Probability Concepts and Applications

Definitions
Random

Experiment

An experiment which when repeated under identical conditions does not produce the same outcome every time, but the outcome in a given trial is one of several possible outcomes.

Elementary

Events

Each of the possible outcomes of a Random Experiment is called an Elementary Event

Sample

Space

The set of all possible outcomes of a random experiment constitutes the Sample Space

Definitions
Event

A subset of the Sample Space associated with a Random Experiment

Mutually

Exclusive Events

Two or more events associated with a Random Experiment are Mutually Exclusive if no two or more of them can occur simultaneously in the same trial

Mutually Exclusive Events

Events are said to be mutually exclusive if only one of the events can occur on any one trial

Tossing a coin will result in either a head or a tail Rolling a die will result in only one of six possible outcomes

Fundamental Concepts
The probability, P, of any event or state of nature occurring is greater than or equal to 0 and less than or equal to 1. That is:

0 P (event) 1

The sum of the simple probabilities for all possible outcomes of an activity must equal 1

Probability

P (event) =

Number of occurrences of the event Total number of trials or outcomes

Diversey Paint Example

Demand for white latex paint at Diversey Paint and Supply has always been either 0, 1, 2, 3, or 4 gallons per day Over the past 200 days, the owner has observed the following frequencies of demand

QUANTITY DEMANDED 0 1 2 3 4

NUMBER OF DAYS 40 80 50 20 10 Total 200 Total

PROBABILITY 0.20 (= 40/200) 0.40 (= 80/200) 0.25 (= 50/200) 0.10 (= 20/200) 0.05 (= 10/200) 1.00 (= 200/200)

Diversey Paint Example

Demand for white latex paint at Diversey Paint and Supply has always been either 0,probabilities 1, 2, 3, or 4 gallons per day Notice the individual

are all between 0 and 1

Over the past 200 days, the owner has observed the following frequencies of (event) demand 1 0P

And the total of all event QUANTITY probabilities equals 1 NUMBER OF DAYS DEMANDED
0 1 2 3 4 Total 40 P (event) = 1.00 80 50 20 10 200 Total

PROBABILITY 0.20 (= 40/200) 0.40 (= 80/200) 0.25 (= 50/200) 0.10 (= 20/200) 0.05 (= 10/200) 1.00 (= 200/200)

Exhaustive Events
Events are said to be exhaustive if the list of outcomes includes every possible outcome

Both heads and tails as possible outcomes of coin flips All six possible outcomes of the roll of a die

OUTCOME OF ROLL 1 2 3

PROBABILITY
1/ 6 1/ 6 1/ 6 1/ 6 1/ 6 1/ 6

4
5 6

Total 1

Drawing a Card
Draw one card from a deck of 52 playing cards
P (drawing a 7) = 4/52 = 1/13 P (drawing a heart) = 13/52 = 1/4
These two events are not mutually exclusive

since a 7 of hearts can be drawn These two events are not collectively exhaustive since there are other cards in the deck besides 7s and hearts

Table of Differences
DRAWS 1. Draws a spade and a club 2. Draw a face card and a number card MUTUALLY EXCLUSIVE COLLECTIVELY EXHAUSTIVE

3. Draw an ace and a 3

4. Draw a club and a nonclub

5. Draw a 5 and a diamond

6. Draw a red card and a diamond

Table of Differences
DRAWS 1. Draws a spade and a club 2. Draw a face card and a number card MUTUALLY EXCLUSIVE Yes Yes COLLECTIVELY EXHAUSTIVE No Yes

3. Draw an ace and a 3

4. Draw a club and a nonclub

Yes
Yes

No
Yes

5. Draw a 5 and a diamond

6. Draw a red card and a diamond

No
No

No
No

Adding Mutually Exclusive Events

We often want to know whether one or a second event will occur When two events are mutually exclusive, the law of addition is
P (event A or event B) = P (event A) + P (event B) P (spade or club) = P (spade) + P (club) = 13/52 + 13/52

