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more accurate as of the total number of observations of the activity increases. If a coin were tossed
PROBABILITY & STATISTICS about 350 times, the relative frequency would approach 1/2 (assuming a fair coin).
Types of Probability Subjective Probability
Two (2) basic types of probability can be defined: objective probability and subjective probability.
When relative frequencies are not available, a probability is often determined anyway. In these cases,
Objective Probability a person must rely on personal belief, experience, and knowledge of the situation to develop a
probability estimate. A probability estimate that is not based on prior or past evidence is a subjective
Consider a referee’s flipping a coin before a football game to determine which team will kick-off and probability.
which team will receive. Before the referee tosses the coin, both team captains know that they have
a 0.50 (or 50%) probability (or chance) of winning the toss. None of the onlookers in the stands or EXAMPLE: When a meteorologist forecasts a “60% chance of rain tomorrow,” the 0.60 probability is
anywhere else would argue that the probability of a head or a tail was not 0.50. In this example, the usually based on the meteorologist’s experience and expert analysis of the weather conditions. In
probability of 0.50 that either a head or a tail will occur when a coin is tossed is called an objective other words, the meteorologist is not saying that these exact weather conditions have occurred 1,000
probability. More specifically, it is a classical or a priori (prior to the occurrence) probability, one times in the past, and on 600 occasions, it has rained. Thus there is a 60% probability of rain. Likewise,
of the two (2) types of objective probabilities. when a sportswriter says that a football team has an 80% chance of winning, it is usually not because
it has won eight (8) of its 10 previous games. The prediction is judgmental, based on the sportswriter’s
A classical, or a priori, probability can be defined as follows: Given a set of outcomes for an activity knowledge of the teams involved, the playing conditions, and so forth. If the sportswriter had based
(such as a head or a tail when a coin is tossed), the probability of a specific (desired) outcome (such the probability estimate solely on the team’s relative frequency of winning, it would have been an
as a head) is the ratio of the number of specific outcomes to the total number of outcomes. objective probability. However, once the relative frequency probability becomes colored by personal
belief, it is subjective.
EXAMPLE: in our coin-tossing example, the probability of a head is the ratio of the number of specific
outcomes (a head) to the total number of outcomes (a head and a tail), or 1/2. Similarly, the probability Fundamentals of Probability
of drawing an ace from a deck of 52 cards would be found by dividing 4 (the number of aces) by 52
(the total number of cards in a deck) to get 1/13. If we spin a roulette wheel with 50 red numbers and Return to the example of a referee’s tossing a coin prior to a football game. In the terminology of
50 black numbers, the probability of the wheel’s landing on a red number is 50 divided by 100, or 1/2. probability, the coin toss is referred to as an experiment. An experiment is an activity (such as tossing
a coin) that results in one of the several possible outcomes. Our coin-tossing experiment can result
These examples are referred to as a priori probabilities because we can state the probabilities before in either one of two (2) outcomes, referred to as events: a head or a tail. The probabilities associated
the actual occurrence of the activity (i.e., ahead of time). This is because we know (or assume we with each event in our experiment follow:
know) the number of specific outcomes and total outcomes before the occurrence of the activity.
Event Probability
EXAMPLE: We know that a deck of cards consists of 4 aces and 52 total cards before drawing a card Head 0.50
from the deck and that a coin contains one (1) head and one (1) tail before we toss it. These Tail 0.50
probabilities are also known as classical probabilities because some of the earliest references in 1.00
history to probabilities were related to games of chance, to which (as the preceding examples show)
these probabilities readily apply. The specific example of tossing a coin also exhibits a third characteristic: The events in a set of events
are mutually exclusive. The events in an experiment are mutually exclusive if only one (1) of them
The second type of objective probability is referred to as relative frequency probability. This type can occur at a time. In the context of our experiment, the term mutually exclusive means that any time
of objective probability indicates the relative frequency with which a specific outcome has been the coin is tossed, only one (1) of the two (2) events can take place—either a head or a tail can occur,
observed to occur in the long run. It is based on the observation of past occurrences. but not both.
EXAMPLE: Suppose that over the past four (4) years, 3,000 business students have taken the EXAMPLE: Consider a customer who enters a store to shop for shoes. The store manager estimates
introductory management science course at State University, and 300 of them have made an A in the a .60 probability that the customer will buy a pair of shoes and a .40 probability that the customer will
course. The relative frequency probability of making an A in management science would be 300/3,000 not buy a pair of shoes. These two (2) events are mutually exclusive because it is impossible to buy
or 0.10. Whereas in the case of a classical probability, we indicate a probability before an activity shoes and not buy shoes simultaneously. In general, events are mutually exclusive if only one of the
(such as tossing a coin) takes place, in the case of a relative frequency, we determine the probability events can occur, but not both.
after observing, for example, what 3,000 students have done in the past.
Because the events in our example of obtaining a head or tail are mutually exclusive, we can infer
The relative frequency definition of objective probability is more general and widely accepted than the that the probabilities of mutually exclusive events sum to 1.0. Also, the probabilities of mutually
classical definition. The relative frequency definition can encompass the classical case. exclusive events can be added.
EXAMPLE: if we flip a coin many times, in the long run, the relative frequency of a head’s occurring EXAMPLE: The staff of the dean of the business school at State University has analyzed the records
will be .50. If, however, you tossed a coin 10 times, it is conceivable that you would get 10 consecutive of the 3,000 students who received a grade in management science during the past four (4) years.
heads. Thus, the relative frequency (probability) of a head would be 1.0. This illustrates one of the The dean wants to know the number of students who made each grade (A, B, C, D, or F) in the course.
key characteristics of a relative frequency probability: The relative frequency probability becomes The dean’s staff has developed the following table of information:

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Event Grade Number of Students Relative Frequency Probability number of students, 3,000, yields the probability of a student’s receiving an A or a B [i.e., 𝑃𝑃(𝐴𝐴 𝑜𝑜𝑜𝑜 𝐵𝐵) =
.30].
A 300 300/3,000 0.10
Consider a case in which two (2) events are not mutually exclusive. In this case, the probability that
B 600 600/3,000 0.20 A or B or both will occur is expressed as:
C 1,500 1,500/3,000 0.50 𝑃𝑃(𝐴𝐴 𝑜𝑜𝑜𝑜 𝐵𝐵) = 𝑃𝑃(𝐴𝐴) + 𝑃𝑃(𝐵𝐵) − 𝑃𝑃(𝐴𝐴𝐴𝐴)
D 450 450/3,000 0.15 Where the term P(AB), referred to as the joint probability of A and B, is the probability that both A and
F 150 150/3,000 0.05 B will occur.
3,000 1.00 EXAMPLE: Suppose it has been determined that 40% of all students in the school of business are
at present taking management, and 30% of all the students are taking finance. Also, it has been
This example demonstrates several of the characteristics of probability: determined that 10% take both subjects. Thus, our probabilities are:

• First, the data (numerical information); 𝑃𝑃(𝑀𝑀) = 0.40

• in the second column show how the students are distributed across the different grades 𝑃𝑃(𝐹𝐹) = 0.30
(events);
𝑃𝑃(𝑀𝑀𝑀𝑀) = 0.10
• The third column shows the relative frequency with which each event occurred for the 3,000
observations. The probability of a student’s taking one or the other or both of the courses is determined as follows:
In other words, the relative frequency of a student’s making a C is 1,500/3,000, which also means 𝑃𝑃(𝑀𝑀 𝑜𝑜𝑜𝑜 𝐹𝐹) = 𝑃𝑃(𝑀𝑀) 𝑜𝑜𝑜𝑜 𝑃𝑃(𝐹𝐹) − 𝑃𝑃(𝑀𝑀𝑀𝑀) = 0.40 + 0.30 − 0.10 = 0.60
that the probability of selecting a student who had obtained a C at random from those students who
took management science in the past four (4) years is 0.50. Observing this formulation closely, we can see why the joint probability, P(MF), was subtracted. The
40% of the students who were taking management also included those students taking both courses.
This information, organized according to the events in the experiment, is called a frequency Likewise, 30% of the students taking finance also included those students taking both courses. Thus,
distribution. The list of the corresponding probabilities for each event in the last column is a if we add the two marginal probabilities, we double-count the percentage of students taking both
probability distribution. courses. We derive the correct probability by subtracting out one of these probabilities (that we added
in twice).
All the events in this example are mutually exclusive; two (2) or more of these events can't occur
simultaneously. A student can make only one (1) grade in the course, not two (2) or more grades. As An alternative way to construct a probability distribution is to add the probability of an event to the
indicated previously, the mutually exclusive probabilities of an experiment can be summed to equal sum of all previously listed probabilities in a probability distribution. Such a list is referred to as a
one. There are five mutually exclusive events in this experiment, the probabilities of which (.10, .20, cumulative probability distribution. The cumulative probability distribution for our management science
