Course Business Statistics

Segment Probability and Uncertainty

Faculty Dr. Tarushree Bari
Quick Recap of Segment 1

Different Types of Data

Visual Representation of
Data

Measures of Central
Location

Measures of Association
 Probability and Uncertainty
Learning Objectives

At the end of this session, you will be able to:

➢ Understand the uncertainty that is involved before making important decisions

➢ Understand fundamentals of probability and the relative terms

➢ Explain the Addition and Multiplication Theorem of Probability

➢ Understand the concept of Conditional probability

➢ Solve problems based on Probability

 Probability and Uncertainty
INTRODUCTION

Decision-makers always face some degree of risk while selecting a particular course
of action or strategy to solve a decision problem involving uncertainty.

It is because each strategy can lead to a number of different possible outcomes (or
results). Thus, it is necessary for the decision-makers to enhance their capability of
grasping the probabilistic situation.
 Probability and Uncertainty
Probability

Probability quantifies the likelihood or chance of an event occurring. It

provides a way to express uncertainty and quantify our beliefs about the
likelihood of different outcomes in various situations. In essence, probability is
a measure of the likelihood of an event happening, usually expressed as a
number between 0 and 1.

• A probability of 0 indicates that the event is impossible, meaning it will not

occur.
• A probability of 1 indicates certainty, meaning the event is certain to occur.
• A probability between 0 and 1 represents the degree of uncertainty or
likelihood that the event will happen, with values closer to 1 indicating higher
likelihood and values closer to 0 indicating lower likelihood.
 Probability and Uncertainty
Random Experiment

An experiment in which all the possible outcomes are known in advance but
we cannot predict as to which of them will occur when we perform the
experiment, is called random experiment.

(i) Measuring blood pressure of a group of individuals.

(ii) Tossing a coin and observing the face that appears.
(iii) Testing a product to determine whether it is defective or an acceptable
product.
(iv) Drawing a card from a well shuffled pack of 52 playing cards are the
examples of random experiment.
 Probability and Uncertainty
Trial and Event

Performing of a random experiment is called a trial and outcome or combination

of outcomes are termed as events. For example :

Drawing of two balls from an urn containing ‘a’ red balls and ‘b’ white balls is a
trial and getting of both red balls, or both white balls, or one red and one white
ball are events.
 Probability and Uncertainty
Sample Space

The set of all possible distinct outcomes (events) for a random experiment is
called the sample space (or event space) provided.
(i) no two or more of these outcomes can occur simultaneously;
(ii) exactly one of the outcomes must occur, whenever the experiment is
performed.
Sample space is denoted by the capital letter S
 Probability and Uncertainty
Sample Space

Consider the experiment of recording a person’s blood type. The four possible
outcomes are the
following simple events:
E1 : Blood type A E2 : Blood type B
E3 : Blood type AB E4 : Blood type O
The sample space is S = {E1, E2, E3, E4}.

Consider the experiment of tossing two coins. The four possible outcomes are the
following
sample events
E1 : HH E2 = HT E3 : TH E4 : T T
The sample space is S = {E1, E2, E3, E4}
 Probability and Uncertainty

Exhaustive Cases

The total number of possible outcomes in a random experiment is called the

exhaustive cases. In other words, the number of elements in the sample space is
known as number of exhaustive cases, e.g.

i) If we toss a coin, then the number of exhaustive cases is 2 and the sample
space in this case is {H, T}.

ii) If we throw a die then number of exhaustive cases is 6 and the sample space
in this case is {1, 2, 3, 4, 5, 6}
 Probability and Uncertainty

Favourable Cases

The cases which favour to the happening of an event are called favourable cases.
e.g.

(i) For the event of drawing a card of spade from a pack of 52 cards, the
number of favourable cases is 13.

(ii) For the event of getting an even number in throwing a die, the number of
favourable cases is 3 and the event in this case is {2, 4, 6}.
 Probability and Uncertainty

Mutually Exclusive Cases

Cases are said to be mutually exclusive if the happening of any one of them
prevents the happening of all others in a single experiment, e.g.

(i) In a coin tossing experiment head and tail are mutually exclusive as there
cannot be simultaneous occurrence of head and tail.
 Probability and Uncertainty

Mutually Exclusive Cases

Cases are said to be mutually exclusive if the happening of any one of them
prevents the happening of all others in a single experiment, e.g.

(i) In a coin tossing experiment head and tail are mutually exclusive as there
cannot be simultaneous occurrence of head and tail.
 Probability and Uncertainty
Classical Approach

Let there be ‘n’ exhaustive cases in a random experiment which are mutually
exclusive as well as equally likely. Let ‘m’ out of them be favourable for the
happening of an event A (say), then the probability of happening event A
(denoted by P (A)) is defined as
P(A) = Number of favourable cases for event A
Number of exhaustive cases
 Probability and Uncertainty
Relative Frequency Approach

This approach of computing probability is based on the assumption that a random

experiment can be repeated a large number of times under identical conditions where
trials are independent to each other. While conducting a random experiment, we may
or may not observe the desired event. But as the experiment is repeated many times,
that event may occur some proportion of time.
 Probability and Uncertainty
Relative Frequency Approach

Since the probability of an event is determined objectively by repetitive empirical

observations of experimental outcomes, it is also known as empirical probability.
Few situations to which this approach can be applied are follows:
(i) Buying lottery tickets regularly and observing how often you win.
(ii) Commuting to work daily and observing whether or not a certain traffic signal is
red when
you cross it.
(iii) Observing births and noting how often the baby is a female.
 Probability and Uncertainty
Subjective Approach

The subjective approach of calculating probability is always based on the degree of

beliefs, convictions, and experience concerning the likelihood of occurrence of a
random event. It is thus a way to quantify an individual’s beliefs, assessment, and
judgment about a random phenomenon.

