mability(Chapter 9)

139

Chapter9

Probability
9.1. PROBABILITY
Number of cases favorable to the
9.1.1. Concept or P(A)= 0ccurrence of the event
Computation ofthe chance of an Total number of mutually exclusivc
Crentis
called
probability. Hence, occurrence
probability
of a
is thecertain and exhaustive cases
random happening of an event and study
of
"Probability of rain
"Probability of
tomorrow uncertainty,
is only 35%".
e.g., So the total number of trials favorable to the event (A)
winning lottery is
a l out of
and divided by the total number of ways in which the event
40,406,353". (A) can happen.
Before conducting an experiment, the
the outcome is unpredictable. therefore absolute
it is certainty
of
Number of cases favorable to the

probability, which termed

actually depends on the idea of a as or P(A) = Occurrence of the event
endom experiment'. The theory of probability originates Total number of mutually
fronm the 'game of chance'
onsider a game like gambling,associated with gambling, e.g., exclusive and exhaustive cases
#adie, and random drawing tossing of a coin, throwing
of cards from a pack of
Probability in favor of the occurrence of the event
cards. Thus, in statistics, Number of cases favorable to the
Aefined as the 'proportion probability (of an event) is
of time' in which an event m Occurrence of the event
occurs and is observed, even if the experiment is run an the number of cases against th e
infinite number of times.
Occurrence of the event

9.1.2. Meaning and Definition of Probability against the occurrence of the event
Probability
Probability is the
The number of cases against he
mode of expression of knowledge or 0ccuTence of the event
belief whether the event has occurred or will occur. Thus, m The number of cases favorable to the
in the theory of probability this concept has been given an occurrence of the event
exact mathematical significance for being used widely in
Such areas of study as mathematics, statistics, finance, 9.1.3.
gambling, science, and philosophy, so that conclusions can Characteristics of Probability
De drawn regarding the probability of potential events and Function P(A)
1) The limit of probability of an event A is between 0
Ihe mechanics of complex systems being hidden.
and 1, i.e. 0sP(A)<I.
ACOrding to Levin, We live in a world in which we are 2) When probability of two events A and B which are
Unable to forecast the future with complete certainty. Our mutually exclusive, is combined, the probability is the
ed to cope with uncertainty leads us to the study and use sum of individual probabilities of A and B, i.e.. P (A
of probability theory." UB)will be P (A) + P (B).
3) Two events which are equivalent, are
assigned the
According to American Heritage Dictionary,
is the branch of mathematics that studies the
same probability.
"Prikelobabiihoodlity of OCcurrence of random events in order to 9.1.4. Applications of Probability
Pehct the behavior of a defined system."
99
1) It plays a great role in making predictions.
2) It is used to solve scientific investigations as well as
General Rule for Probability as follows:
day-to-day problems.
The
1f an probability of an event (say A) is defined
fails n times, then the
3) It is very useful when one wants to predict the
uncertainties of betting and chances of success.
event happens mtimes and it A) It is extensively used in business and
probability (p) of event Ais defined as: 5) It is the basis of the law of 'statisticaleconomics.
regularity' and
PA)= mmtn law of inertia of a large number'.
 (Business Statistics and Analytics) ,
140 (Unit-IV) MBA First Semester
AKTU
9.1.5. Uses of in 9.2.2. Objective Probability
Probability The pobability of the 0ccurrcnce of an event is entircly

