Probability

After completing the concept of probability, you should be able to: Explain three approaches to assessing probabilities Apply common rules of probability Use Bayes Theorem for conditional probabilities Compute the expected value and standard deviation for a discrete probability distribution

Goals

Important Terms
Experiment a process of obtaining outcomes for uncertain events Elementary Event the most basic outcome possible from a simple experiment Sample Space the collection of all possible elementary outcomes

Examples for Experiment

Recording 1000 citizens opinions about the government economic policy Tossing a coin three times and observing the upward face on each toss Choosing a chairperson and a secretary from a committee of 10 people Observing the fraction of union members in favor of a new contract.

Examples for Event

From the example of experiment choosing a chairperson of 10 persons each person can be denoted by an event. In tossing of a coin experiment head is an event and tail is one event In a departmental store purchasing by a customer is an event and not purchasing by the customer is also another event

Events
Elementary event An outcome from a sample space with one characteristic
Example: A red card from a deck of cards

Event May involve two or more outcomes simultaneously Example: An ace that is also red from a deck of cards

Sample Space
The Sample Space is the collection of all possible outcomes e.g. All 6 faces of a die: e.g. All 52 cards of a bridge deck:

Visualizing Events
Contingency Tables
Ace
Black Red 2 2

Not Ace
24 24

Total
26 26

Total

48
2 24 2 24

52
Sample Space

Sample Space

Tree Diagrams
Full Deck of 52 Cards

Elementary Events
A automobile consultant records fuel type and vehicle type for a sample of vehicles
2 Fuel types: Gasoline, Diesel 3 Vehicle types: Truck, Car, SUV
6 possible elementary events: e1 Gasoline, Truck e2 Gasoline, Car e3 Gasoline, SUV e4 Diesel, Truck e5 Diesel, Car e6 Diesel, SUV
Car

Car

e1 e2 e3 e4 e5 e6

 A credit card customer at Big Bazar can use Visa (V), MasterCard (M), or American Express (A). The merchandise may be books (B), Electronic Media (E), or other (O). a) Define the Experiment b) Enumerate the elementary events in the sample space related to the experiment c) would each elementary event be equally likely
Chap 4-10

 A survey asked tax accounting firms their business from ( S= sole proprietorship, P =Partnership, C= corporation) and type of risk insurance they carry ( L = liability only, T = property loss only, B = both liability and property). 1. Enumerate the Elementary events in the sample space 2. Would these elementary events in the sample space be equally likely ? Explain

Probability Concepts
Mutually Exclusive Events
If E1 occurs, then E2 cannot occur E1 and E2 have no common elements
E1 Black Cards E2 Red Cards A card cannot be Black and Red at the same time.

Probability Concepts
Independent and Dependent Events
Independent: Occurrence of one does not influence the probability of occurrence of the other Dependent: Occurrence of one affects the probability of the other

Independent vs. Dependent Events

Independent Events E1 = heads on one flip of fair coin E2 = heads on second flip of same coin Result of second flip does not depend on the result of the first flip. Dependent Events E1 = rain forecasted on the news E2 = take umbrella to work Probability of the second event is affected by the occurrence of the first event

Assigning Probability
Classical Probability Assessment
P(Ei) =

Number of ways Ei can occur Total number of elementary events

Relative Frequency of Occurrence

Relative Freq. of Ei = Number of times Ei occurs N

Subjective Probability Assessment

An opinion or judgment by a decision maker about the likelihood of an event

For Each of The Following, Indicate Whether The type Of Probability Involved is an Example of a Priori, Classical, Empirical or subjective Probability

The result of the next toss of a fair coin is Head Italy will win soccers world cup the next time the competition is held The sum of the faces of two dice will be 7 The possibility of happening a fire accident in a factory is 1% TDP will win the next assembly election in AP

Rules of Probability
Rules for Possible Values and Sum

Individual Values
0 P(ei) 1 For any event ei

Sum of All Values

P(e ) 1
i 1 i
where: k = Number of elementary events in the sample space ei = ith elementary event

Addition Rule for Elementary Events

The probability of an event Ei is equal to the sum of the probabilities of the elementary events forming Ei.

