Chapter Two

2. Probability Distribution

2.1. Meaning and Concept of probability

Life is full of uncertainties. ‘Probably’, ‘likely’, ‘possibly’, ‘chance’ etc. is some of the most
commonly used terms in our day-to-day conversation. All these terms more or less convey the
same sense - “the situation under consideration is uncertain and commenting on the future
with certainty is impossible”. Decision-making in such areas is facilitated through formal and
precise expressions for the uncertainties involved.

For example, product demand is uncertain but study of demand spelled out in a form amenable
for analysis may go a long to help analyze, and facilitate decisions on sales planning and
inventory management. Intuitively, we see that if there is a high chance of a high demand in the
coming year, we may decide to stock more. We may also take some decisions regarding the price
increase, reducing sales expenses etc. to manage the demand. However, in order to make such
decisions, we need to quantify the chances of different quantities of demand in the coming year.
Probability theory provides us with the ways and means to quantify the uncertainties involved in
such situations.

A probability is a quantitative measure of uncertainty - a number that conveys the strength of

our belief in the occurrence of an uncertain event.

Since uncertainty is an integral part of human life, people have always been interested -
consciously or unconsciously - in evaluating probabilities. Having its origin associated with
gamblers, the theory of probability today is an indispensable tool in the analysis of situations
involving uncertainty. It forms the basis for inferential statistics as well as for other fields that
require quantitative assessments of chance of occurrences, such as quality control, management
decision analysis, and almost all areas in physics, biology, engineering and economics or social
life.

2.2. Some basic Concepts of Probability

Probability, in common parlance, refers to the chance of occurrence of an event or happening. In

order that we are able to compute it, a proper understanding of certain basic concepts in
probability theory is required. These concepts are an experiment, a sample space, and an event.

A. Experiment

An experiment is a process that leads to one of several possible outcomes. An outcome of an

experiment is some observation or measurement.
Example:

 Coin toss : Heads, Tails

 Throw die : 1, 2, 3, 4, 5, 6

Note: Each trial of an experiment has a single observed outcome which is called a basic outcome
or an elementary event. Any particular card drawn from a deck is a basic outcome. The precise
outcome of a random experiment is unknown before a trial.

B. Sample Space

A sample space is the set of all possible outcomes that may occur as a result of a particular
experiment.
Experiment Sample Space
Tossing a coin {Heads, Tails}
Throwing a Die {1, 2, 3, 4, 5, 6}
Drawing a Card {all 52 cards in the deck}

C. Event

An event, in probability theory, constitutes one or more possible outcomes of an experiment. An

event is a subset of a sample space. It is a set of basic outcomes. We say that the event occurs if
the experiment gives rise to a basic outcome belonging to the event.

Events can be:

i. Simple Event: – is a subset of sample space that has exactly one sample point. It can
also be called as element or fundamental event.
ii. Compound Event: – is a subset of sample space that has two or more sample points.
iii. Complement Event: – the complement of event A is denoted by A’. A’ is the event
that has all the points in a sample space that are not in A.
E.g. rolling a die: S = {1, 2, 3, 4, 5, 6}
Event A = {1, 3, 5}
Complement event of A, A’ = {2,4, 6}.
iv. Impossible Event: – is a subset of sample space that contains none of the Points.
E.g. Rolling a die: S = {1, 2, 3, 4, 5, 6}
E = {7} or E = {0}
 v. Independent Events:-Two events are said to be independent when the happening of
one event doesn’t affect the happening of the other.
E.g. rolling a die
vi. Dependent Events: - Two events are said to be dependent when the happening (or
occurrence) and non-occurrence of an event affects the happening of another event.
vii. Mutually Exclusive Event: - Events are said to be mutually exclusive if one and
only of them can take place at a time.
viii. Collectively Exhaustive Events/Lists: - When a set of events for an experiment
includes every possible outcome the set is said to be collectively exhaustive event/list.
E.g. flipping a fair coin twice: S = {HH, HT, TH, TT}
Once looking the basic concepts, we pass to formally give definitions for probability.

