Stat6111 PPT3 R1

STATISTICS
Week 3
Introduction to Probability
Topics
1. Introduction : Data and Statistics

2. Descriptive Statistics
3. Introduction to Probability
4. Discrete Probability Distributions
5. Continuous Probability Distributions
6. Sampling and Sampling Distributions
7. Interval Estimation
8. Hypothesis Tests
9. Analysis of Variance
10. Simple Linear Regression
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References
• Anderson, David R., Sweeney, Dennis J., Williams, Thomas A.

(2011). Statistics for Business and Economics. 11. Cengage
Learning. USA. ISBN: 978-0538481649.

Evaluating and Grading

Learning Outcomes
• LO 1: Explain the data and statistics

• LO 2: Calculate the statistical measurements
• LO 3: Interpret the results of statistical measurements
• LO 4: Apply statistical method to the real problem
• LO 5: Analyze the suitable decision from statistical method
solution

(2) Calculate the statistical measurements
(3) Interpret the results of statistical measurements

1. Sample Space and Events
2. Probability of an Event and Conditional Probability
3. Bayes Theorem

• Probability is a numerical measure of the likelihood that an
event will occur.
• Probability values are always assigned on a scale from 0 to 1.
• A probability near 0 indicates an event is very unlikely to occur.
• A probability near 1 indicates an event is almost certain to occur.
• A probability of 0.5 indicates the occurrence of the event is just

as likely as it is unlikely.

Probability as a Numerical Measure
of the Likelihood of Occurrence
Source : Anderson, David R., Sweeney, Dennis J., Williams, Thomas A. (2011). Statistics for
Business and Economics. 11. Cengage Learning. USA. ISBN: 978-0538481649.
• An experiment is any process that generates well-defined
outcomes.
• The sample space for an experiment is the set of all

experimental outcomes.
• A sample point is an element of the sample space, any one

particular experimental outcome.

• Example 1 :
• Experimental outcomes = sample space

Example 2: Bradley Investments
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.
Business and Economics. 11. Cengage Learning. USA. ISBN: 978-0538481649. 13
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A Counting Rule for
Multiple-Step Experiments
• If an experiment consists of a sequence of k steps in which
there are n1 possible results for the first step, n2 possible results
for the second step, and so on, then the total number of
experimental outcomes is given by (n1)(n2) . . . (nk).
• A helpful graphical representation of a multiple-step experiment

is a tree diagram.

• A Counting Rule for Multiple-Step Experiments
Bradley Investments can be viewed as a two-step experiment; it

involves two stocks, each with a set of experimental outcomes.
Markley Oil: n1 = 4
Collins Mining: n2 = 2
Total Number of Experimental Outcomes: n1n2 = (4)(2) = 8


Counting Rule for Combinations
• Number of combinations of N objects taken n at a time
 N N!
CnN   
 n  n !(N  n )!
where N! = N(N - 1)(N - 2) . . . (2)(1)

n! = n(n - 1)( n - 2) . . . (2)(1)
0! = 1
Counting Rule for Permutations
A third useful counting rule enables us to count 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.
•Number of permutations of N objects taken n at a time

Assigning Probabilities
• Classical Method
Assigning probabilities based on the assumption of equally likely
outcomes.
• Relative Frequency Method
Assigning probabilities based on experimentation or historical data.
• Subjective Method
Assigning probabilities based on the assignor’s judgment.

Classical Method
If an experiment has n possible outcomes, this method
would assign a probability of 1/n to each outcome.
• Example 4:
Experiment: Rolling a die
Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a 1/6 chance of

occurring.

Example 5: Lucas Tool Rental
Lucas would like to assign probabilities to the number of floor
polishers it rents per day. Office records show the following
frequencies of daily rentals for the last 40 days.
Example 5: Lucas Tool Rental
The probability assignments are given by dividing the number-
of-days frequencies by the total frequency (total number of
days).
• An 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.

• Events and Their Probabilities
Event M = Markley Oil Profitable
M = {(10, 8), (10, -2), (5, 8), (5, -2)}
P(M) = P(10, 8) + P(10, -2) + P(5, 8) + P(5, -2)
= .2 + .08 + .16 + .26
= .70
Event C = Collins Mining Profitable
P(C) = .48 (found using the same logic)

Some Basic Relationships of Probability
• There are some basic probability relationships that can be used to
compute the probability of an event without knowledge of al the sample
point probabilities.
– Complement of an Event
– Union of Two Events
– Intersection of Two Events
– Mutually Exclusive Events

Complement of an Event
• 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.
• The Venn diagram below illustrates the concept of a complement.
Union of Two Events
• The union of events A and B is the event containing all sample
points that are in A or B or both.
• The union is denoted by A U B
• The union of A and B is illustrated below.
• Union of Two Events
M U C = Markley Oil Profitable
or Collins Mining Profitable
M U C = {(10, 8), (10, -2), (5, 8), (5, -2), (0, 8), (-20, 8)}
P(M UC) = 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
Intersection of Two Events
• The intersection of events A and B is the set of all sample points
that are in both A and B.
• The intersection is denoted by A ∩ B
• The intersection of A and B is the area of overlap in the
illustration below.
• Intersection of Two Events
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
Addition Law
• The addition law provides a way to compute the probability of

event A, or B, or both A and B occurring.
• The law is written as:
P(A U B) = P(A) + P(B) - P(A ∩ B)

• Addition Law
Markley Oil or Collins Mining Profitable
We know: P(M) = .70, P(C) = .48, P(M ∩C) = .36
Thus: P(M U 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.