That is, if:

Ei = {e1, e2, e3}

then:

P(Ei) = P(e1) + P(e2) + P(e3)

Complement Rule
The complement of an event E is the collection of all possible elementary events not contained in event E. The complement of event E is represented by E.

Complement Rule:

P( E ) 1 P(E)
Or,

P(E) P( E ) 1

Addition Rule for Two Events

Addition Rule:

P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)

E1

E2

E1

E2

P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)

Dont count common elements twice!

Addition Rule for Mutually Exclusive Events

If E1 and E2 are mutually exclusive, then

P(E1 and E2) = 0

So
E1 E2

P(E1 or E2) = P(E1) + P(E2) - P(E1 and E2)

=

P(E1) + P(E2)

 A card is draw from a well shuffled pack of 52 cards. What is the probability of getting an ace or a red card

Addition Rule Example

P(Red or Ace) = P(Red) +P(Ace) - P(Red and Ace) = 26/52 + 4/52 - 2/52 = 28/52
Dont count the two red aces twice!

Type Ace Non-Ace Total

Color
Red Black

Total 4

24
26

24
26

48
52

1.

The employees of a certain company have elected 5 of their number to represent them on the employee-management productivity council. Profiles of the 5 are as follows: Gender Age 1. Male 30 2. Male 32 3. Female 45 4. Female 20 5. Male 40 This group decides to elect a spokesperson by drawing a name from a chit. What is the Pbt the spokesperson will be either female or over 35?

2. An inspector of the Alaska pipeline has the task of comparing the reliability of two pumping stations. Each station is susceptible to two kinds of failure: pump failure and leakage. When either (or both) occur, the station must be shut down. The data at hand indicate that the following probabilities prevail:
Station P (Pump failure)
1 2 0.07 0.09

P (Leakage)
0.10 0.12

P (Both)
0 0.06

Which station has the higher pbt of being shut down?

 The probability that a new marketing approach will be successful is 0.6. The probability that the expenditure for developing the approach can be kept with in the original budget is 0.5. The probability that both of these objectives will be achieved is 0.3. What is the probability that at least one of these objectives will be achieved?

 A problem is given to 3 Mangers A, B, and C. Their chances of solving it are 1/2, 1/3, 1/4 respectively. What is the probability that the problem will be solved?

Conditional Probability
Conditional probability for any two events E1 , E2:

P(E 1 and E 2 ) P(E 1 | E 2 ) P(E 2 )

where P(E 2 ) 0

Conditional Probability Example

Of the cars on a used car lot, 70% have air conditioning (AC) and 40% have a CD player. 20% of the cars have both.

What is the probability that a car has a CD player, given that it has AC ? i.e., we want to find P(CD | AC)

Conditional Probability Example

(continued)

Of the cars on a used car lot, 70% have air conditioning (AC) and 40% have a CD player (CD). 20% of the cars have both. CD No CD Total

AC No AC Total

.2 .2

.5 .1

.7 .3

.4

.6

1.0

P(CD and AC) .2 P(CD | AC) .2857 P(AC) .7

Conditional Probability Example

(continued)

Given AC, we only consider the top row (70% of the cars). Of these, 20% have a CD player. 20% of 70% is about 28.57%. CD No CD Total

AC No AC Total

.2 .2

.5 .1

.7

.3
1.0

.4

.6

P(CD and AC) .2 P(CD | AC) .2857 P(AC) .7

For Independent Events:

Conditional probability for independent events E1 , E2:

P(E1 | E2 ) P(E1 )

where

P(E 2 ) 0

P(E 2 | E1 ) P(E 2 )

where

P(E1 ) 0

Multiplication Rules (Joint Probabilities)