2.3. Postulates and Basic Theorems of Probability

2.3.1. Postulates of Probability
The basic assumptions in probability are:
i. Given a sample space, S, of a random experiment, the probability of the entire sample
space is 1. i.e. P (S) = 1
ii. The probability of an event ranges from 0 to 1. i.e. 0 P (A) 1
Where: A is any event in a random experiment and P (A) is the probability of A
iii. If two events A and B are mutually exclusive (disjoint events), then the probability
of either A or B or both is
P (A or B) = P (AUB) = P (A) + P (B) … Addition rule

2.3.2. Basic Theorems of Probability

Theorem 1.1
If two events A and B are not mutually exclusive, then the occurrence of either event A or B is
given by the probability:
P (A or B) = P (AUB) = P (A) + P (B) – P (A n B)
Theorem 1.2
If A is an event from a sample space, S, and A’ is its complement then:
P (A) + P (A’) = 1
Proof: Making use of the definition of a complement, according to which A and A' are mutually
exclusive and A U A' = S. Thus, we write

1 = P(S) (by Postulate 1)

= P(A U A')

= P (A) + P (A') (by Postulate 3)

And it follows that P (A') = 1 – P ( A )

Example 1: If A and B are the events that the consumer Union will rate a car stereo good or poor
is given by; P(A)=0.24, P(B)=0.35, then determine the following probabilities

a) P (A′), b) P (AUB) c) P(A∩B)

Answer

a) From theorem ii of probability, P(A′) =1 – P(A) =1 – 0.24 = 0.76

b) Since the two events are mutually exclusive events (consumer can either rate the car as
good or poor, they cannot rate the car poor and good at the same time)
P (AUB) = P(A) + P(B) = 0.24 + 0.35 = 0.59.
c) We have said that event A and B are mutually exclusive events, so, P (A∩)B) = P ( ) = 0

Example 2: The probability that it will rain in Addis Ababa on a particular day is 0.27, the
probability that there will be thunderstorm on that day is 0.24 and that there will be a rain as well
as a thunderstorm is 0.15. What is the probability that there will be a rain or a thunderstorm in
Addis Ababa on such day?

Answer:
Let A represents the event that there is rain and B there will be thunderstorm
P (A) =0.27, P (B) = 0.24, and P (A∩B) =0.15
Since the two events are not mutually exclusive events, we use
P (AUB) = P (A) + P (B) – P (A ∩ B)
= 0.27+0.24-0.15
= 0.36
Exercise:

Consider randomly selecting a card from a standard deck of well-shuffled 52 playing cards,

a) what is the probability that a randomly drawn card is Jack or Queen

b) What is the probability that a randomly selected card is an Ace or Red

Theorem 1.3
If events A1, A2, ------, An, are mutually exclusive i.e. no two of the events have any sample
space outcome in common. The probability that one of them will occur equals the sum of their
individual probabilities; symbolically,

P (A1UA2U-----UAn) = P (A1) + P (A2) +-----+P (An)

Example 3:
If we twice flip a balanced coin, what is the probability of getting at least one head?

Solution:

The sample space is S = {HH, HT, TH, TT), where H and T denote head and tail. Since we
assume that the coin is balanced, these outcomes are equally likely and we assign to each sample
point the probability Letting A denote the event that we will get at least one head, we get

A = {HH, HT, TH} and

P (A) = P (HH) + P (HT) + P (TH)

=1/4+1/4+1/4 =3/4

Example 4:

A die is loaded in such a way that each odd number is twice as likely to occur as each even
number. Find P (G), where G is the event that a number greater than 3 occurs on a single roll
of the die.
Solution:

The sample space is S = {1, 2, 3, 4, 5, 6). Hence, if we assign probability w to each even
number and probability 2w to each odd number, we find that 2w +w +2w +w +2w +w = 9w = 1
in accordance with Postulate 1. It follows that w = 1/9and

P (G) = 1/9 + 2/9 + 1/9= 4/9

Theorem 1.4

If an experiment can result in any one of N different equally likely outcomes, and if n of these
outcomes together constitute event A, then the probability of event A is:

P (A) = n/N

Theorem 1.5
P ( ) = 0 for any sample space S.

Proof: Since S and are mutually exclusive and SU = S in accordance with the definition of the
empty set ( ) , it follows that;

P(S) = P(S U )

= P(S) + P ( ) (by Postulate 3)

And, hence, that P ( ) = 0

Theorem1.6

If A and B are events in a sample space S and A c B, then P (A) P (B).

Proof: Since A c B, we can write B = A U ( A ′ ∩ B )

Then, since A and A' ∩ B are mutually exclusive, we get

P (B) = P (A) + P (A '∩ B) (by Postulate 3)

P (B) P (A) (by Postulate 2)

 2.4. Conditional Probability

Definition: If A and B are any two events in a sample space S and P(A) 0, the conditional

probability of B given A is P(B\A)=

Example 6: A consumer research organization has studied the services under warranty provided
by the 50 new-car dealers in a certain city, and its findings are summarized in the following
table.