Mutually Exclusive Events
• Two events are said to be mutually exclusive if the events have
no sample points in common. That is, two events are mutually
exclusive if, when one event occurs, the other cannot occur.
Mutually Exclusive Events

Conditional Probability
• 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).
• A conditional probability is computed as follows:

• Conditional Probability

Multiplication Law

• Multiplication Law
Markley Oil and Collins Mining Profitable
We know: P(M) = .70, P(C|M) = .51
Thus: P(M ∩ C) = P(M)P(M|C)
= (.70)(.51)
= .36
This result is the same as that obtained earlier using the definition
of the probability of an event.
Independent Events
• Events A and B are independent if P(A|B) = P(A).



Example 13: L. S. Clothiers
• New Information
The planning board has recommended against the zoning
change. Let B denote the event of a negative recommendation by the
planning board.
Given that B has occurred, should L. S. Clothiers revise the
probabilities that the town council will approve or disapprove the
zoning change?
• Conditional Probabilities
Past history with the planning board and the town council
indicates the following:
P(B|A1) = .2 P(B|A2) = .9
Example 13: L. S. Clothiers
• To find the posterior probability that event Ai will occur given that
event B has occurred we apply Bayes’ theorem.
• Bayes’ theorem is applicable when the events for which we want

to compute posterior probabilities are mutually exclusive and
their union is the entire sample space.
Exercises
1. Consider the experiment of tossing a coin three times.

a.Develop a tree diagram for the experiment
b.List the experimental outcomes
c.What is the probability for each experimental outcome

Exercises
2. The prior probabilities for events A1 and A2 are P(A1)=0.40 and

P(A2)=0.60. It is also known that P(A1∩A2)=0. Suppose
P(B│A1)=0.20 and P(B│A2)=0.05.
a.Are A1 and A2 mutually exclusive? Explain
b.Compute P(A1 ∩B) and P(A2 ∩B)
c.Compute P(B)
d.Apply Bayes theorem to compute P(A1│B) and P(A2│B)

• Anderson, David R., Sweeney, Dennis J., Williams, Thomas A. (2011).
Statistics for Business and Economics. 11. Cengage Learning. USA.
ISBN: 978-0538481649.

Thank You

Stat6111 PPT3 R1

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STATISTICS

1. Introduction : Data and Statistics

• Anderson, David R., Sweeney, Dennis J., Williams, Thomas A.

Bina Nusantara University 3

Bina Nusantara University 4

• LO 1: Explain the data and statistics

Bina Nusantara University 5

(3) Interpret the results of statistical measurements

Bina Nusantara University 6

2. Probability of an Event and Conditional Probability

Bina Nusantara University 7

• Probability values are always assigned on a scale from 0 to 1.

• A probability near 0 indicates an event is very unlikely to occur.

• A probability near 1 indicates an event is almost certain to occur.

• A probability of 0.5 indicates the occurrence of the event is just

Bina Nusantara University 9

• The sample space for an experiment is the set of all

• A sample point is an element of the sample space, any one

Bina Nusantara University 11

• Experimental outcomes = sample space

Bina Nusantara University 12

• A helpful graphical representation of a multiple-step experiment

Bina Nusantara University 14

Bradley Investments can be viewed as a two-step experiment; it

Total Number of Experimental Outcomes: n1n2 = (4)(2) = 8

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where N! = N(N - 1)(N - 2) . . . (2)(1)

•Number of permutations of N objects taken n at a time

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would assign a probability of 1/n to each outcome.

Experiment: Rolling a die

Sample Space: S = {1, 2, 3, 4, 5, 6}

Probabilities: Each sample point has a 1/6 chance of

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• The probability of any event is equal to the sum of the

• If we can identify all the sample points of an experiment and

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– Union of Two Events

– Intersection of Two Events

– Mutually Exclusive Events

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• The addition law provides a way to compute the probability of

• The law is written as:

P(A U B) = P(A) + P(B) - P(A ∩ B)

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• The conditional probability of A given B is denoted by P(A|B).

• A conditional probability is computed as follows:

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• Events A and B are independent if P(A|B) = P(A).

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• Bayes’ theorem is applicable when the events for which we want

1. Consider the experiment of tossing a coin three times.

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