Probability

Arun Kumar, Ravindra Gokhale, and Nagarajan Krishnamurthy

Quantitative Techniques-I, Term I, 2012 Indian Institute of Management Indore

Describing Shape of a Bar Graph

Proportion of observations in a particular category.

Describing Shape of a Histogram

Proportion of observations in a particular class interval.

Probability

Proportion sample

Probability population

Example
Workforce distribution in the United States. Industry Probability Agriculture 0.130 Construction 0.147 Finance, Insurance, Real Estate 0.059 Manufacturing 0.042 Mining 0.002 Services 0.419 Trade 0.159 Transportation, Public Utilities 0.042

Sample Space

Def: Set of all possible outcomes.

Ex.: ={Agriculture, Construction, . . . , Services, Trade, Transportation and Public Utilities}

Simple Events

Simple event: An event in the nest partition of the sample space.

Example: 1 =Agriculture, 2 =Construction.

Event

Def: Any subset of the sample space

Ex: {Agriculture, Construction}

Exercise

A bowl contains three red and two yellow balls. Two balls are randomly selected and their colors recorded. Use a tree diagram to list the 20 simple events in the experiment, keeping in mind the order in which the balls are drawn.

Other Approaches for Calculating Probabilities

Classical Approach: Assuming all outcomes to be equally likely, the probability of an event is the number of favourable outcomes divided by the total number of outcomes. Ex. Rolling a dice

Subjective Approach: Assigning probability to an event based on ones experience.

Example
Workforce distribution in the United States. Industry Probability Agriculture 0.130 Construction 0.147 Finance, Insurance, Real Estate 0.059 Manufacturing 0.042 Mining 0.002 Services 0.419 Trade 0.159 Transportation, Public Utilities 0.042

Probability

P(Agriculture)

Probability

P(Agriculture) = 0.13 P(Either Agriculture or Construction or both) P(Agriculture Construction)

Probability

P(Agriculture) = 0.13 P(Either Agriculture or Construction or both) P(Agriculture Construction) = 0.13+0.147=0.277. P(Agriculture and Construction) P(Agriculture Construction)

Probability

P(Agriculture) = 0.13 P(Either Agriculture or Construction or both) P(Agriculture Construction) = 0.13+0.147=0.277. P(Agriculture and Construction) P(Agriculture Construction) =0. P(Not in Agriculture) P(Agriculturec )

Probability

P(Agriculture) = 0.13 P(Either Agriculture or Construction or both) P(Agriculture Construction) = 0.13+0.147=0.277. P(Agriculture and Construction) P(Agriculture Construction) =0. P(Not in Agriculture) P(Agriculturec ) = 1-0.13=0.87.

Compound Events
If A and B are two events then

Union event is A B

Intersection event is A B

Complement event is Ac

Venn Diagram Representation

S A B A

S B

Disjoint events A and B

S A A B C
AUB

Mutually exclusive and exhaustive events: A, B, C, and D

S B D

Probability Rules

1 2

P(A B ) = P(A) + P(B ) P(A B ) P(Ac ) = 1 P(A)

Mutually Exclusive

Def: Two events are mutually exclusive if they do not have any common outcome.

Ex: Agriculture and Construction are mutually exclusive events.

Mutually Exclusive

A and B are mutually exclusive if P(A B) = 0.

This implies that for mutually exclusive events A and B, P(A B) = P(A)+P(B).

Pizza Venn Diagram

What is the sample space?

What is the sample space?

Sample space={Tomato only, Fish Only, Mushroom-Tomato, Mushroom-Tomato-Fish, Mushroom-Fish, No toppings}.

Probability of the events in the sample space

P(Tomato only)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)=1/8.

P(Mushroom-Tomato)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)=1/8.

P(Mushroom-Tomato) =2/8=1/4; P(Mushroom-Tomato-Fish)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)=1/8.

P(Mushroom-Tomato) =2/8=1/4; P(Mushroom-Tomato-Fish)=1/8.

P(Mushroom-Fish)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)=1/8.

P(Mushroom-Tomato) =2/8=1/4; P(Mushroom-Tomato-Fish)=1/8.

P(Mushroom-Fish) =1/8; P(No toppings)

Probability of the events in the sample space

P(Tomato only) =2/8; P(Fish only)=1/8.