Decision-Making
Following arc the busincss
situations
probability to take a decision:
wlhere maagets ase
bascd on the analysis whcre cach measure
documcntcd obscrvation. in placc of a
depends o
subjective
estimate.
A noe accurale way of determining probabilities is by
D
Investnent Problen: AcOmpally's manager has (Wo
of objcctive probabilities
in
diflerent projects (with difterent initial Wily Conrast to the
costs) Tor observations bascd on subjcctive measures, like
investment. The decision taken by the manager
bascd on the choice that the outconne of is estimates. For example, the objcctive probability i. personal
which is determined for tossing a coin 100 times and
dependent on the level of demand. cach observation that the outcomc of the coin after landi. recording
2) Introducing a New Product: While
new product there arises a problem introducing
in deciding
a will be *heads". In statistical analysis, it is very imporant
that each observation must be an independent event
about the introduction of the product. The decision without manipulations. The lesser the observation beine
maker is not sure whether the product
would be biased, the lesser will be the cnd probability.
acceptable or not.
Hence after conducting test, Objective probabilities are of two types:
different regions the results beingmarketing
in three 1) Classical Probability, and
idea of introducing a new product contradictory, the 2) Empirical Probability.
dropped? Thus, it is necessary to answer should be
this 9.2.2.1. Classical Probability
question: what would be the chances of success of
introducing a new product? Classical Probability is the first approach to the theory of
3) Stocking probability.
Decisions: The demand of a perishable
commodity is unknown to its dealer in advance. According to Laplace, "Probability is the 'ratio of the
if the commodity is not sold by the end Thus number of favorable cases to the total number of equally
of the day it
will be spoiled. Therefore, he is not sure
about the likely cases."
demand pattern and stock amount (that how much The fundamentai assumption to this theory is that the
commodity is to be stored in advance). various outcomes of an event are 'equally likely'. Thus the
4) The Individual Investor:
Maximisation of returns is probability of happening of these events is also equal. In
the motive of investors who are this theory, the probability of happening of an
engaged in buying event is
determined prior to the happening of the event. Therefore
and selling of equities. The behaviour of equities /
security prices is uncertain and it depends upon these probabilities are known as priori
various factors. In this situation, managers take classical theory is suitable for determinationprobability. The
of those events that are possible of probability
decisions on the basis of their prediction about future through games of chance.
prices of the securities. This prediction helps the where various outcomes are equally likely to
investor to take a decision as to which securities the tossing of a dice the happen. In
six possible ways. Thus happening
of the event can be in
he/she should select for the investment. the
event is described as 'p' and probability of success of
the probability of the failre
of an event is termed as q' where
9.2. PROBABILITY there is no thirdevent.
P= Number of favorable cases
THEORY Total number of equally likely
Let there be 'x ways for the
cases
9.2.1. Introduction "y' ways for its failure and oceurrence of an event
they are equally likely to OC
The branch of mathematics that is concerned with random
then the probability of the
phenomena analysis is known as probability theory. The happening of the event
Occurrence of a random event cannot be determincd and it denoted by p. These
can be any single outcome from various pOssible unitary, theoretical or probabilities
mathematical
are also known as
outcomes. The actual outcome can be determined only by probability of the occurrence of the probability.
event and qPe
is the
chance. There are different definitions of probability
which are shown in figure below:
probability of its notoccurrence.
p:
X +y and q=
Types of Probability X+ y
So, X
p+q= y
Objective Probability (x + y) (x+ y)
Subjective X+y
Probability Theory Therefore, p + q=1, or 1
-q=p, or
Classical Probability
The l-p4
Empirical
Probability
probability of
between the numberoccurrence cvent E is the
of cases inof itsan favour
ratio
and the total
number of cases (equally likely).
Probability (Chapter9)
PE)=
n(E) Number of cases favourable to event E
n(S) Total numberof cases
isthe number of cases favourable to the event E, y
the number of cascs favourable to the event E'. the odds inis
favour of E are x:y and odds against of E
are y:x.
In this case.
P(E)=X P(E)=
X +y X+ y
.. P (E) + P(E) = 1
Therefore, probab1lity of happening + probability of non
happening = 1 and 0s P(E)S1, thus,
of P(E)=] and the m
maximum value
minimum value of P(E) =0.
Probabilities are expressed either as ratio, fraction or
percentage, such as 1or 0.5 or 50%.
They arc presumed to be equally likely and the probability
of getting a 6 on a single throw of a dice would be /6.
Limitations of Classical Approach
) The limitation of this definition is that, it is restricted
only to the games of chancc and the problens other
than the game of chance cannot be explained.
) This method is not applicable when it is not
to calculate the total number of cases. possible
3) This method is not applicable in the case where
outcomes of a random cxperiment are not equally likely.
4) The further subdivision of the possible
outcome of
experiments int0 mutually exclusive, exhausive ::nd
cqually likely isalnnost difficult.
9.2.2.2. Relative
Frequency Approach/
Empirical Probability
The scientific study of measuring uncertainty is known as
'probabiliy'. Probabilities are empiically deterinined
when their nunerical values are based upon asample or a
census of data which gives a distribution of events.
According to Von Mises, "If an experiment is performed
repeatedly under essentially homogeneous and identical
Conditions, then the limiting value of the ratio of the
nùmber of times the event occurs to the number of trials.
as the nunmber of trials becomes indefinitely large. iscalled
the probability of happening of the event. it is being
aSsumed that the limit is finite and unique".
Symbolically, if A is the name of un event, f is the
equency with which that event occurred. and n is the
sample size, then:
P(A)=
Tiori probabilities are not the busis of the relative
quency approach to the theory of probability. There are
nous situations where it is impossible to have equaliy
ACIV events which form the besis of the classicai theory
probability. Thus. the probability of the happening of an
|41
event is derived from the past experiences
or from the
the output of
relative frequencies of success in the past. If
a machine is 10% of unacceptable articles in the past then
articles
the relative frequency for those unacceptable
Would be 10% of the total items.
Thus, the estimation of the relative frequency should be on
the basis of cxtcnsive readings in the past. The accuracy of
the result is directly proportional to the large number of
the
past readings. The probabilities that are calculated on
basis of past experience are called posterior
probabilities, and have relative frequency approach. This
is in contrast to the priori probabilities that are calculated
through classical approach.
The priori probabilities are applicd in the calculation of the
games of chance whereas posterior probabilities are
applied in the problems of economic and social
phenomena where priori probabilities are not constant.
The nature of the priori probabilities is deductible and is
theory-based rather than being based on evidence,
experience and experimentation. Posterior probabilities
which are also known as empirical probabilities, and are
based on the past experience as well as on conducted
experiments.
Thus the posterior probability or cmpirical probability (P)
of an event is given by,
No. of times an event is observed
P=
No.of trails experiment is conducted
If, out of 1000 items produced by a machine in past, 60
were found to be defective, the probability of a
defective article to be produced by this machine would
60
be or 0.06.
1000
Lmitations of Relative Frequently Theory of Probability
I) In conducting Jarge number of trials of the
experiment
there may not exist given homogeneous and identical
conditions of the experimnent.
2) No natter iow large is the value of n,
the relative
frequency m/n, will not attain a unique value.
3) The defined
probability (P) can never be obtained
practically. An attempt can be made at a nearby
estimate of Pby adequately increasingn.
9.2.3.
Subjective Approach to
Probabilityand
The classical
empirical approach of probability is
objective in description. Whercas the subjective
probability of an event is considercd to be the access to
scope of
one's certainty of a particular event lo occur.
considers an event that the student "A' Hence, if one
wi pass the
examination, then its probability cannot be estimated by
cither of the objective approaches that have
above. The passing and faiiing of a student been discussed
are the events
which are not equally likely cases and if
these cases were
equai!y likely, thern by applying the classical
probability we could have derived the probability approach of
to be
142 (Unit-IV) MBA First Semester(Business Statistics and Analytics) AKTU

