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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 finest 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 S

A B A B

U
Disjoint events A and B A B

S S
A B
A B
C D

AUB Mutually exclusive and exhaustive


events: A, B, C, and D

8
Probability Rules

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


2 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 effect 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
Gender
Voted in the last mayoral election Female Male
Yes 0.25 0.18
No 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 five-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 five 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 ).P(A|Si )
P(Si |A) = Pk
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