 𝑃(𝐸) = 1 , then the event E is certain to occur.

 Rule 03: If an event E is certain, then the probability of E is 1. In other

 Rule 04: The sum of the probabilities of all the outcomes in the sample
space is 1.
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Complementary Events
The complement of an event E is the set of outcomes in the sample

of E is denoted by 𝐸̅ or Ec.
space that are not included in the outcomes of event E. The complement

Example:
When a die is rolled,
let E = getting odd numbers

then 𝐸̅ = not getting an odd number

= {1, 3, 5},

= {2, 4, 6}
Then the sample space consists of the outcomes 1, 2, 3, 4, 5, and 6.
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Formula for Empirical Probability

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Rule for Complementary Events

Exercise:
If the probability that a person lives in an industrialized country of the world
is (1/5), find the probability that a person does not live in an industrialized
country.

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Venn Diagrams

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The union of events A and B, denoted by , I the event that either A

or B or both occur.

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The intersection of events A The complement of an event

and B, is the event that both A A, denoted by Ac , is the event
and B occur. that A does not occur.

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Example:
Two fair coins are tossed, and the outcome is recorded. These are the
events of interest:
A: Observe at least one head
B: Observe at least one tail

Define the events A, B, A ∩ B, A ∪ B, and Ac as collections of simple

events, and find their probabilities.

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Answers:
E1: HH (head on first coin, head on second)
E2: HT
E3: TH
E4: TT

Each simple event has probability 1/4.

Event A, at least one head, occurs if E1, E2, or E3 occurs,
so that A = {E1, E2, E3}
P(A) = 3/ 4
P(Ac ) = 1/ 4
P(B) = 3 /4

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The Addition Rule

Given two events, A and B, the probability of their union, is equal to:

The Rule for Complement

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Mutually Exclusive Events:

Events that cannot occur simultaneously

When two events A and B are mutually

exclusive, then P(A ∩ B) = 0
and the Addition Rule simplifies to:

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De Morgan’s Law

Use Venn diagrams to verify the two De Morgan Laws.

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Exercise:
1. If S = {1,2,3,4,5,6,7,8,9}, A = {1,3,5,7}, B = {6,7,8,9}, C = {2,4,8},
and D = {1,5,9}, draw the Venn diagram and list the elements to the
following events.

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2. A probability experiment is conducted. Which of these cannot be considered

a probability outcome?

3. If two dice are rolled one time, find the probability of getting these results.

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4. Human blood is grouped into four types. The percentages of people in

a certain country with each type are listed below. O = 43%, A = 40%,
B=12%, AB = 5%. Choose one person at random. Find the probability
that this person.

5. In 2023, 57.2% of all enrolled college students were female. Choose

one enrolled student at random. What is the probability that the student
was male?

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6. Use Venn diagrams to verify that:

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Example:

Rolling a die: Six possible outcomes, equally likely.

Each outcome is assigned a probability of 1/6.
P(1) = 1/6, P(2) = 1/6, P(3) = 1/6, P(4) = 1/6, P(5) = 1/6, and P(6) = 1/6

What is the probability of getting an even number (2,4, or 6) ?

P(2) + P(4) + P(6) = 1/6 + 1/6 + 1/6
= 3/6
= 1/2

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Exercise:
1. A decision maker subjectively assigned the following probabilities to the
four outcomes of an experiment: P(E1) = 0.10, P(E2) = 0.15, P(E3) =
0.40, and P(E4) = 0.20. Are these probability assignments valid? Explain.
2. A Researcher asked 50 people who plan to travel over the holiday how
they will get to their destination. The results can be categorized in a
frequency distribution as shown. Find the probabilities separately that a
person will travel by car, airplane and train or bus.

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Thank You!

Any Questions?

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