A Survey of Probability Concepts

What is Probability

 A probability is a measure of the likelihood that an event

in the future will happen.
 Probability is a value between zero and one, inclusive,
describing the relative possibility (chance or likelihood)
an event will occur.
 Three key words are used in the study of probability:
 experiment
 outcome
 event
 Experiment
An experiment is the observation of some activity or the act of taking
some measurement. A process that leads to the occurrence of one
and only one of several possible observations.

Outcome
An Outcome is the particular result of an experiment.

Event
An Event is the collection of one or more outcomes of an experiment.

Experiment: A fair die is cast. One possible event: The

occurrence of an even
Possible outcomes: The number. That is, we collect
numbers 1, 2, 3, 4, 5, 6 the outcomes 2, 4, and 6.
Events are Mutually
Exclusive if the Events are Independent if the
occurrence of any one occurrence of one event does
event means that none not affect the occurrence of
of the others can occur another.
at the same time.
Independence: Rolling a 2
Mutually exclusive: on the first throw does not
Rolling a 2 precludes influence the probability of a
rolling a 1, 3, 4, 5, 6 on 3 on the next throw. It is still
the same roll. a one in 6 chance.

Events are Collectively Exhaustive if

at least one of the events must occur
when an experiment is conducted.
 Approaches to Assigning Probabilities

There are three definitions of probability: classical,

empirical, and subjective.

The Classical The Empirical Subjective

definition definition applies probability is
applies when when the number based on
there are n of times the event whatever
equally likely happens is divided information is
outcomes. by the number of available.
observations.
 Basic Rules of Probability: Rules of Addition

If two events A and B are mutually exclusive, the

Special Rule of Addition states that the probability of A
or B occurring equals the sum of their respective
probabilities.

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

 Example 1

New England Commuter Airways recently supplied the following

information on their commuter flights from Boston to New York:

Arrival Frequency
Early 100
On Time 800
Late 75
Canceled 25
Total 1000
If A is the event that a If B is the event that a
flight arrives early, flight arrives late, then
then P(A) = 100/1000 P(B) = 75/1000 = .075.
= .10.

The probability that a flight is either early or late

is:
P(A or B) = P(A) + P(B) = .10 + .075 =.175.
 Complement Rule

The Complement Rule is used to determine the probability

of an event occurring by subtracting the probability of the
event not occurring from 1.

If P(A) is the probability of event A and P(~A) is

the complement of A,
P(A) + P(~A) = 1 or P(A) = 1 - P(~A).
A Venn Diagram illustrating the complement rule
would appear as:

A
~A
 Example 2

Recall example 1. Use the complement

rule to find the probability of an early
(A) or a late (B) flight

If C is the event that a If D is the event that a

flight arrives on time, then flight is canceled, then
P(C) = 800/1000 = .8. P(D) = 25/1000 = .025.
P(A or B) = 1 - P(C or D)
= 1 - [.8 +.025]
=.175

D
C .025
.8
~(C or D) = (A or B)
.175
 The General Rule of Addition

If A and B are two

events that are not
mutually exclusive,
then P(A or B) is
given by the
following formula:

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

The Venn Diagram illustrates this rule:

A and B
A
 Example 3

In a sample of 500 students, 320 said they had a stereo,

175 said they had a TV, and 100 said they had both. 5 said
they had neither.

TV
175
Both
Stereo 100
320

P(S or TV) = 320/500 + 175/500 – 100/500

If a student is selected at random, what is the probability
that the student has only a stereo or TV? What is the
probability that the student has both a stereo and TV?

P(S or TV) = P(S) + P(TV) - P(S and TV)

= 320/500 + 175/500 – 100/500
= .79.
P(S and TV) = 100/500
= .20
 Joint Probability

A Joint Probability measures the likelihood that two or

more events will happen concurrently.

An example would be
the event that a
student has both a
stereo and TV in his or
her dorm room.
 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)

 Example 4

Chris owns two stocks, IBM and General Electric (GE).

The probability that IBM stock will increase in value next
year is .5 and the probability that GE stock will increase in
value next year is .7. Assume the two stocks are
independent. What is the probability that both stocks will
increase in value next year?

P(IBM and GE) = (.5)(.7) = .35

 Conditional Probability

A Conditional Probability is the probability of a particular

event occurring, given that another event has occurred.

The probability of event A occurring given that

the event B has occurred is written P(A|B).
 General Multiplication Rule

The General Rule of Multiplication is used to find the joint

probability that two events will occur.

It states that for two events A and B, the joint probability that both
events will happen is found by multiplying the probability that event
A will happen by the conditional probability of B given that A has
occurred.

The joint probability,

P(A and B), is given by the following formula:

P(A and B) = P(A)P(B/A)

P(B/A)= P(A and B)/ P(A)

or
P(A and B) = P(B)P(A/B)
 Example 5

The Dean of the School of Business at Owens University

collected the following information about undergraduate
students in her college:

Major Male Female Total

Accounting 170 110 280

Finance 120 100 220

Marketing 160 70 230

Management 150 120 270

Total 600 400 1000

 If a student is selected at random, what is the
probability that the student is a female (F)
accounting major (A)?

P(A and F) = 110/1000.

Given that the student is a female, what is the probability

that she is an accounting major?

P(A|F) = P(A and F)/P(F)

= [110/1000]/[400/1000] = .275
 Summery of Formulas in Probability Calculation
Types of Symbol Formula
probability Under statistical Under statistical
independence dependence

Marginal P(A) P(A) Sum of the

probabilities of the
joint events in which A
occurs
Joint P(AB) P(A) × P(B) P(A‫׀‬B) × P(B)
P(BA) P(B) × P(A) P(B‫׀‬A) × P(A)
Conditional P(B‫׀‬A) P(B) P ( BA)
P ( A)
P(A‫׀‬B) P(A) P ( AB )
P( B)
 Contingency Table
 A table used to classify sample observations according to
two or more identifiable categories or classes.

 A contingency table is a cross-tabulation that simultaneously

summarizes two variables of interest and their relationship.
The level of measurement can be nominal.
Major Male Female Total
Accounting 170 110 280

Finance 120 100 220

Marketing 160 70 230

Management 150 120 270

Total 600 400 1000