Multiplication rule for two events E1 and E2:

P(E 1 and E 2 ) P(E 1 ) P(E 2 | E1 )

Note: If E1 and E2 are independent, then

P(E 2 | E1 ) P(E 2 ) and the multiplication rule simplifies to

P(E 1 and E 2 ) P(E 1 ) P(E 2 )

Tree Diagram Example

P(E1 and E3) = 0.8 x 0.2 = 0.16
Car: P(E4|E1) = 0.5 Gasoline P(E1) = 0.8

P(E1 and E4) = 0.8 x 0.5 = 0.40 P(E1 and E5) = 0.8 x 0.3 = 0.24

Diesel P(E2) = 0.2

P(E2 and E3) = 0.2 x 0.6 = 0.12

Car: P(E4|E2) = 0.1

P(E2 and E4) = 0.2 x 0.1 = 0.02

P(E3 and E4) = 0.2 x 0.3 = 0.06

A bag contains 32 marbles:4 are red, 9 are black, 12 are blue, 6 are yellow, and 1 is purple. Marbles are drawn one at a time with replacement. What is the probability that i. The second marble is yellow given the first was yellow? ii. The second marble is yellow given the first was black? iii. The third marble is purple given both the first and second were purple?

Ex:- Union shop steward Peter has drafted a set of wage and benefit demands to be presented to management. To get an idea of worker support for the package, he randomly polls the two largest groups of workers at his plant, The machinists (M) and the inspectors (I). He polls 30 of each group with the following results: Opinion of package M I Strongly support 9 10 Mildly support 11 3 Undecided 2 2 Mildly oppose 4 8 Strongly oppose 4 7 i. What is the probability that a machinist randomly selected from the polled group mildly supports the package? ii. What is the probability that an inspector randomly selected from the polled group is undecided about the package? iii. What is the probability that a worker (machinist or inspector) randomly selected from the polled group strongly or mildly supports the package? iv. What types of probability are these?

4. The southeast regional manager of General Express, a private parcel delivery firm, is worried about the likelihood of strikes by some of his employees. He has learned that the chance of a strike by his pilots is 0.75 and the chance of a strike by his drivers is 0.65. Further, he knows that if the drivers strike , there is a 90% chance that the pilots will strike in sympathy. a) What is the pbt of both groups striking? b) If the pilots strike, what is the pbt that the drivers will strike in sympathy?

Posterior probabilities or Bayes theorem: Often we begin probability analysis with initial or prior probabilities. Then, from a sample, special report, or a product test we obtain some additional information. Given this information, we calculate revised or posterior probabilities. Bayes theorem provides the means for revising the prior probabilities.
Prior Probabilities New Information
Application of Bayes Theorem

Posterior Probabilities

Bayes Theorem
P(E i )P(B | Ei ) P(E i | B) P(E1 )P(B | E1 ) P(E 2 )P(B | E2 ) P(E k )P(B | Ek )

where: Ei = ith event of interest of the k possible events B = new event that might impact P(Ei) Events E1 to Ek are mutually exclusive and collectively exhaustive

Bayes Theorem Example

A drilling company has estimated a 40% chance of striking oil for their new well.

A detailed test has been scheduled for more information. Historically, 60% of successful wells have had detailed tests, and 20% of unsuccessful wells have had detailed tests.
Given that this well has been scheduled for a detailed test, what is the probability that the well will be successful?