1/2. Thus, in this case the outcomes (n, = 6). The toss of coin will have two possible
under uniform conditions. experiment cannot be repeated that theroe
With the help of empirical outcomes (n, = 2), The counting rule suggests
approach it is not possible to comment be (6) x (2) = 12 distinct experimental outcomes.
upon the
probability of this event. Hence comparatively, subjective
approach is useful in such This is also clear from the sample space of the experiment
the probability of an eventcases because in this approach
is the
of tossingtwo coins given above as S ={(1,.,T), (1, H), (2,
representation of the
degree of faith and belief of a rational T), (2, H), (3, T), (3, H), (4, T), (4, H), (3, T), (5, H), (6. T
occurrence that particular event that depends
of person in the (6, H)}, i.e., in an experiment of throwing a dice and tossing
judgment, personal point of view, etc. upon his acoin, there are six possible outcomes (tigure 9.1),
Considering this approach, the probability of an event is 9.3.2. Counting Rules for Permutations
different for each person. Due to this it is
subjective probability where the probability known as Apermutation is a particular sequence of objects (or simple
affected by the of an event is events) where the order of selection foms subsets nr
is also known aspersonal bias of its estimator. Therefore, it arrangements that are considered unique or distinctive
Personalised
the presumption that Theory of Probability on
any decision is the reflection According to the counting rules for permutations the possible
personality of its decision-maker along with of the number of experimental outcomes whenr items are to he
important subjective elements that assign a those selected from a set of r items in a specific order. The sanme :
an event. Let us probability to
assume that have data relating to the items selected in a different order would be considered a
price of a share for the last 3 we different experimental outcome. The total number of
that out of 2000 quotations years and further supposing permutations of nitems, taking rat a time, is given by,
there was price rise on 500 relating to this share price, n