= 26/52 = 1/2 = 0.50 = 50%

Adding Not Mutually Exclusive Events

The equation must be modified to account for double counting The probability is reduced by subtracting the chance of both events occurring together
P (event A or event B) = P (event A) + P (event B) P (event A and event B both occurring)

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

P(five or diamond) = P(five) + P(diamond) P(five and diamond)

= 4/52 + 13/52 1/52

= 16/52 = 4/13

Venn Diagrams
P (A and B)

P (A)

P (B)

P (A)

P (B)

Events that are mutually exclusive

Events that are not mutually exclusive

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

Three Types of Probabilities

Marginal (or simple) probability is just the probability of an event occurring P (A)

Joint probability is the probability of two or more events occurring and is the product of their marginal probabilities for independent events P (AB) = P (A) x P (B)

Conditional probability is the probability of event B given that event A has occurred P (B | A) = P (AB) / P (A)

Or the probability of event A given that event B has occurred P (A | B) = P (AB) / P (B)

An Example:
Men Promoted Not Promoted Totals 288 672 960 Women 36 204 240 Totals 324 876 1200

Let

M: event an employee is a man

W: event an employee is a woman

A: event an employee is promoted

A: event an employee is not promoted

Example Contd..
Men (M) Promoted (A) Not Promoted (A) 0.24 0.56 Women (W) 0.03 0.17 Totals 0.27 0.73

Totals

0.80

0.20

1.00

Joint Probabilities (AB) Conditional Probability:

Marginal Probabilities P(A)

P(AM) = P (AM) = 288/1200 = 0.24 = 0.30 P(M)

960/1200

0.80

Statistically Independent Events

Events may be either independent or dependent

For independent events, the occurrence of one event has no effect on the probability of occurrence of the second event Two events A and B are independent if, P(AB) = P(A) or P(BA) = P(B)

Independent Events
A bucket contains 3 black balls and 7 green balls We draw a ball from the bucket, replace it, and draw a second ball
1.

A black ball drawn on first draw P (B) = 0.30 (a marginal probability)

1.

Two green balls drawn

P (GG) = P (G) x P (G) = 0.7 x 0.7 = 0.49 (a joint probability for two independent events)

Independent Events
A bucket contains 3 black balls and 7 green balls We draw a ball from the bucket, replace it, and draw a second ball
1.

A black ball drawn on second draw if the first draw is green P (B | G) = P (B) = 0.30 (a conditional probability but equal to the marginal because the two draws are independent events)

1.

A green ball is drawn on the second if the first draw was green P (G | G) = P (G) = 0.70 (a conditional probability as in event 3)

When Events Are Dependent

Assume that we have an urn containing 10 balls of the following descriptions 4 are white (W) and lettered (L) 2 are white (W) and numbered (N) 3 are yellow (Y) and lettered (L) 1 is yellow (Y) and numbered (N) P (WL) = 4/10 = 0.4 P (WN) = 2/10 = 0.2 P (W) = 6/10 = 0.6 P (Y) = 4/10 = 0.4 P (YL) = 3/10 = 0.3 P (YN) = 1/10 = 0.1 P (L) = 7/10 = 0.7 P (N) = 3/10 = 0.3

When Events Are Dependent

4 balls White (W) and Lettered (L)

Probability (WL) =

4 10

Urn contains 10 balls

2 balls White (W) and Numbered (N) 3 balls Yellow (Y) and Lettered (L) 1 ball Yellow (Y) and Numbered (N)

Probability (WN) =

2 10

Probability (YL) =

3 10

Probability (YN) =

1 10

When Events Are Dependent

The conditional probability that the ball drawn is lettered, given that it is yellow, is
P (YL) 0.3

P (L | Y) =

P (Y)

0.4

= 0.75

Verify P (YL) using the joint probability formula P (YL) = P (L | Y) x P (Y) = (0.75)(0.4) = 0.3