.50, .15, and .05) sum to one. grade example is as follows:
This example exhibits another characteristic of probability: Because the five (5) events are all that can
Event Grade Probability Cumulative Probability
occur (i.e., no other grade in the course is possible), the experiment is collectively exhaustive.
Likewise, the coin-tossing experiment is collectively exhaustive because the only two (2) events that A 0.10 0.10
can occur are a head and a tail. In general, when a set of events includes all the events that can
possibly occur, the set is said to be collectively exhaustive. B 0.20 0.30
C 0.50 0.80
The probability of a single event occurring, such as a student receiving an A in a course, is
represented symbolically as 𝑃𝑃(𝐴𝐴). This probability is called the marginal probability in the D 0.15 0.95
terminology of probability. For our example, the marginal probability of a student’s getting an A in F 0.05 1.00
management science is
1.00
𝑃𝑃(𝐴𝐴) = 0.10
The value of a cumulative probability distribution is that it organizes the event probabilities to make it
For mutually exclusive events, it is possible to determine the probability that one or the other of several easier to answer certain questions about the probabilities. For example, if we want to know the
events will occur. This is done by summing the individual marginal probabilities of the events. For probability that a student will get a grade of C or higher, we can add the probabilities of the mutually
example, the probability of a student receiving an A or a B is determined as follows: exclusive events A, B, and C:
𝑃𝑃(𝐴𝐴 𝑜𝑜𝑜𝑜 𝐵𝐵) = 𝑃𝑃(𝐴𝐴) + 𝑃𝑃(𝐵𝐵) = 0.10 + 0.20 = 0.30
𝑃𝑃(𝐴𝐴 𝑜𝑜𝑜𝑜 𝐵𝐵 𝑜𝑜𝑜𝑜 𝐶𝐶) = 𝑃𝑃(𝐴𝐴) + 𝑃𝑃(𝐵𝐵) + 𝑃𝑃(𝐶𝐶) = 0.10 + 0.20 + 0.50 = 0.80
In other words, 300 students received an A, and 600 students received a B; thus, the number of
students who received an A or a B is 900. Dividing 900 students who received an A or a B by the total Or we can look directly at the cumulative probability distribution and see that the probability of a C
and the events preceding it in the distribution (A and B) equals .80. Alternatively, if we want to know

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the probability of a grade lower than C, we can subtract the cumulative probability of a C from 1.00
(i.e., 1.00 - .80 = .20).
Statistical Dependence and Independence
Independent Events

The two (2) events—getting a head and getting a tail—are independent when we toss a coin. If we
get a head on the first toss, this result does not affect the probability of getting a head or a tail on the
next toss. The probability of getting either a head or a tail will still be .50, regardless of the outcomes
of previous tosses. In other words, the two (2) events are independent events.
When events are independent, it is possible to determine the probability that both events will occur in
succession by multiplying the probabilities of each event. For example, what is the probability of Figure 1. Probability tree for coin-tossing example
getting a head on the first toss and a tail on the second toss? The answer is: Source: Introduction to Management Science, 2016, p.538.

