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ANALYSIS
INSTITUTE OF
BUSINESS
MANAGEMENT
PROFESSOR
SHAH MOHD.
GROUP NAME:- FERRERO FACTION
GROUP NO:- 3
GROUP MEMBERS:-
PARUL SINGH
SHIVANI SINGH
MOHD ATIF
MOHD BAIZAD MALIK
MOHD NADEEM
PROBABILITY
THEORY
Page No.
1. Preface 6
2. Probability meaning 8
3. Probability theory 9
4. Definition of Probability 10
5. Importance of Probability 12
6. Types of Probability 13
7. Addition Probability Model 17
8. Multiplication Probability 27
Model
9. Conditional Probability 36
10. Baye’s Theorem 46
11. Bibliography 61
FATHER OF PROBABILITY
GIROLAMO
CARDANO
PROBABILITY
Probability is the
ratio of
favourable
events to the
total number of
equally likely
events.
Probability is an
attitude of mind
towards
uncertain
Credit of development of probability theory goes to gamblers,
and people who bets on horses, who has started discussion with
famous mathematician of that age, after disappointed from
goddess fortune famous scientists as Gallelio, Pascal, Fermett
used their power to solve these problems.
This undeveloped idea is developed by the scientists as-
Laplace, Gauss, Yuler, James Bernoulli.
THE THEORY OF
PROBABILITY is of interest not only to
card and dice players who were its God fathers but also to
all men of action, heads of industries or heads of armies
whose success depends on decision.
DEFINITION OF
PROBABILITY
Mathematical
Statistical Definition
Definition
An event happen a times and Probability is calculated on
does not happen b times the basis of available data
and all ways are equally or frequencies or pre-
likely then probability of experiences.
happening of an event will
be (a/a+b) and P = r/n
probability of not r= Relative frequency
happening of an event will n= Number of the items
be (b/a+b).
Importance of
Probability Theory
BASIS OF IMPORTANCE USE IN
STATISTICAL IN GAMES OF SAMPLING
LAWS CHANCE
SPECIFIC USE IN BASIS OF
IMPORTANCE ECONOMICS TESTS OF
IN INSURANCE AND BUSINESS HYPOTHESIS
BUSINESS DECISIONS AND TEST OF
SIGNIFICANCE
TYPES OF
PROBABILITY
THEORETICAL
RELATIVE
SUBJECTIVE
Theoretical Probability
We assume that all n possible outcomes of a
particular experiment are equally likely, and we
assign a probability of 1/n to each possible
outcomes.
Example:- A die is rolled 100 times. The number 3 is rolled 12 times. The
relative probability of rolling a 3 is 12/100.
Subjective
Probability
These are values (between 0 and 1 or 0 and 100%) assigned
by individuals based on how likely they think events are to
occur.
Let ‘A’ and ‘B’ are subsets of a finite non empty set ‘S’ then
according to the addition rule-
P(A∪B)= P(A)+P(B)-P(A).P(B)
on dividing both sides by P(S), we get-
P(A∪B)/P(S)=
P(A)/P(S)+P(B)/P(S)P(AUB)/P(S)………....(1) eq.
Case I I –
If the event ‘A’ and ‘B’ correspond to the two events ‘A’ and ‘B’ of
a random experiment and if the set ‘S’ corresponds to the sample
space ‘S’ of the experiment then the equation (1) become-
P(AUB)= P(A)+P(B)-P(A).P(B)
•These are event A∪ B refers to the
meaning that either event ‘A’ or event ‘B’
occurs.
Hint:
while doing a question it should be kept in mind that addition theorem
will be applicable in all those problems in which either the word ‘or’ has been used
explicitly or the word ‘or’ is used in analysis of the question
LIMITATION:-
•Addition theorem is applicable only when following two
conditions are fulfilled- (a)Events are mutually exclusive
and (b)They all are related to same set.
•It should be noted that if two or more events are not
mutually exclusive completely, the addition theorem has
to be modified. Suppose, there are two events A and B
and in some occurrence they are not mutually exclusive,
then modified formula will be as follows:-
• P(AorB)= P(A)+P(B)-P(A&B)
Multiplication Law of Probability
This rule is applicable in all the cases, that is, when events are independent or
dependent.
In case when we have dependent events we have to be very careful in determining
the probability of the second event after the occurrence of first event.
In such case the multiplication rule is modified as:
Here, P (B|A) is the probability Now, suppose the candies are taken from the
of occurrence of the second box without putting the first one back. It is clear
that the events are dependent and thus we need
event B when the first event A to find the conditional probability for finding
has already occurred. the probability of occurrence of combined
event.