Bayes Theorem Example

(continued)

Let S = successful well and U = unsuccessful well P(S) = .4 , P(U) = .6 (prior probabilities) Define the detailed test event as D Conditional probabilities:

P(D|S) = .6
Prior Prob. .4 .6

P(D|U) = .2
Joint Prob. .4*.6 = .24 .6*.2 = .12

Revised probabilities
Event S U
(successful)

Conditional Prob. .6 .2

Revised Prob. .24/.36 = .67 .12/.36 = .33

(unsuccessful)

Sum = .36

Bayes Theorem Example

(continued)

Given the detailed test, the revised probability of a successful well has risen to .67 from the original estimate of .4
Prior Prob. .4 .6 Conditional Prob. .6 .2 Joint Prob. .4*.6 = .24 .6*.2 = .12
Sum =
Business Statistics: A DecisionMaking Approach, 6e 2005 Prentice-Hall, Inc.
Chap 4-42

Event S U
(successful)

Revised Prob. .24/.36 = .67 .12/.36 = .33

(unsuccessful)

.36

1. In a bolt factory machines A, B and C manufactures respectively 25%,35% and 40% of the total output. Of their output 5%, 4%,2% are defective bolts. A bolt is drawn from the output and is found to be defective. What is the chance that it was produced by machine B?

Let E1 be the event of drawing a bolt at random manufactured by the machine A E2 be the event of drawing a bolt at random manufactured by the machine B E3 be the event of drawing a bolt at random manufactured by the machine C
Let X be the event of its being defective

Prior pbts: P(E1)=25% P(E2)=35% P(E3)=40% Likelihood pbts: P(X/E1)=5% P(X/E2)=4% P(X/E3)=2%

Additional information: A defective bolt was selected from the output.

To find the chance that it was produced by machine B we apply the Bayes theorem and is given by
P( Ei )P( X | Ei ) P( E1 )P( X | E1 ) P( E2 )P( X | E2 ) ... P( En )P( X | En )

P( Ei | X )

P(E

| X) 2

P(E

)P(X

P(E | E1 ) P(E

)P(X )P(X 2
2

| E2 ) | E 2 ) P(E

)P(X

| E3 )

(0.35)(0.04) 140 28 0.4058 (0.25)(0.05) (0.35)(0.04) (0.40)(0.02) 345 69

Events (Ei

Prior Probabilities P(Ei)

Conditional Probabilities P(X|Ei)

Joint Probabilities P(Ei X)

Posterior Probabilities P(Ei |X)

E1

0.25

0.05

0.0125

0.3623

E2

0.35

0.04

0.014

0.4058

E3

0.40

0.02

0.008

0.2319

Ex: A proposed shopping center will provide strong competition for downtown businesses like John Clothiers. If the shopping center is built, the owner of John Clothiers feels it would be best to relocate. The shopping center cannot be built unless a zoning change is approved by the town council. The planning board must first make a recommendation, for or against the zoning change, to the council.

Let:
A1 = town council approves the zoning change A2 = town council disapproves the Zoning change

 Prior Probabilities Using subjective judgment: P(A1) = 0.7, P(A2) = 0.3

 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 John 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) = 0.2 P(B|A2) = 0.9

 To find the posterior probability that event Ai will occur given that event B has occurred we apply Bayes theorem.

P ( Ai ) P ( B| Ai ) P ( Ai | B ) P ( A1 ) P ( B| A1 ) P ( A2 ) P ( B| A2 ) ... P ( An ) P ( B| An )
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.

 Posterior Probabilities Given the planning boards recommendation not to approve the zoning change, we revise the prior probabilities as follows.
P ( A1| B ) P ( A1 ) P ( B | A1 ) (. 7 )(. 2 ) P ( A1 ) P ( B | A1 ) P ( A2 ) P ( B | A2 ) (. 7 )(. 2 ) (. 3)(. 9 )

= 0.34 Conclusion The planning boards recommendation is good news for John Clothiers. The posterior probability of the town council approving the zoning change is 0.34 versus a prior probability of 0.70

Tabular Approach:

Events Ai

Prior Probabilities P(Ai)

Conditional Probabilities P(B|Ai)

Joint Probabilities P(Ai B)

Posterior Probabilities P(Ai |B)

A1 A2

0.7 0.3

0.2 0.9

0.14 0.27

0.3415 0.6585