Lecture 6: Introduction to Probability

Dr. A. Ramesh
Department of Management Studies

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 Lecture objectives

• Comprehend the different ways of assigning probability

• Understand and apply marginal, union, joint, and conditional probabilities
• Solve problems using the laws of probability including the laws of addition,
multiplication and conditional probability
• Revise probabilities using Bayes’ rule

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 Probability

• Probability is the numerical measure of the likelihood that an event will occur.

• The probability of any event must be between 0 and 1, inclusively

– 0 ≤ P(A) ≤ 1 for any event A.

• The sum of the probabilities of all mutually exclusive and collectively

exhaustive events is 1.
– P(A) + P(B) + P(C) = 1
– A, B, and C are mutually exclusive and collectively exhaustive

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Range of Probability

1 Certain

.5

0 Impossible

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 Methods of Assigning Probabilities

• Classical method of assigning probability (rules and laws)

• Relative frequency of occurrence (cumulated historical data)

• Subjective Probability (personal intuition or reasoning)

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 Classical Probability

• Number of outcomes leading to the event divided by the total number of

outcomes possible
• Each outcome is equally likely
• Determined a priori -- before performing the experiment
• Applicable to games of chance
• Objective -- everyone correctly using the method assigns an identical
probability

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 Classical Probability

P( E ) 
n e
N
Where:
N  total number of outcomes
ne
 number of outcomes in E

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 Relative Frequency Probability

• Based on historical data

• Computed after performing the experiment

• Number of times an event occurred divided by the number of trials

• Objective -- everyone correctly using the method assigns an identical

probability

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Relative Frequency Probability

P( E )  ne
N
Where:
N  total number of trials
n e
 number of outcomes
producing E

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 Subjective Probability

• Comes from a person’s intuition or reasoning

• Subjective -- different individuals may (correctly) assign different numeric
probabilities to the same event
• Degree of belief
• Useful for unique (single-trial) experiments
– New product introduction
– Initial public offering of common stock
– Site selection decisions
– Sporting events

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 Probability - Terminology

• Experiment
• Event
• Elementary Events
• Sample Space
• Unions and Intersections
• Mutually Exclusive Events
• Independent Events
• Collectively Exhaustive Events
• Complementary Events

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 Experiment, Trial, Elementary Event, Event
• Experiment: a process that produces outcomes
– More than one possible outcome
– Only one outcome per trial
• Trial: one repetition of the process
• Elementary Event: cannot be decomposed or broken down into other
events
• Event: an outcome of an experiment
– may be an elementary event, or
– may be an aggregate of elementary events
– usually represented by an uppercase letter, e.g., A, E1

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 An Example Experiment
• Experiment: randomly select,
without replacement, two families Tiny Town Population
from the residents of Tiny Town
• Elementary Event: the sample Children in Number of
Family Household
includes families A and C Automobiles
• Event: each family in the sample
has children in the household A Yes 3
• Event: the sample families own a B Yes 2
total of four automobiles C No 1
D Yes 2

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 Sample Space

• The set of all elementary events for an experiment

• Methods for describing a sample space
– roster or listing
– tree diagram
– set builder notation
– Venn diagram

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 Sample Space: Roster Example

• Experiment: randomly select, without replacement, two families from the

residents of Tiny Town
• Each ordered pair in the sample space is an elementary event, for example
-- (D,C)
Children in Number of Listing of Sample Space
Family
Household Automobiles
(A,B), (A,C), (A,D),
A Yes 3
(B,A), (B,C), (B,D),
B Yes 2
(C,A), (C,B), (C,D),
C No 1
(D,A), (D,B), (D,C)
D Yes 2

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Sample Space: Tree Diagram for Random Sample of Two
Families

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 Sample Space: Set Notation for Random Sample of Two
Families
• S = {(x,y) | x is the family selected on the first draw, and y is the family
selected on the second draw}
• Concise description of large sample spaces

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 Sample Space
• Useful for discussion of general principles and concepts

Listing of Sample Space

Venn Diagram
(A,B), (A,C), (A,D),
(B,A), (B,C), (B,D),
(C,A), (C,B), (C,D),
(D,A), (D,B), (D,C)

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 Union of Sets

• The union of two sets contains an instance of each element of the two
sets.

X  1,4,7,9
Y  2,3,4,5,6 X Y
X  Y  1,2,3,4,5,6,7,9

C   IBM , DEC , Apple

F   Apple, Grape, Lime
C  F   IBM , DEC , Apple, Grape, Lime

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 Intersection of Sets

• The intersection of two sets contains only those element common to the
X  1,4,7,9
two sets.