𝑃𝑃(𝐻𝐻𝐻𝐻) = 𝑃𝑃(𝐻𝐻) × 𝑃𝑃(𝑇𝑇) The probability tree in Figure 1 demonstrates the probabilities of the various occurrences, given three
Therefore, (3) tosses of a coin. Notice that at each toss, the probability of either event’s occurring remains the
same: 𝑃𝑃(𝐻𝐻) = 𝑃𝑃(𝑇𝑇) = 0.5. Thus, the events are independent. Next, the joint probabilities that events
𝑃𝑃(𝐻𝐻𝐻𝐻) = 𝑃𝑃(𝐻𝐻) × 𝑃𝑃(𝑇𝑇) = 0.50 × 0.50 = 0.25 will occur in succession are computed by multiplying the probabilities of all the events. For example,
the probability of getting a head on the first toss, a tail on the second, and a tail on the third is 0.125:
Another property of independent events relates to conditional probabilities. A conditional probability
is a probability that event A will occur, given that event B has already occurred. This relationship is 𝑃𝑃(𝐻𝐻𝐻𝐻𝐻𝐻) = 𝑃𝑃(𝐻𝐻) × 𝑃𝑃(𝑇𝑇) × 𝑃𝑃(𝑇𝑇) = 0.5 × 0.5 × 0.5 = 0.125
expressed symbolically as:
However, do not confuse the results in the probability tree with conditional probabilities. The
𝑃𝑃 (𝐴𝐴 |𝐵𝐵) probability that a head and then two (2) tails will occur on three (3) consecutive tosses is computed
prior to any tosses. If the first two (2) tosses have already occurred, the probability of getting a tail on
The term in parentheses, “A slash B,” means “A, given the occurrence of B.” Thus, the entire term the third toss is still 0.5:
𝑃𝑃 (𝐴𝐴|𝐵𝐵) is interpreted as the probability that A will occur, given that B has already occurred. If A and
B are independent events, then: 𝑃𝑃(𝑇𝑇|𝐻𝐻𝐻𝐻) = 𝑃𝑃(𝑇𝑇) = 0.5
𝑃𝑃 (𝐴𝐴 |𝐵𝐵) = 𝑃𝑃(𝐴𝐴) Dependent Events
In other words, this result says that if A and B are independent, then the probability of A, given the If the occurrence of one event affects the probability of occurrence of another event, the events are
occurrence of event B, is equal to the probability of A. Because the events are independent of each dependent events.
other, the occurrence of event B will not affect the occurrence of A. Therefore, the probability of A is
in no way dependent on the occurrence of B. EXAMPLE: Two (2) buckets contain several colored balls each. Bucket 1 contains two (2) red balls
and four (4) white balls, and bucket 2 contains one (1) blue ball and five (5) red balls. A coin is tossed.
In summary, if events A and B are independent, the following two (2) properties hold: If a head results, a ball is drawn out of bucket 1. If a tail results, a ball is drawn from bucket 2. These
𝑃𝑃(𝐴𝐴𝐴𝐴) = 𝑃𝑃(𝐴𝐴) × 𝑃𝑃(𝐵𝐵) events are illustrated in Figure 2.

𝑃𝑃(𝐴𝐴|𝐵𝐵) = 𝑃𝑃(𝐴𝐴)

Probability Trees

Consider an example in which a coin is tossed three (3) consecutive times. The possible outcomes
of this example can be illustrated by using a probability tree, as shown in Figure 1.

Figure 2. Another set of dependent events

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Source: Introduction to Management Science, 2016, p.541. 𝑃𝑃(𝐴𝐴𝐴𝐴)