occasions, then the empirical "P,

(n-r)!
probability of a price rise in this share is S00
or 0.25.
2000 Example 1: If repetition of digits is not allowed, find how
According to this data, the buying and selling of the shares many numbers of three digits can be formed using the
should bc done by some pcople digits 0, 1,2, 3, 4, 5,6?
that the two approaches, i.c.,separatcly due to the reason Solution: There are 6 digits in total. The numbers with 3
subjective estimates are joined relative
togcther.
frequency and digits, with all digits distinct from cach other, are the
different ideas in their minds relating to price ofyielding
these
out
permutations of the 6 digits taken 3 at a time.
in future. The final decisions are the shares
personality of the reflection of the Hence "P, =
6
6x5x4 = 120.
decision maker. Thus the decision taken (6-3)! 3!
under this theory is based on the available data in addition
to the effects of those factors that are
subjective in nature. 9.3.3. Counting Rules for Combination
We use the counting rules for combination when we want to
9.3. FUNDAMENTAL count he number of experimental outcomes from an
RULES OF COUNTING experiment that includes selecting n objects from a total
population of N objects. This counting method applies the
9.3.1. concept of combinations. Sampling of r items from a
Introduction population of size n (usually larger), without replacement
In statistics for counting experimental
outcomes there are provides:
two basic principles which are as follows:
|) Counting Rules for Permutations, and Step 1 Step 2 Experimental
(Throw a dice) Throw a coin) Outcomes
2) Counting Rules for Combination.
T (1,T)
Multi-Step Experiment H (1, H)
If there are m-sleps in an experiment with N, possible
outcomes on the first step, N possible outcomes on the (2, T)
second step, and so on, then the total number of H (2, H)
experimental outcomes is as follows: 3,T)
N, x N, x Nm: H (3. H)
For example, consider the experiment of throwing a dice T (4. T)
and tossing a coin. There can be twelve possible outcomes H (4. H)
in this experiment. These twelve possible outcomes will (5, T)
form a sanple space. So, the sample space willbe, H (5, H)
S= ((0.T), (1, H). (2. T). (2, H), (3, T), (3, H), (4, T), (4, (6. T)
H). (5, T). (5, H), (6.T), (6, H)) H (6. H1
Figure 9.1: Experimental Outcomes of
in the abOve example, it is easy to list all the possible results. Throwing a dice and Tossing a Coin
When we increase the number of trials, it is not possible to
lIst all the outconnes. In an experiment of throwing a dice and C. =
(ossing a coin, the throw of dce will have six possible (D-r)!!
Probability (Chapter 9) 143

Where, n!= (n) x (n 1) x (n2) × ... x (2) x (1)