Problems
Let us see some examples on the multiplication law of probability.
Example 1:
A bag contains 3 pink candies and 7 green candies. Two candies are taken out
from the bag with replacement. Find the probability that both candies are pink.
Solution:
Let A = event that first candy is pink and B = event that second candy is pink.
Since the candies are taken out with replacement, this implies that the given events A and B are
independent.
P (A ∩ B) = P (A) * P (B|A)
= 9/100 = 0.09
Example 2:
A bag has 4 white cards and 5 blue cards. We draw two cards
from the bag one by one without replacement. Find the
probability of getting both cards white.
Solution:
Let A = event that first card is white and B = event that second card is white.
Now P (B) = P (B|A) because the events given are dependent on each other.
→ P (B) = 3/8.
Solution :
Let (A) and (B) denote the probability that A and B speak the truth. Then,
P(A) = 80/100 = 4/5 P(A) = 1 - P(A) = 1 - 4/5 = 1/5
They will contradict each other only when one of them speaks the truth and the
other speaks a lie.
Thus, there are two possibilities:
Unconditional Conditional
Probability Probability
A fair dice is about to be tossed. The
probability that it lands with 5 showing up is
1/6 this is UNCONDITIONAL PROBABILITY,
The probability that it lands with 5 showing up,
given that it lands with an odd number showing up, is
1/3 this is a CONDITIONAL PROBABILITY.
P(A/B)
P(A/B)=P(A∩B) , P(B)≠0
P(B)
* P(A′/B)=1-P(A/B)
•P(E∩F)=P(E/F)×P(F)
YES NO
FEMALE 7 6 13 FEMALES
MALE 7 8 15 MALES
The condition male limits the sample space to 15 possible outcomes. Out of 15
males 7 did the dishes.
Therefore, P(washes the dishes/male)= 7/15
Bayes’ theorem (also known as
Bayes’ rule or Bayes’ law)
Is a result in probability theory that relates conditional probabilities.
If A and B denote two events,
P(A|B) denotes the conditional probability of A occurring, given that
B occurs.
The two conditional probabilities P(A|B) and P(B|A) are in general
different.
Bayes theorem gives a relation between P(A|B) and P(B|A).
An important application of Bayes’ theorem is that it gives a rule
how to update or revise the strengths of evidence-based beliefs in
light of new evidence
a posteriori.
As a formal theorem
P( Ak | B ) = P( Ak ∩ B )
P( A1 ∩ B ) + P( A2 ∩ B ) + . . . + P( An ∩ B )
Note: Invoking the fact that P( Ak ∩ B ) = P( Ak )P( B | Ak ), Baye's
theorem can also be expressed as
P( Ak | B ) = P( Ak ) P( B | Ak )
P( A1 ) P( B | A1 ) + P( A2 ) P( B | A2 ) + . . . + P( An ) P( B | An )
When to Apply Bayes' Theorem
Part of the challenge in applying Bayes' theorem involves recognizing
the types of problems that warrant its use. You should consider Bayes'
theorem when the following conditions exist.:
The sample space is partitioned into a set of mutually exclusive
events { A1, A2, . . . , An }.
Within the sample space, there exists an event B, for which P(B)
> 0.
The analytical goal is to compute a conditional probability of the
form: P( Ak | B ).
You know at least one of the two sets of probabilities described
below.
P( Ak ∩ B ) for each Ak
P( Ak ) and P( B | Ak ) for each Ak
Example:-
3 boxes contain 6 red, 4 black, 5 red, 5
black and 4 red, 6 black balls
respectively. One of the box is selected
at random and a ball is drawn from it. If
the ball drawn is red, find the probability
that if it is drawn from the first bag.
Solution:-
P(A)=P(B)=P(C)= 1/3
If A has already occurred, then first box has
been chosen which contains 6 red and 4
black balls. The probability of drawing a red
ball from it is 6/10.
So,
P(D/A)=6/10
Similarly, P(D/B)=5/10 and P(D/C)=4/10
We are required to find P(A/D) i.e., given that the ball drawn is red,
what is the probability that it is drawn from the first box.
BY BAYE’S RULE:-
P(A).P(D/A)
P(A/D) = P(A).P(D/A)+P(B).P(D/B)+P(C).P(D/C)
1/3 * 6/10
(1/3 * 6/10)+(1/3 * 5/10)+(1/3 * 4/10)
=2/5
Probability Revision using Bayes’
Theorem
Application of
Prior New Posterior
Bayes’
Probabilities Information Probabilities
Theorem
BIBLIOGRAPHY