Probability:

A probability is a quantitative measure of uncertainty a number that contains the

strength of our belief in the occurrence of an uncertain event.

Importance of Probability of Decision making in Business:

Many businesses apply the understanding of uncertainty and probability in their business
decision practices. Probability models can greatly help businesses in optimizing their policies
and making safe decisions. Though complex, these probability methods can increase the
profitability and success of a business.

Investment

The optimization of a business’s profit relies on how a business invests its resources. One
important part of investing is knowing the risks involved with each type of investment. The
only way a business can take these risks into account when making investment decisions is to
use probability as a calculation method. After analyzing the probabilities of gain and loss
associated with each investment decision, a business can apply probability models to
calculate which investment or investment combinations yield the greatest expected profit.

Customer Service

Customer service may be physical customer service, such as bank window service, or virtual
customer service, such as an Internet system. In either case, probability models can help a
company in creating policy related to customer service. For such policies, the models of
queuing theory are integral. These models allow companies to understand the efficiency
related to their current system of customer service and make changes to optimize the system.
If a company encounters problems with long lines or long online wait times, this may cause
the company to lose customers. In this situation, queuing models become an important part of
problem solving.

Competitive Strategy
Although game theory is an important part of determining company strategy, game theory
lacks the inclusion of uncertainty in its models. Such a deterministic model can't allow a
company to truly optimize its strategy in terms of risk. Probability models such as Markov
chains allow companies to design a set of strategies that not only account for risk but are self-
altering in the face of new information regarding competing companies. In addition, Markov
chains allow companies to mathematically analyze long-term strategies to find which ones
yield the best results.

Product Design

Product design, especially the design of complicated products such as computing devices,
includes the design and arrangement of multiple components in a system. This model allows
for more efficient design and allows businesses to optimally draft warranties and return
policies.
Random Experiment:

A random experiment is an action or process that leads to one of many possible outcomes.

Examples: Experiment Outcomes Flip a coin Heads or Tails

Roll a die Numbers: 1, 2, 3, 4, 5, 6

Exam Marks Numbers: (0, 100)

Course Grades F, D, C, B, A

Task completion times Nonnegative values the list of possible outcomes of a random
experiment must be exhaustive and mutually exclusive.

Sample Space

The set of all possible outcomes of an experiment is called the sample space.

We will denote the outcomes by O1, O2, . . . ,

and the sample space by S. Thus, in set-theory notation, S = {O1, O2,. ..}

Events:

An individual outcome in the sample space is called a simple event, while. . .

An event is a collection or set of one or more simple events in a sample space.

Example: Roll of a Die S = {1, 2, · · · , 6}

Simple Event: The outcome “3”.

Different approaches of probability:

Approaches

There are three ways to assign probabilities to events: classical approach, relative-frequency
approach, subjective approach.

Classical Approach. . .

If an experiment has n simple outcomes, this method would assign a probability of 1/n to each
outcome. In other words, each outcome is assumed to have an equal probability of occurrence.
This method is also called the axiomatic approach.

Example 1: Roll of a Die S = {1, 2, · · · , 6}

Probabilities: Each simple event has a 1/6 chance of occurring.

Relative-Frequency Approach. . .

Probabilities are assigned on the basis of experimentation or historical data. Formally, Let A be
an event of interest, and assume that you have performed the same experiment n times so that
n is the number of times A could have occurred.

Further, let nA be the number of times that A did occur. Now, consider the relative frequency
nA/n. Then, in this method, we “attempt” to define

Example 1: Roll of a Die S = {1, 2, · · · , 6}

Probabilities: Roll the given die 100 times (say)

and suppose the number of times the outcome 1 is observed is 15.

Thus, A = {1}, nA = 15, and n = 100. Therefore, we say that P(A) is approximately equal to
15/100 = 0.15.

Subjective Approach. . .
In the subjective approach, we define probability as the degree of belief that we hold in the
occurrence of an event. Thus, judgment is used as the basis for assigning probabilities. Notice
that the classical approach of assigning equal probabilities to simple events is, in fact, also
based on judgment. What is somewhat different here is that the use of the subjective approach
is usually limited to experiments that are unrepeatable.

Factorial
Factorial of a number n can be defined as product of all positive numbers less than or equal to
n. It the multiplying sequence of numbers in a descending order till 1. It is defined by the symbol
of exclamation (!).

1!=1

2!=2×1

3!=3×2×1
Math:

A box contains 8 red, 3 white, and 9 blue balls. Draw 3 at random without replacement.

Compute probability that:

i) all 3 are red

RRR: 8/20 * 7/19 * 6/18 = 2/5 * 7/19 * 1/3 = 14/285

ii) all 3 are white

WWW: 3/20 * 2/19 * 1/18 = 1/(20*(20-1)*3)

= 1/((400-20)*3) = 1/(1200-60) = 1/1140

iii) 2 are red and 1 is white

RRW: 8/20 * 7/19 * 3/18 = 3*7*8/(20*19*18)

RWR: 8/20 * 3/19 * 7/18 = 3*7*8/(20*19*18)
WRR: 3/20 * 8/19 * 7/18 = 3*7*8/(20*19*18)
Total: 3*3*7*8/(20*19*18) = 7*8/(20*19*2) = 7/(5*19)
= 7/95

iv) at least 1 is white.

XXX: is probability of no whites

XXX: (20-3)/20 * (19-3)/19 * (18-3)/18
= 17*16*15/(20*19*18) = 34/57

P(at least 1 white) = 1 – 34/57 = 23/57

4!=4×3×2×1
...
n! = n×(n−1)×(n−2)...×2×1
Formula of factorial:
To get the factorial of a number n the given formula is used,
n!=n×(n−1)×(n−2)...×2×1For a number n, the factorial of n can be written as,

n!=n×(n−1)!

n!=n×(n−1)×(n−2)!
For example, 45!43! = 43!×44×4543! = 44×45=1980