r!= (r) x (r- 1) x (r-2) x ... x (2) x (1) 9.4.2. Sample Space
possible outcomes of
0! = 1 A sample space is a collcction of all sample space
farctorial is represented by the
The term a random experiment. Mathematically, the the sample
Al=4x3x2x 1=24 symbol "!", e.g., is denoted by the symbol S. For example, these has heads (H)
space of atoss of two coins, each of
outcomes: HH, HT,
omnle 2: A company wants to randomly select 4 or tails (T), is the set of all possible
workers from a total of 10 workers. How TH, and TT.
many
ombinations of 4 workers can be selected?
9.4.3. Events
Solution: The counting rule shows that with n = 10 and r Events are the possible outcomes of a trial/experiment
=4, we have, which are generally denoted by capital letters A, B, C, etc.
4
10! 10! For example, appearance of the outcomes 1 or 2 or 3 or
10C, or 5 or 6 are called events on the rolling of a fair die.
(10-4)!(4)! (6)1(4)!
10x9x8x7x6! 10x9x8x7 The sample space S (it always occurs) and null set (it never
=210 0ccurs) is also an event. If M and N are two events in a trial
6!x4! 4×3x2
and M is a subset of N, then the occurrence of M implies the
So. there can be 210possible outcomes for an experiment occurrence of N. For example, while tossing two coins
of randomly selecting 4 workers from a population of 10 simultaneously the possible outcomes are (HH, HT, TH,
workers. TT). "Getting two heads" is the one possible outcome of an
event from the set of all outcomes. Therefore, HH is a simple
9.4. BASIC CONCEPTS event. The event 'getting two of the same side, i.e., FH and
TT are two outcomes, is a compound event.
9.4.1. Experinent Types of Events
A statistical experiment is an There are various kinds of events in probability. They are
unsystematic or non defined below:
deterministic experiment. Following are the features of an Experiment
experiment:
Outputs (or outcomes)
1) The experiment can have more than one possible
outcome. Events
2) Each possible outcome can be described in advance.
3) The outcome of the experiment is based On Mutually Exhaustive
Simple Compound Equally exclusive Dependent
possibility. events events Indepen events
events likely
events
events dent
Random experiment model (in this model outcome is events
1) Simple Events: A simple event is an event that
unpredictable with certainty, before the running of the
experiment.) is the basis of the probability theory. It consists of a single possible outcome of an experiment
assumes that the experiment is repeated infinite number of or one can say that, a simple event is the event of a
times under the same conditions. single outcome. The word simple is used to refer to an
event which consists of exactly one outcome. For
This assumption is significant because the theory of example, in the experiment of flipping two coins at
probability is concerned with the replication of the the same time the following events are simple events:
experiment and also has long term behaviour. In this A: 2 heads appear (HIH)
model the term parameter is a non-random quantity which B: two tails appears (TT)
1S chosen once and remains constant. There are one or 2) Compound Events: A compound event is an event in
more parameters in various models of random experiment which there is more than one possible outcome. For
that are adjusted and fit into the physical experiment example, Tossing three dice is a compound event.
which is being modelled. There are eight possible outcomes:
Examples: HHH, HHT,HTH, HTT, THH, THT, TTH, TTT
1) In tossing of a fair coin which is a random 3) Complementary Events: Comnplimentary events are
experiment, there are two possible outcomes, either events that cannot Occur at the same time. The
"head up" or tail up", but it is not sure which face complement of an event A is the set of all outcomes in
will turn up. the sample space that are not included in the outcomes
) Rolling a fair die, which is a random experiment, of event A. The event A and its
complement are
having six possible outcomes, i.e., appearance of lor A
mutually exclusive and exhaustive. The
2 or 3or 4 or 5 or 6 on the top face of the die.
event to an event A is that complementary
Adoes not occur'. It
Kandom experiment of drawing a card from a well A
shuffled pack of 52 playing cards. In aspecific trial satisfies AUA= S, where S is the sample
there is a chance of drawing any card amounting to 52 space,
and AA=, where is the empty set.
possible outcomes.
144 (Unit-IV) Stalistics and
MBA First Senester (Business Analytics) AKTU
For example, wvhen a die is thrown:
i) 9) Dependent Events: Two events are said to A.
Getting 'even face' and 'odd face are dependent, if the occurrence of one event affects
complimentary events to each other.
ii) Getting Occurrence of the other event. For example, the
'divisible by 3' and getting 'not divisible
by 3' are complement probability of drawing a queen from a pack of s
cards is 4/52: the card is not put back; then h
iii) Getting 'multiple of 2'events
of the latter event.
of 2 are,
and getting 'not multiple probability of drawing a queen again is 3/51, The
complement events of the latter event. the outcome of the first event affects the outcome e
4) Favourable and
Unfavourable Events: In a the second event and they are dependent. But. if
Cxperinent the number of outcomes resultingrandom
in the cards are put back, then the probability of drawing a
OccuTence of a particular event is termed to be the
queen is 4/52 and is an independent event.
case, favorable to the event. For example, if one
throws a six-sided die and defines an 9.4.4. Union and Intersection of Two
the "outcome of an even event A such that
cases 2, 4 and 6 are number", thus each of the orMore Events
favourable to the event A. In a Let, in a sample space there are two events A and B. The
random experiment, the number of
in not happening of aparticular outcomes resulting union of two events A and B consists of all points which
event is termed as the
cases being unfavourable of an event. are either in A or B or in both A and B.
one throws a six-sided die and For example, if
that the "outcome of an even
defines anevent A such B

cases 1,3 and 5 are number", thus each of the

unfavourable to the event A.
So, unfavourable events can be
defined as,
Unfavourable Events = Total Possible Events (AUB) (ANB)

