Multiplication Law for Independent Events

• Example: Bradley Investments

Event M = Markley Oil Profitable
Event C = Collins Mining Profitable
Are events M and C independent?
Does P(M Ç C) = P(M)P(C) ?
We know: P(M Ç C) = .36, P(M) = .70, P(C) = .48
But: P(M)P(C) = (.70)(.48) = .34, not .36
Hence: M and C are not independent.

1
Consider the events A, B, C.
Are they independent of each other?

𝑃 𝐴 = 𝑃 𝐵 = 𝑃 𝐶 = .5
𝑃 𝐴 ∩ 𝐵 = 𝑃 𝐵 ∩ 𝐶 = 𝑃 𝐴 ∩ 𝐶 = .25
Mutual Exclusiveness and Independence
• Do not confuse the notion of mutually exclusive events with that of
independent events.
• Two events with nonzero probabilities cannot be both mutually exclusive
and independent.
• If one mutually exclusive event is known to occur, the other cannot
occur.; thus, the probability of the other event occurring is reduced to
zero (and they are therefore dependent).
• Two events that are not mutually exclusive, might or might not be
independent.

3
 Bayes Theorem

If (A1, A2, …, AN) represents the partition

of the sample space (N mutually exclusive
events), and if B is subset of (A1, A2, …,
AN)

P(B|A i )P(A i )
P ( Ai | B ) =
P(B|A 1 )P(A 1 ) +!+ P(B|A i )P(A i ) +!+ P(B|A N )P(A N )
 Bayes’ Theorem
P( B | A) ´ P( A)
P( A | B) =
P( B)

P( A Ç B)
P( A | B) = Þ P( A | B) ´ P( B) = P( A Ç B)
P( B)

P( A Ç B)
P( B | A) = Þ P( B | A) ´ P( A) = P( A Ç B)
P( A)

P( B | A) ´ P( A)
P( A | B) =
P( B)
 Bayes’ Theorem
• Often we begin probability analysis with initial or prior probabilities.
• Then, from a sample, special report, or a product test we obtain some
additional information.
• Given this information, we calculate revised or posterior probabilities.
• Bayes’ theorem provides the means for revising the prior probabilities.

Application
Prior New Posterior
of Bayes’
Probabilities Information Probabilities
Theorem

6
 How Bayes’ theorem works

Application of
Prior New Posterior
Bayes’
Probabilities Information Probabilities
Theorem
A1 A2 … An-1 An
…

A1 Ç B A2 Ç B An-1 Ç B An Ç B

P( B) = P( B, A1 ) + P( B, A2 ) + .... + P( B, An )
= P(B | A1 ) P( A1 ) + P(B | A 2 ) P( A2 ) + ... + P(B | A n ) P( An )
 Bayes’ Theorem Terminologies
• P(A) = Prior Probability (without additional information)

• P(A|B) = Posteriors Probability (with additional information). B in

this case is the (information or evidence)

• P(B) is that the evidence itself is true.

• P(B|A) = Likelihood of Evidence B, if A is true.

Bayes’ Theorem
Bayes’ Theorem
• Example: L. S. Clothiers
A proposed shopping center will provide strong competition for downtown
businesses like L. S. Clothiers. If the shopping center is built, the owner of L. S. Clothiers
feels it would be best to relocate to the shopping center.

The shopping center cannot be built unless a zoning change is

approved by the town council. The planning board must first make a
recommendation, for or against the zoning change, to the council.

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Prior Probabilities
• Example: L. S. Clothiers
Let:
A1 = town council approves the zoning change
A2 = town council disapproves the change
Using subjective judgment:
P(A1) = .7, P(A2) = .3

12
 New Information
• Example: L. S. Clothiers
The planning board has recommended against the
zoning change. Let B denote the event of a negative
recommendation by the planning board.
Given that B has occurred, should L. S. Clothiers revise
the probabilities that the town council will approve or
disapprove the zoning change?

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Conditional Probabilities
• Example: L. S. Clothiers
Past history with the planning board and the town council indicates
the following:
P(B|A1) = .2 and P(B|A2) = .9
Hence: P(BC|A1) = .8 and P(BC|A2) = .1

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Tree Diagram
• Example: L. S. Clothiers
Town Council Planning Board Experimental Outcomes

P(B|A1) = .2 P(A1 Ç B) = .14

P(A1) = .7
c
P(B |A1) = .8 P(A1 Ç Bc) = .56

P(B|A2) = .9
P(A2 Ç B) = .27
P(A2) = .3
c P(A2 Ç Bc) = .03
P(B |A2) = .1
1.00

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 Bayes’ Theorem
• To find the posterior probability that event Ai will occur given that event B
has occurred, we apply Bayes’ theorem.
𝑃 𝐴* 𝑃(𝐵|𝐴* )
𝑃 𝐴* 𝐵 =
𝑃 𝐴. 𝑃 𝐵 𝐴. + 𝑃 𝐴0 𝑃 𝐵 𝐴0 + ⋯ + 𝑃 𝐴2 𝑃(𝐵|𝐴2 )

• Bayes’ theorem is applicable when the events for which we want to

compute posterior probabilities are mutually exclusive and their union is
the entire sample space.

