April Andrea M.

Valera
2016
Probability
is a numerical measure of the likelihood that an event
will occur.
values are always assigned on a scale from 0 to 1.

Increasing Likelihood of Occurrence

ZERO the ONE the
0 .5 1
event will event will
NOT SURELY
happen The event The occurrence The event happen
is very of the event is is almost
unlikely just as likely as certain
to occur. it is unlikely. to occur.
Experiment is a process in statistics that generates
well defined outcomes.
Sample Space is the set of all experimental
outcomes.
Sample Point or Experimental Outcome is an
element of the sample space.
Event is a collection of sample points or a subset of
the sample space.
 Being able to identify and count the experimental outcomes
is a necessary step in assigning probabilities.
1. Multiple Step Experiments If an experiment can be
described as a sequence of k steps with n1 possible
outcomes on the first step, n2 possible outcomes on the
second step, and so on then the total number of
experimental outcomes is given by (n1), (n2) . (nk)
 is a graphical representation that helps in
visualizing a multiple step experiment.
(H, H)

(H, T)
(T, H)

(T, T)
Step 1 Step 2 Experimental
First Coin Second Coin Outcome
Bradley has invested in two stocks, Markley Oil and Collins
Mining. Bradley has determined that the possible outcomes of
these investments three months from now are as follows.

Investment Gain or Loss

in 3 Months (in $000)
Markley Oil Collins Mining
10 8
5 -2
0
-20
Markley Oil Collins Mining Experimental
(Stage 1) (Stage 2) Outcomes
Gain 8 (10, 8) Gain $18,000
(10, -2) Gain $8,000
Lose 2
Gain 8 (5, 8) Gain $13,000

Lose 2 (5, -2) Gain $3,000

Gain 8
(0, 8) Gain $8,000
(0, -2) Lose $2,000
Lose 2
Gain 8 (-20, 8) Lose $12,000
Lose 2 (-20, -2) Lose $22,000
Counting Rule for Combinations A second useful counting rule
allows one to count the number of experimental outcomes
when the experiment involves selecting n objects from a
(usually larger) set of N objects.

C N
n
N
n
N!
n!( N - n)!
The Notation ! means factorial
{for example 5 factorial is 5! = (5)(4)(3)(2)(1) = 120}
 Lottery system uses the random selection of six
integers from a group of 53 to determine the
weekly winner. The counting rule for
combinations is used to determine the number
of ways six different integers can be selected
from a group of 53.

C 53
6
53
6
53!
6!(53 - 6)!
(53)(52)(51)(50)(49)(48)/(6)(5)(4)(3)(2)(1) = 22,957,480
 A third counting rule that allows one to compute
the number of experimental outcomes when n
objects are to be selected from a set of N
objects where the order of selection is
important. The same n objects selected in a
different order are considered a different
experimental outcome.

P n!
n
N

N
n
N!
( N - n)!
 Lottery system uses the random selection of six
integers from a group of 53 to determine the
weekly winner. The counting rule for
combinations is used to determine the number
of ways six different integers can be selected
from a group of 53.

N 53
6
53
6
53!
(53 - 6)!
16,529,385,600
123456 123456
132456
134562
And so on

123 123
213
321
231
1. The probability assigned to each experimental
outcome must be between 0 and 1, inclusively.
If we let Ei denote the ith experimental
outcome and P(Ei) its probability, then this
requirement can be written as 0 P(Ei) 1 for
all i.
2. The sum of the probabilities for all the
experimental outcome must equal to 1.
P(E1) + P(E2) + . + P(En) = 1
a) Classical Method assigning probabilities based on
the assumptions of equally likely outcomes.
b) Relative Frequency Method assigning
probabilities based on experimentation or
historical data.
c) Subjective Method assigning probabilities based
on judgment.
 Classical Method
If an experiment has n possible outcomes, this method
would assign a probability of 1/n to each outcome.

