MBA 22-24

Rules of Probability OPTS501 IMD

Suresh Venkatraman

• The Complement Rule Sample Space S

• The probability of the
complement of an event, P(Ac),
• is equal to one minus the
probability of the event.
• 𝑃 𝐴𝑐 = 1 − 𝑃 𝐴

LO 4.2
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 MBA 22-24

Rules of Probability (2) OPTS501 IMD

Suresh Venkatraman

• The Addition Rule

• The addition rule allows us to find the probability of the union
of two events.
• The probability that event A or B occurs, or that at least one of
these events occurs, is 𝑃 𝐴 ∪ 𝐵 .

LO 4.2
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 MBA 22-24

Rules of Probability (3) OPTS501 IMD

Suresh Venkatraman

A∩B
Events A and B both occur.

A B

A occurs or B occurs A∪B

or both occur.

𝑃 𝐴∪𝐵 =𝑃 𝐴 +𝑃 𝐵 −𝑃 𝐴∩𝐵
LO 4.2
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 Rules of Probability (4) MBA 22-24
OPTS501 IMD
Suresh Venkatraman

• The Addition Rule for Two Mutually Exclusive Events

A∩B=0
Events A and B
both cannot
occur. A B

A occurs or B occurs A∪B

• 𝑃 𝐴∪𝐵 =𝑃 𝐴 +𝑃 𝐵
LO 4.2
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 MBA 22-24

Rules of Probability (5) OPTS501 IMD

Suresh Venkatraman

• Example 4.8
• Chance of joining Peace Corps is 25% and chance of law school
is 35%.
• What is the probability that she joins the Peace Corps or enrolls
in law school?
o 𝑃 𝐴 ∪ 𝐵 = 𝑃 𝐴 + 𝑃 𝐵 = 0.25 + 0.35 = 0.60
• What is the probability she does neither?
𝑐
o 𝑃 𝐴∪𝐵 = 1 − 𝑃 𝐴 ∪ 𝐵 = 1 − 0.60 = 0.40

LO 4.2
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 MBA 22-24

Rules of Probability (6) OPTS501 IMD

Suresh Venkatraman

• Unconditional (Marginal) Probability

• The probability of an event without any restriction.
• For example,
• P(A) = probability of finding a job,
• and P(B) = probability of having prior work experience.

LO 4.2
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 MBA 22-24

Rules of Probability (7) OPTS501 IMD

Suresh Venkatraman

• Conditional Probability
• The probability of an event given that another event has already
occurred.
o In the conditional probability statement, the symbol “|”
means “given.”
o Whatever follows “|” has already occurred.
• For example, P(A | B) = probability of finding a job given prior
work experience.
LO 4.2
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 MBA 22-24

Rules of Probability (8) OPTS501 IMD

Suresh Venkatraman

• Conditional Probability
If B has already
A∩B occurred, the sample
space reduces to B.
A B

LO 4.2
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 MBA 22-24

Rules of Probability (9) OPTS501 IMD

Suresh Venkatraman

• Calculating Conditional Probability

• Given two events A and B, each with a positive probability of
occurring,
• the probability that A occurs given that B has occurred
• (A conditioned on B)
𝑃 𝐴∩𝐵
• Written as 𝑃 𝐴|𝐵 = .
𝑃 𝐵

• Similarly,
𝑃 𝐴∩𝐵
• 𝑃 𝐵|𝐴 = .
𝑃 𝐴
LO 4.2
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 MBA 22-24

Rules of Probability (10) OPTS501 IMD

Suresh Venkatraman

• Example 4.9
• An economist predicts a 60% chance that country A will perform
poorly economically and a 25% chance that country B will
perform poorly economically.
• There is also a 16% chance that both countries will perform
poorly.
• What is the probability that country A performs poorly given that
country B performs poorly?
• Let P(A) = 0.60, P(B) = 0.25, and P(A ∩ B) = 0.16
𝑃 𝐴 ∩𝐵 0.16
• P (A | B) = = = 0.64
𝑃(𝐵) 0.25
LO 4.2
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