Good service under warranty Poor service under warranty

10 years or more 16 4

Less than 10 years 10 20

 If a person randomly selects one of these new-car dealers, what is the probability that he
gets one who provides good service under warranty?

 Also, if a person randomly selects one of the dealers who has been in business for 10
years or more, what is the probability that he gets one who provides good service under
warranty
Solution:
If we let G denote the selection of a dealer who provides good service under warranty, and if
we let n(G) denote the number of elements in G and n(S) the number of elements in the whole
sample space, we get
16+10
P(G)= = =0.52

 Second question is about dealers in business for 10 or more yeas which provides good
services

Let T denotes the selection of a dealer who has been in business 10 years or more

Thus, n(T G)=16, n(T)=20

 P(T\G)= =0.8

Theorem 1.7

If A and B are any two events in a sample space S and P(A) 0, P(B) 0 then

P(A ∩ B)= P(A/B) * P(B) or

= P(B/A) * P(A)
Example 7: If we randomly pick two television tubes in succession from a shipment of 240
television tubes of which 15 are defective, what is the probability that they will both be
defective?
Solution:
Assume equal probabilities for each selection (which we mean by "randomly" picking the
tubes)
Let A represents the event that the first tube is defective
B ‘’ 2nd ‘’

Then P (A) =15/240, P(B)=14/239

Thus, the probability that both tubes will be defective, P (A∩B) = P(A)*P(B\A)

= =0.00366

Exercises
1. Find the probabilities of randomly drawing two aces in succession from an ordinary deck of
52 playing cards if we sample
a) without replacement
b) with replacement
3. A manufacturer of airplane parts knows from past experience that the probability
is 0.80 that an order will be ready for shipment on time, and it is 0.72 that an
order will be ready for shipment on time and will also be delivered on time. What
is the probability that such an order will be delivered on time given that it was
ready for shipment on time?
2.5. Expected value and Variance of Random Variable
Expected Value of Random variable

The mean of a probability distribution is a measure of its centrality or location, as is the mean or
average of a frequency distribution. It is a weighted average, with the values of the random
variable weighted by their probabilities. The mean is also known as the expected value (or
expectation) of a random variable, because it is the value that is expected to occur, on average.

The expected value of a discrete random variable X is equal to the sum of each value of the
random variable multiplied by its probability.

  E ( X )   xiP( xi)
all x

Example: Suppose a random variable X has the following distribution, what is the expected
value of X?

x 2 4 6 8
f(x) 0.1 0.2 0.3 0.4

Solution:
E (x)     xif (xi) = 2(0:1) + 4(0:2) + 6(0:3) + 8(0:4) = 6

Example: A real-estate agent sells 0, 1, or 2 houses each working week with respective
probabilities 0.5, 0.3, and 0.2. Compute the expected value of the number of houses sold per
week?
Solution:
E (x)     xif (xi) = 0(0:5) + 1(0:3) + 2(0:2) = 0.7

Exercise
1. The probability of a business will get a profit of $20,000 is 0.2 and the probability of
making a loss of $1000 will be 0.8. Should the firm invest his money or not?
2. One hundred lottery tickets are sold each at one birr. Suppose prize-1 is 50 birr, prize-2 is
20 birr and prize-3 is 10 birr. The chance of getting:
  50 birr is 0.01,
 20 birr is 0.01,
 10 birr is 0.01, and
 No birr is 0.97
Variance of Random Variable

The variance measures that how individual values are speeded, dispersed or distributed around
its mean or expected value.

The variance of a random variable X, denoted by (x), is the expectedvalue of the squared
deviations of the random variable from its expected value.

Definition: If X is a discrete random variable with mean E(X) = μ, then the variance of a
random variable X is defined to be the expected value of
. That is:

Alternatively, we can calculate

Var (x) =

he standard deviation of X, δ, is the positive square root of .

δ=

Example: Mr.Tujar buys a stock whose return (including both dividends and change in price of
stock) depends on whether the nation’s NP is rising, constant, or falling. If the NP is rising,
the return is 20 percent (i.e., 20 cents per Birr); if it is constant, the return is 5 percent; and if it is
falling, the return is -10 percent. If he believes that it is equally likely that the GNP will rise,
remain constant, or fall. What is the expected value of the return from this stock? And what are
the variance and standard deviation of this stock’s return.

Solution: If it is equally likely that the GNP will rise, remain constant or fall, the probability of
each of these outcomes must equal 1/3. Thus, the expected value is:

And Var (x)=∑

S.D. of X or δx=