Example
Experiment: Rolling a die
Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a
1/6 chance of occurring
Relative Frequency Method
Example: Lucas Tool Rental
Lucas Tool Rental would like to assign
probabilities to the number of car polishers
it rents each day. Office records show the
following frequencies of daily rentals for the last 40
days.
Number of Number
Polishers Rented of Days Probability
0 4 .10
1 6 .15
2 Each probability
18 .45 assignment is given by
3 10 .25 dividing the frequency
4 (number of days) by
2 .05 the total frequency (total
40 1.00 number of days).
Subjective Method
Applying the subjective method, an analyst
made the following probability assignments.
Experimental
Outcome Net Gain or Loss Probability
(10, 8) $18,000 Gain .20
(10, -2) $8,000 Gain .08
(5, 8) $13,000 Gain .16
(5, -2) $3,000 Gain .26
(0, 8) $8,000 Gain .10
(0, -2) $2,000 Loss .12
(-20, 8) $12,000 Loss .02
(-20, -2) $22,000 Loss .06
 Event is a collection of sample points
The probability of any event is equal to the sum of
the probabilities of the sample points in the event.
If we can identify all the sample points of an
experiment and assign a probability to each, we
can compute the probability of an event.
Sample points and events provide the foundation
for the study of probability.
John Venn
Born in 1834
A British Logician and philosopher.
Originally a priest, then become
an inventor, logician...
Wrote the Logic of Chance,
Symbolic Logic and The
Principles of Empirical Logic.
Introduced the Venn Diagram
 Complement of an Event
Union of two Events
Intersection of two Events
Mutually Exclusive Events
Note: There are some basic probability relationships that can be used
to compute the probability of an event without knowledge of all the
sample point probabilities.
 The complement of event A is defined to be the event
consisting of all sample points that are not in A.
The complement of A is denoted by Ac

Sample
Space S

Event A Ac
Complemen
t of Event A

P(A) = 1 P(Ac)
 The Union of events A and B is the event containing
all sample points that are in A or B or both.
The union of events A and B is denoted by A U B

Event A Event B
Union of Two Events

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
M C = Markley Oil Profitable
or Collins Mining Profitable
M C = {(10, 8), (10, -2), (5, 8), (5, -2), (0, 8), (-20, 8)}
P(M C) = P(10, 8) + P(10, -2) + P(5, 8) + P(5, -2)
+ P(0, 8) + P(-20, 8)
= .20 + .08 + .16 + .26 + .10 + .02
= .82
 The intersection of events A and B is the set of
all sample points belonging to both A and B.
The intersection of events A and B is denoted by
A

Event A Event B
Intersection of Two Events

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
M C = Markley Oil Profitable
and Collins Mining Profitable
M C = {(10, 8), (5, 8)}
P(M C) = P(10, 8) + P(5, 8)
= .20 + .16
= .36
 The addition law provides a way to compute the probability
that event A or event B or both occur.
Using the formula:

P(A U B) = P(A) + P(B) P(A B)

The first two terms in the addition law account for all the
sample points in A U B. However, because the sample points
in the intersection A B are in both A and B, then there is
redundancy in computing it twice. We correct this by
subtracting.
 The addition law provides a way to compute the
probability that event A or event B or both occur.
Using the formula:

P(A U B) = P(A) + P(B) P(A B)

Event A Event B
Addition Law

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
M C = Markley Oil Profitable
or Collins Mining Profitable
We know: P(M) = .70, P(C) = .48, P(M C) = .36
Thus: P(M C) = P(M) + P(C) - P(M C)
= .70 + .48 - .36
= .82
(This result is the same as that obtained earlier
using the definition of the probability of an event.)
 Two events are said to be mutually exclusive if
the events have no sample points in common.
Or when one event occur while the other
cannot.

Event A Event B

P(A U B) = P(A) + P(B)

 The probability of an event given that another event has
occurred is called a conditional probability.
The conditional probability of A given B is denoted by
P(A|B).