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 Posterior Probabilities
• Example: L. S. Clothiers
Given the planning board’s recommendation not
to approve the zoning change, we revise the prior
probabilities as follows:

𝑃 𝐴. 𝑃(𝐵|𝐴. )
𝑃 𝐴. 𝐵 =
𝑃 𝐴. 𝑃 𝐵 𝐴. + 𝑃 𝐴0 𝑃 𝐵 𝐴0
.3 (.0)
= .3 .0)4 .5 .6)

= .34

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Posterior Probabilities
• Example: L. S. Clothiers
The planning board’s recommendation is good news for L. S. Clothiers.
The posterior probability of the town council approving the zoning
change is .34 compared to a prior probability of .70.

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 1
Prepare the following three columns:
Column 1 - The mutually exclusive events for which posterior probabilities
are desired.
Column 2 - The prior probabilities for the events.
Column 3 - The conditional probabilities of the new information given
each event.

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 1

(1) (2) (3) (4) (5)

Prior Conditional
Events Probabilities Probabilities
Ai P(Ai) P(B|Ai)
A1 .7 .2
A2 .3 .9
1.0

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 2
Prepare the fourth column:
Column 4
Compute the joint probabilities for each event and the new
information B by using the multiplication law.
Multiply the prior probabilities in column 2 by the corresponding
conditional probabilities in column 3. That is, P(Ai IB) = P(Ai) P(B|Ai).

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 2

(1) (2) (3) (4) (5)

Prior Conditional Joint
Events Probabilities Probabilities Probabilities
Ai P(Ai) P(B|Ai) P(Ai I B)
A1 .7 .2 .14 = .7(.2)
A2 .3 .9 .27
1.0

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Bayes’ Theorem: Tabular Approach
• Example: L. S. Clothiers
• Step 2 (continued)
We see that there is a .14 probability of the town council approving
the zoning change and a negative recommendation by the planning
board.
There is a .27 probability of the town council disapproving the zoning
change and a negative recommendation by the planning board.

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Bayes’ Theorem: Tabular Approach
• Example: L. S. Clothiers
• Step 3
Sum the joint probabilities in Column 4. The sum is the probability
of the new information, P(B). The sum .14 + .27 shows an overall
probability of .41 of a negative recommendation by the planning
board.

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 3

(1) (2) (3) (4) (5)

Prior Conditional Joint
Events Probabilities Probabilities Probabilities
Ai P(Ai) P(B|Ai) P(Ai I B)

A1 .7 .2 .14
A2 .3 .9 .27
1.0 P(B) = .41

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 4
Prepare the fifth column:
Column 5
Compute the posterior probabilities using the basic relationship of
conditional probability.
𝑃(𝐴𝑖 ∩ 𝐵)
𝑃 𝐴𝑖 𝐵 =
𝑃(𝐵)

The joint probabilities P(Ai I B) are in column 4 and the probability

P(B) is the sum of column 4.

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 Bayes’ Theorem: Tabular
Approach
• Example: L. S. Clothiers
• Step 4

(1) (2) (3) (4) (5)

Events Prior Conditional Joint Posterior
Ai Probabilities Probabilities Probabilities Probabilities
P(Ai) P(B|Ai) P(Ai I B) P(Ai |B)
A1 .7 .2 .14 .3415 = .14/.41
A2 .3 .9 .27 .6585
1.0 P(B) = .41 1.0000

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Monty-Hall Problem
 Monty Hall
• Assume the player initially select Door 1.

• Suppose that Monty then opens Door 2 to reveal a goat.

• We want to calculate the posterior probability that a car lies

behind Door 1 after Monty has provided these new data.

P( M 2 | C1 ) ´ P(C1 ) (1 / 2) ´ (1 / 3)
P(C1 | M 2 ) = = = 1/ 3
p( M 2 ) (1 / 2)
 Monty Hall

P( M 2 | C3 ) ´ P(C3 ) 1´ (1 / 3)
P(C3 | M 2 ) = = = 2/3
p( M 2 ) (1 / 2)