𝑃𝑃(𝐴𝐴|𝐵𝐵) =
In this example, the probability of drawing a blue ball is dependent on whether a head or a tail occurs 𝑃𝑃(𝐵𝐵)
on the coin toss. If a tail occurs, there is a 1/6 chance of drawing a white ball from bucket 2. However, The term 𝑃𝑃(𝐴𝐴𝐴𝐴) is the joint probability of the two (2) events, as noted previously. This relationship can
if a head results, there is no possibility of drawing a blue ball from bucket 1. In other words, the be manipulated by multiplying both sides by 𝑃𝑃(𝐵𝐵), to yield:
probability of the event “drawing a white ball” is dependent on the event “flipping a coin.”
𝑃𝑃(𝐴𝐴|𝐵𝐵) × 𝑃𝑃(𝐵𝐵) = 𝑃𝑃(𝐴𝐴𝐴𝐴)
Like statistically independent events, dependent events exhibit certain defining properties. To
describe these properties, we will alter our previous example slightly so that bucket 2 contains one Thus, the joint probability can be determined by multiplying the conditional probability of A by the
white ball and five red balls. The outcomes that can result from the events illustrated in Figure 2 are marginal probability of B.
shown in Figure 3. When the coin is flipped, one of two outcomes is possible, a head or a tail. The
Recall from our previous discussion of independent events that
probability of getting a head is 0.50, and the probability of getting a tail is 0.50:
𝑃𝑃(𝐴𝐴𝐴𝐴) = 𝑃𝑃(𝐴𝐴) × 𝑃𝑃(𝐵𝐵)
𝑃𝑃(𝐻𝐻) = 0.50
Substituting this result into the relationship for a conditional probability yields:
𝑃𝑃(𝑇𝑇) = 0.50
𝑃𝑃(𝐴𝐴) × 𝑃𝑃(𝐵𝐵)
𝑃𝑃(𝐴𝐴|𝐵𝐵) = = 𝑃𝑃(𝐴𝐴)
𝑃𝑃(𝐵𝐵)
Which is consistent with the property for independent events.
Returning to the example, the joint events are the occurrence of a head and a red ball, a head and a
white ball, a tail and a red ball, and a tail and a white ball. The probabilities of these joint events are
as follows:
𝑃𝑃(𝑅𝑅𝑅𝑅) = 𝑃𝑃(𝑅𝑅|𝐻𝐻) × 𝑃𝑃(𝐻𝐻) = 0.33 × 0.50 = 0.165
𝑃𝑃(𝑊𝑊𝑊𝑊) = 𝑃𝑃(𝑊𝑊|𝐻𝐻) × 𝑃𝑃(𝐻𝐻) = 0.67 × 0.50) = 0.335
𝑃𝑃(𝑅𝑅𝑅𝑅) = 𝑃𝑃(𝑅𝑅|𝑇𝑇) × 𝑃𝑃(𝑇𝑇) = 0.83 × 0.50 = 0.415
Figure 3. Probability tree
Source: Introduction to Management Science, 2016, p.541.
𝑃𝑃(𝑊𝑊𝑊𝑊) = 𝑃𝑃(𝑊𝑊|𝑇𝑇) × 𝑃𝑃(𝑇𝑇) = 0.17 × 0.50 = 0.085
The marginal, conditional, and joint probabilities for this example are summarized in Figure 4.
Once the coin has been tossed, and a head or tail has resulted, a ball is drawn from one of the
buckets. If a head results, a ball is drawn from bucket 1; there is a 2/6, or 0.33, probability of drawing
a red ball and a 4/6, or 0.67, probability of drawing a white ball. If a tail results, a ball is drawn from
bucket 2; there is a 5/6, or 0.83, probability of drawing a red ball and a 1/6, or 0.17, probability of
drawing a white ball. These probabilities of drawing red or white balls are called conditional
probabilities because they are conditional on the outcome of tossing a coin. Symbolically, these
conditional probabilities are expressed as follows:
𝑃𝑃(𝑅𝑅|𝐻𝐻) = 0.33
𝑃𝑃(𝑊𝑊|𝐻𝐻) = 0.67
𝑃𝑃(𝑅𝑅|𝑇𝑇) = 0.83
𝑃𝑃(𝑊𝑊|𝑇𝑇) = 0.17
Figure 4. Probability tree with marginal, conditional, and joint probabilities
The first term can be expressed verbally as “the probability of drawing a red ball, given that a head Source: Introduction to Management Science, 2016, p.543.
results from the coin toss,” equals 0.33. The other conditional probabilities are expressed similarly.
References
The following mathematical relationship can also define conditional probabilities. Given two (2) Taylor III, B. W. (2016). Introduction to Management Science (12th ed.). New York: Pearson
dependent events A and B, Education Limited.

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