Example- Suppose you are planning to go on a hiking trip in the mountains, and
you want to assess the probability of encountering rainy weather during your trip.
 Probability and Uncertainty
Union of Two Sets

If A and B are any two sets, the union of A and B is defined to be the set containing
all outcomes that belong to A alone, to B alone, or to both A and B. The notation
for the union of A and B is A ∪ B. .
In terms of events, A ∪ B is the event that either A or B or both occur.
 Probability and Uncertainty
Intersection of Two Sets

If A and B are any two sets, the intersection of A and B is defined to be the set that
contains all outcomes that belong both to A and to B. The notation for the
intersection of A and B is A ∩ B.
 Probability and Uncertainty
Example

Rolling a Die

Event A: Rolling an even number on a fair six-sided die.

A = {2, 4, 6}

Event B: Rolling a number greater than 3 on the same die.

B = {4, 5, 6}

A ∪ B = {2, 4, 5, 6}

A ∩ B = {4, 6}
 Probability and Uncertainty
Complement

The complement of a set A is defined to be the set that contains all

elements of the sample space S that do not belong to A. The notation for the
complement of A is Ac
 Probability and Uncertainty
Complement

Rolling a Die

Suppose that A is the event that an even number is rolled; then

Ac = {1, 3, 5} is the event that an odd number is rolled.
 Conditional Probability

It is the probability of a particular event occuring, given that another

event has occurred. The conditional probability of event A, given that event B
has already occurred is written as: P (A|B).

P(A ∩ B) P(A ∩ B)
P(A | B) = P(B | A) =
P(B) P(A)
 Probability and Uncertainty
Independent Events

Events are said to be independent of each other if happening of any one

of them is not affected by and does not affect the happening of any one of the
others.
If A and B are independent events so that the probability of occurrence or non-
occurrence of A is not affected by occurrence or non-occurrence of B, then we
have

P (A | B) = P(A) P(B | A) = P(B)

 Probability and Uncertainty
ADDITION THEOREM OF PROBABILITY

The probability of occurrence of at least one of the two events A and B is given by :

P(A ∪ B) = P(A) + P(B) – P(A ∩ B)

For Mutually Exclusive

Events ?

For Independent Events ?

 Probability and Uncertainty
Example

The probability that a contractor will get a plumbing contract is 2/3 and the probability
that he will not get an electrical contract is 5/9. If the probability of getting at least one
contract is 4/5, what is the probability that he will get both?
 Probability and Uncertainty
MULTIPLICATION THEOREM

The probability of simultaneous happening of two events A and B is given by :

P (A ∩ B ) = P (A ). P (B | A)

or P (B ∩ A ) = P (B) . P (A | B)

In other words, the probability of the simultaneous happening of the two events A and
B is the product of two probabilities, namely: the probability of the first event times
the conditional probability of the second event, given that the first event has already
occurred.
 Probability and Uncertainty
Example

A husband and wife appear in an interview for two vacancies in the same post. The
probability of husband’s selection is 1/7 and that of wife’s selection is 1/5. What is the
probability that both of them will be selected.
 Probability and Uncertainty
Bayes’ theorem

The Bayes’ theorem is useful in revising the original probability estimates of known
outcomes as we gain additional information about these outcomes. The prior
probabilities, when changed in the light of new information, are called revised or
posterior probabilities.
 Probability and Uncertainty
Bayes’ theorem

Suppose A1, A2, . . ., An represent n mutually exclusive and collectively exhaustive

events with prior marginal probabilities P(A1), P(A2), . . ., P(An). Let B be an arbitrary
event with P(B) ≠ 0 for which conditional probabilities P(B|A1), P(B|A2), . . ., P(B|An) are
also known. Given the information that outcome B has occured, the revised (or
posterior) probabilities P(Ai|B) are determined with the help of Bayes’ theorem using
the formula:

where the posterior probability of events Ai given event B is the conditional probability
P(Ai |B)
 Probability and Uncertainty
Example
Suppose an item is manufactured by three machines X, Y, and Z. All the three
machines have equal capacity and are operated at the same rate. It is known that the
percentages of defective items produced by X, Y, and Z are 2, 7, and 12 per cent,
respectively. All the items produced by X, Y, and Z are put into one bin. From this bin,
one item is drawn at random and is found to be defective. What is the probability that
this item was produced on Y?
 Probability and Uncertainty
Exercise

The probability that X passed in maths is 2/3. The probability that he passed in
statistics is 4/9. The probability that he passed in atleast one subject is 4/5. What is the
probability that he passed in both subjects ?
 Probability and Uncertainty
SUMMARY

1) An experiment in which all the possible outcomes are known in advance but we
cannot predict as to which of them will occur when we perform the experiment is called
random experiment. Performing an experiment is called trial.

2) Set of all possible outcomes of a random experiment is known as sample space. Each
outcome of an experiment is visualised as a sample point and set of one or more
possible outcomes constitutes what is known as event.

3) The total number of elements in the sample space is called the number of exhaustive
cases and number of elements in favour of the event is the number of favourable cases
for the event.