P(Mushroom-Tomato) =2/8=1/4; P(Mushroom-Tomato-Fish)=1/8.

P(Mushroom-Fish) =1/8; P(No toppings)=1/8.

Union Rule

What is the probability that your slice will have tomato or mushroom?

Union Rule

What is the probability that your slice will have tomato or mushroom?

Ans. 6/8=3/4

Intersection Rule

What is the probability that your slice will have tomato and mushroom?

Intersection Rule

What is the probability that your slice will have tomato and mushroom?

Ans. 3/8

Complement Rule

What is the probability that your slice will not have tomato?

Complement Rule

What is the probability that your slice will not have tomato?

Ans. 3/8

Conditional Probability

You have pulled out a slice of pizza that has tomato on it. What is the probability that your slice will have mushrooms?

Ans. 3/5.

Conditional Probability

Def: Probability of event A in event B.

Notation: A|B

Multiplication rule

P (A B ) = P (A)P (B |A) P(A B ) = P(B )P(A|B )

Independent Venn Pizza

Statistical Independence

Two events are said to be independent if occurrence of one has no eect on the chances for the occurrence of the other.

Statistical Independence

Using the Statistically Independent Pizza, are events mushroom and tomato independent?

Statistical Independence

Two events A and B are considered independent when P(A|B)=P(A).

Independence

Exercise 1
Is Gender related to whether someone voted in the last mayoral election? Answer the question using the joint probabilities given in the table below.
Table: Is gender related to whether someone voted in the last mayoral election

Voted in the last mayoral election Yes No

Gender Female Male 0.25 0.18 0.33 0.24

Statistical Independence

If two events A and B are independent then 1 P(A B ) = P(A)P(B )

Law of Total Probability

Given a set of events S1 , S2 , . . . , Sk that are mutually exclusive and exhaustive, and an event A, the probability of the event A can be expressed as P (A) = P (S1 ).P (A|S1 ) + P (S2 ).P (A|S2 ) +P (S3 ).P (A|S3 ) + . . . + P (Sk ).P (A|Sk )

Exercise 2
A business group own three ve-star hotels (say, A, B, and C) in India. By studying the past behavior of the revenue obtained from the three hotels month by month, it has been observed that the probability of increase in revenue of either B or C or both of them is 0.5. If As revenue increases in a given month, the probability of increase in Bs revenue is 0.7, the probability of increase in Cs revenue is 0.6, and the probability of increase in both B and Cs revenue is 0.5. However if As revenue does not increase in a given month, the probability of increase in Bs revenue is 0.2, the probability of increase in Cs revenue is 0.3, and the probability of increase in both B and Cs revenue is 0.1. What is the probability that the revenue of all the three hotels, A, B, and C increases in a given month?

Exercise 3
You are a physician. You think it is quite likely that one of your patients has strep throat, but you are not sure. You take some swabs from the throat and send them to a lab for testing. The test is (like nearly all lab tests) not perfect. If the patient has strep throat, then 70% of the time the lab says YES but 30% of the time it says NO. If the patient does not have strep throat, then 90% of the time the lab says NO but 10% of the time it says YES. You send ve succesive swabs to the lab, from the same patient. You get back these results, in order; YNYNY. What do you conclude? These results are worthless. It is likely that the patient does not have the strep throat. It is slightly more likely than not, that patient does have the strep throat. It is very much more likely than not, that patient does have the strep throat.

Bayes Rule

Let S1 , S2 , . . . , Sk represents k mutually exclusive and exhaustive sub-populations with prior probabilities P (S1 ), P (S2 ), . . . , P (S2 ). If an event A occurs, the posterior probability of Si given A is the conditional probability P (Si |A) = P (Si ).P (A|Si )
k j =1

P (Sj ).P (A|Sj )

Exercise

Strep Throat Exercise

Bibliography

An Introduction to Probability and Inductive Logic, by Ian Hacking Introduction to Probability and Statistics, by William Mendenhall, Robert J. Beaver, and Barbara M. Beaver Practice of Business Statistics, by David S. Moore, George P. McCabe, William M. Duckworth, and Stanley L. Sclove Bradley A. Warner, David Pendergrift, and Timothy Webb,That was Venn, This is now, Journal of Statistical Education, Volume 6, Number 1, 1998