Y  2,3,4,5,6 X Y

X  Y   4

C   IBM , DEC , Apple

F   Apple, Grape, Lime
C  F   Apple
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 Mutually Exclusive Events
• Events with no common outcomes
• Occurrence of one event precludes the occurrence of the other event

C   IBM , DEC , Apple

F  Grape, Lime
C F  
X Y
X  1,7,9
Y  2 ,3,4 ,5,6
X Y    P( X  Y )  0
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 Independent Events

• Occurrence of one event does not affect the occurrence or nonoccurrence

of the other event
• The conditional probability of X given Y is equal to the marginal probability
of X.
• The conditional probability of Y given X is equal to the marginal probability
of Y.

P( X | Y )  P( X ) and P(Y | X )  P(Y )

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 Collectively Exhaustive Events

• Contains all elementary events for an experiment

E1 E2 E3

Sample Space with three

collectively exhaustive events

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 Complementary Events

• All elementary events not in the event ‘A’ are in its complementary event.

P( Sample Space )  1
A
Sample
Space A
P( A)  1  P( A)

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 Counting the Possibilities

• mn Rule
• Sampling from a Population with Replacement
• Combinations: Sampling from a Population without Replacement

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 mn Rule

• If an operation can be done m ways and a second operation can be done n

ways, then there are mn ways for the two operations to occur in order.
• This rule is easily extend to k stages, with a number of ways equal to
n1.n2.n3..nk

• Example: Toss two coins . The total umber of simple events is 2 x 2 =4

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 Sampling from a Population with Replacement

• A tray contains 1,000 individual tax returns. If 3 returns are randomly

selected with replacement from the tray, how many possible samples are
there?
• (N)n = (1,000)3 = 1,000,000,000

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 Combinations

• A tray contains 1,000 individual tax returns. If 3 returns are randomly

selected without replacement from the tray, how many possible samples
are there?

N N! 1000!
    166,167,00 0
 n  n!( N  n)! 3!(1000  3)!

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 Four Types of Probability
Marginal Union Joint Conditional

P( X ) P( X  Y ) P( X  Y ) P( X | Y )
The probability The probability The probability The probability
of X occurring of X or Y of X and Y of X occurring
occurring occurring given that Y
has occurred
X X Y X Y

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 General Law of Addition

P ( X  Y )  P( X )  P( Y )  P( X  Y )
X Y

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Design for improving productivity?

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 Problem
• A company conducted a survey for the American Society of Interior
Designers in which workers were asked which changes in office design
would increase productivity.
• Respondents were allowed to answer more than one type of design
change.

Reducing noise would increase 70 %

productivity
More storage space would 67 %
increase productivity

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 Problem

• If one of the survey respondents was randomly selected and asked what
office design changes would increase worker productivity,
– what is the probability that this person would select reducing noise or
more storage space?

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 Solution

• Let N represent the event “reducing noise.”

• Let S represent the event “more storage/ filing space.”
• The probability of a person responding with N or S can be symbolized
statistically as a union probability by using the law of addition.

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 General Law of Addition -- Example
P( N  S )  P( N )  P( S )  P( N  S )

N S P ( N ) .70
P ( S ) .67
P ( N  S ) .56
.56
.70 .67 P ( N  S ) .70.67 .56
 0.81

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 Office Design Problem
Probability Matrix

Increase
Storage Space
Yes No Total
Noise Yes .56 .14 .70
Reduction
No .11 .19 .30
Total .67 .33 1.00

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 Joint Probability Using 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

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 Office Design Problem - Probability Matrix
Increase
Storage Space

Yes No Total
Noise Yes .56 .14 .70
Reduction
No .11 .19 .30
Total .67 .33 1.00

P( N  S )  P( N )  P( S )  P( N  S )
.70.67 .56
.81

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Law of Conditional Probability

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Office Design Problem

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 Problem

• A company data reveal that 155 employees worked one of four types of
positions.
• Shown here again is the raw values matrix (also called a contingency table)
with the frequency counts for each category and for subtotals and totals
containing a breakdown of these employees by type of position and by
sex.

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Contingency Table

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 Solution

• If an employee of the company is selected randomly, what is the

probability that the employee is female or a professional worker?

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 Problem

• Shown here are the raw values matrix and corresponding probability
matrix for the results of a national survey of 200 executives who were
asked to identify the geographic locale of their company and their
company’s industry type.
• The executives were only allowed to select one locale and one industry
type.

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