P( A B) P( A B)
P( A B) OR P( B A)
P( B) P( A)
Conditional Probability

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
P(C| M ) = Collins Mining Profitable
given Markley Oil Profitable
We know: P(M C) = .36, P(M) = .70
P(C M ) .36
Thus: P(C | M ) .5143
P( M ) .70
 The multiplication law provides a way to compute the
probability of the intersection of two events.
It is based on the definition of conditional probability

P( A B) P( B) P( A B)
OR

P( A B) P( A) P( A B)
Multiplication Law

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
M C = Markley Oil Profitable
and Collins Mining Profitable
We know: P(M) = .70, P(C|M) = .5143
Thus: P(M C) = P(M)P(M|C)
= (.70)(.5143)
= .36
(This result is the same as that obtained earlier
using the definition of the probability of an event.)
 If the probability of event A is not changed by the existence
of event B, we would say that events A and B are
independent.
Do not confuse the notion of mutually exclusive with that of
independent events. Two events with non-zero probabilities
cannot be both mutually exclusive and independent. If one
mutually exclusive event is known to occur, the other
cannot occur. Hence, the probability of the other event
occurring is reduced to zero, therefore they are dependent.
 Two events A and B are independent if

P (A B) = P (A)
or

P (B A) = P (B)
Otherwise the events are dependent
 If the probability of event A is not changed by the existence
of event B, we would say that events A and B are
independent.

P (A B) = P (A) P (B)
Note: that the multiplication law for independent events provides
another way to determine whether A and B are independent. That is if
P (A B) P (A) P (B), then both events are dependent
Multiplication Law
for Independent Events

Event M = Markley Oil Profitable

Event C = Collins Mining Profitable
Are events M and C independent?
Does P(M C) = P(M)P(C) ?
We know: P(M C) = .36
P(M) = .70, P(C) = .48
But: P(M)P(C) = (.70)(.48) = .34, not .36
Hence: M and C are not independent.
 Over the past few two years, 324 officers
on the police force received promotions.
The specific breakdowns are as follows:
MEN WOMEN TOTAL

Promoted 288 36 324

Not 672 204 876
Promoted
Total 960 240 1200
 After reviewing the promotion record, a committee of
female officers raised a discrimination case on the basis
that 288 male officers had received promotions compared
to 36 female officers. The police administration argued that
the relatively low number of promotions for female officers
was due not to discrimination but in fact due to the
relatively few female members in the police force.
 Using the conditional probability to analyze the
discrimination charge.
Let
M = event an officer is a man
W = event an officer is a woman
A = event an officer is promoted
AC = event an officer is not promoted
P (M A) - probability that a randomly selected officer is a
man and is promoted.
P (M AC) - probability that a randomly selected officer is a
man and not promoted
P (W A) - probability that a randomly selected officer is a
woman and is promoted
P (W AC) - probability that a randomly selected officer is a
woman and is not promoted.
P (M A) = 288/1200 = 0.24 = probability that a randomly
selected officer is a man and is promoted.
P (M AC) = 672/1200 = 0.56 = probability that a randomly
selected officer is a man and not promoted
P (W A) = 36/1200 = 0.03 = probability that a randomly
selected officer is a woman and is promoted
P (W AC) = 204/1200 = 0.17 = probability that a randomly
selected officer is a woman and is not promoted.
Joint probabilities appear Marginal Probabilities
in the body of the table appear in the margin of
the table
MEN WOMEN TOTAL

Promoted 0.24 0.03 0.27

Not 0.56 0.17 0.73
Promoted
Total 0.80 0.20 1.00
Conclusion
We introduced basic probability concepts and illustrated how
probability analysis can be used to provide helpful information
for decision making. We described how probability can be
interpreted as a numerical measure of the likelihood that an
event will occur. In addition we saw the probability of an event
can be computed either by summing the probabilities of the
experimental outcomes comprising the event or by using
relationships established by the addition, conditional
probability and multiplication laws of probability.
F = first class
S = second class
T = third class
C = crew
A = survived
Ac = died

P (F A)
P (F Ac)
P (T A)
P (C Ac)
P (F U S)
P (S U T)
P (T U C)
P (F U A)