Joint Probabilities for Dependent Events

If the stock market reaches 12,500 point by January, there is a 70% probability that Tubeless Electronics will go up There is a 40% chance the stock market will reach 12,500 Let M represent the event of the stock market reaching 12,500 and let T be the event that Tubeless goes up in value

P (MT) = P (T | M) x P (M) = (0.70)(0.40) = 0.28

Revising Probabilities with Bayes Theorem

Bayes theorem is used to incorporate additional information and help create posterior probabilities

Prior Probabilities Bayes Process New Information Posterior Probabilities

Posterior Probabilities
A cup contains two dice identical in appearance but one is fair (unbiased), the other is loaded (biased) The probability of rolling a 3 on the fair die is 1/6 or 0.166 The probability of tossing the same number on the loaded die is 0.60 We select one by chance, toss it, and get a result of a 3 What is the probability that the die rolled was fair? What is the probability that the loaded die was rolled?

Posterior Probabilities
We know the probability of the die being fair or loaded is P (fair) = 0.50 And that P (3 | fair) = 0.166 P (3 | loaded) = 0.60 P (loaded) = 0.50

We compute the probabilities of P (3 and fair) and P (3 and loaded)

P (3 and fair)= P (3 | fair) x P (fair) = (0.166)(0.50) = 0.083

P (3 and loaded)= P (3 | loaded) x P (loaded) = (0.60)(0.50) = 0.300

Posterior Probabilities
We know the probabilityThe of the die being fair or loaded is sum of these probabilities

gives us the unconditional P (fair) = 0.50 P (loaded) = 0.50 probability of tossing a 3

And that P (3 | fair) = 0.166

P (3) = 0.083 + 0.300 = 0.383

P (3 | loaded) = 0.60

We compute the probabilities of P (3 and fair) and P (3 and loaded)

P (3 and fair)= P (3 | fair) x P (fair) = (0.166)(0.50) = 0.083

P (3 and loaded)= P (3 | loaded) x P (loaded) = (0.60)(0.50) = 0.300

Posterior Probabilities
If a 3 does occur, the probability that the die rolled was the fair one is 0.083 P (fair and 3)
P (fair | 3) = P (3) =

0.383

= 0.22

The probability that the die was loaded is

P (loaded | 3) =

P (loaded and 3) P (3)

0.300
0.383

= 0.78

These are the revised or posterior probabilities for the next

roll of the die We use these to revise our prior probability estimates

Bayes Calculations
Given event B has occurred
STATE OF NATURE A A P (B | STATE OF NATURE) P(B | A) P(B | A) PRIOR PROBABILITY x P(A) x P(A) JOINT PROBABILITY = P(B and A) = P(B and A) P(B) POSTERIOR PROBABILITY P(B and A)/P(B) = P(A|B) P(B and A)/P(B) = P(A|B)

Given a 3 was rolled

STATE OF NATURE Fair die Loaded die P (B | STATE OF NATURE) 0.166 0.600 PRIOR PROBABILITY x 0.5 x 0.5 JOINT PROBABILITY = 0.083 = 0.300 P(3) = 0.383

Table 2.2

POSTERIOR PROBABILITY 0.083 / 0.383 = 0.22 0.300 / 0.383 = 0.78

Table 2.3

General Form of Bayes Theorem

We can compute revised probabilities more directly by using

P ( B A ) P ( A ) P ( A B )= P ( B A ) P ( A )+ P ( B A ' ) P ( A ' )
where A the complement of the event ; A for example, if A is the event fair die, then A' is loaded die

General Form of Bayes Theorem

This is basically what we did in the previous example If we replace A with fair die Replace A' with loaded die Replace B with 3 rolled We get

P ( fair die 3 rolled )

P ( 3 fair ) P ( fair ) P ( 3 fair ) P ( fair )+ P ( 3 loaded ) P ( loaded )

( 0 .166 )( 0 . 50 ) 0 . 083 = = 0 . 22 ( 0 . 166 )( 0 .50 )+( 0 . 60 )( 0 .50 ) 0 . 383