Probability in Business

Dr. Sujay K Mukhoti

Associate Professor of Statistics

July 7, 2021
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Conditional
Probability

Two-way
contingency
table 1 Conditional Probability

2 Two-way contingency table

 Readings

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Conditional
Probability

Two-way
contingency
table

TB 2-4 Exercise 2-26–2-35

TB 2-5 Exercise 2-36–2-51
 Motivating Example

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Conditional
Probability

Two-way
contingency
table
Goat or Car? Try your luck !!!
 Conditional Probability

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B
Conditional
Probability A∩B
A
Two-way
contingency Ω
table

In view of an event, how does the required probability

change?
P(A∩B)
P(A | B) = P(B) , P(B) > 0
P(B∩A)
P(B | A) = P(A) , P(A) > 0
 Problems I

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Conditional
Probability A market researcher believes that a respondent will answer

Two-way all questions with probability 0.94 if found at home. He

contingency
table further believes that the probability that a given person
will be found at home is 0.65. Given this information,
what percentage of the interviews will be successfully
completed?
 Rules of Conditional Probability

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Multiplication law:
Conditional
Probability
P(A ∩ B) = P(A)P(B | A) = P(B)P(A | B)

Two-way P(A0 | B) = 1 − P(A | B)

contingency
table Independence: P(A ∩ B) = P(A)P(B)
P(A ∩ B ∩ C ) = P(A)P(B)P(C )

If A and B are independent then so are A0 and B 0

P(A ∪ B) = 1 − P(Ā)P(B̄)
P( ni=1 Ai ) = 1 − P(A¯1 )P(Ā2 ) . . . P(Ān )
S
 Problem

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Conditional
A financial service company advertises its services in
Probability magazines, runs billboard ads on major highways, and
advertises its services on the radio. The company estimates
Two-way
contingency
that there is a 0.10 probability that a given individual will see
table the billboard ad during the week, a 0.15 chance that he or she
will see the ad in a magazine, and a 0.20 chance that she or he
will hear the advertisement on the radio during the week. What
is the probability that a randomly chosen member of the
population in the area will be exposed to at least one method
of advertising during a given week? (Assume independence.)
 Two-way table

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As part of a drive to modernize the economy, the government
of an eastern European country is pushing for starting 100 new
Conditional projects in computer development and telecommunications.
Probability
Two U.S. giants, IBM and AT&T, have signed contracts for
Two-way these projects: 40 projects for IBM and 60 for AT&T. Of the
contingency IBM projects, 30 are in the computer area and 10 are in
table
telecommunications; of the AT&T projects, 40 are in
telecommunications and 20 are in computer areas. Given that a
randomly chosen project is in telecommunications, what is the
probability that it is undertaken by IBM?
AT&T IBM
Telecomm 0.4 0.1
Computers 0.2 0.3
 Next Class

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Conditional
Probability

Two-way
contingency Bayes’ Theorem, Probability Tree and Analytics
table Reading: Section 2-7