Favourable Events For example, if A= {1, 3, 5} and B= (1,2, 4), (hen

5) (AUB)= {|, 2, 3, 4, 5).
Mutually Exclusive Events: Two or
said to be mutually exclusive events if more events are
it is not possible
The intersection of two events A and Bconsists of all
for them to occur together at the
same time. In points which are both in A and B.
Words, events that have no outcomes in comimon areother For example, if A= {1,3, 4, 5} and B = (, 2, 4), then (A
to be mutually exclusive events or said
disjoint events. Now, nB)= {1, 4).
one can say that the two events A and B are
mutually
exclusive if and only if A n B = . For example,
consider the experiment of throwing a six-sided dice and
A be the event of getting an odd number whereas B be
9.5.THEOREMS OF
the event of getting an even number. Therefore, PROBABILITY
A =(1, 3, 5} and B= (2, 4, 6) The following are the two important and basic thcorems of
The above events A and B are mutually exclusive, probability:
since the two events cannot occur 1) Addition Theorem of Probability.
simultaneously. 2) Multiplication Theorem of Probability.
Mathematically,
(AnB) = $. 9.5.1.
6) Mutually Exhaustive Events: If at least a particular
Addition Theorem of Probability
Addition theorem states that one can perform the addition
event occurs necessarily from a set of events then it is operation between two events which occurs during
called mutually exhaustive events. For example, for an
experiment and it shows the probability of occurrence of at
throwing a siX-sided dice the events A: number least one of the several events. The
this addition rule is based are as conditions on which
appears greater than 4 and B: number appears less follows:
than or equal to 4 are mutually exhaustive events as
one of the events is sure to occur. Addition Theorem
7) Equally likely Events: Two or more outcomes of an Mutually Exclusive
experiment are said to be equally likely if each of them Events Not-Mutually Exclusive
has equal chance of happening. For example, consider Events
the experiment of throwing a six sided dice, all possible 1) Mutually Exclusive Events: If there is no
outcomes 1, 2, 3, 4, 5, 6 are equally likely because none point comnon to both the events then they are sampleknown
of the outcomes can occur in preference over the other. as mutually exclusive events. Let us
8) Independent Events: Events are said to be consider that n
and Bare two mutually exclusive events then (AnB)
independent, if the occurrence of one of them does not = 0. It means the intersection of (Wo
affect the occurrence of any of the other. For mutualiy
exclusive events is a nul] set and here PA B)=0
example, in tossing two coins, the occurrence of head .:. In case of mutually
on first coin does not affect the occurrence or exclusive events,
OccurTence of head on the second coin. P(A UB) = P(A) + P(B)
Probability (Chapter 9)
145
Care tthree
IfA. B. C mutually exclusive events then, Let C denote the event of throwing 10 in a single throw of
P(A UBuC)=P(A)+ P(B) + P(C) two dice. Thercfore, C consists of 3 sample points: (4, 6),
In case of finite number say n of mutually exclusive 3
events (5, 5), (6, 4), and hence P(C) = 36
P(A UA, UA3..JA,)=PA)+PA,)+..+PA,)
) Not-Mutually Exclusive Events: If two events A and Let D denote the event of throwing 11 in single throw of
B are not mutually two dice. Therefore, C consists of sample points: (5, 6),
exclusive
nrobability of occurrence of at leastevents then the
one of them is (6, 5), and hence P(D)= 2
denoted by P(AUB) and is given by. 36
P(AUB) = P(A) + P Let E denote the event of throwing 12 in a single throw of
(B) -P(AnB)
Where, two dice. Therefore, Dconsists of only one sample points:
p(A)= Probability of the
P (B) =Probability of the occurrence of event A.
of (6, 6), and hence P(E) =
occurrence event B. 36
P(AOB) = Probability of combinedoccurrence of Now events A, B, C, D, E are mutually exclusive and
events A and B.
hence, we get P(throwing 8 or more in a single throw with
Let. there are three events A, B and C. The two dice),
of the occurrence of atleast one of probability = P(A) + P(B) + P(C) + P(D) + P(E)
them is given by,
[::Addition rule for disjoint event]
P(AUBUC)=P(A)+ P(B) +P(C) P(AnB) - P(BAC)- PA n)+A DBOC) 15 5
The important points to be considered are: 36 36 36 +36T 36 36 12
i) If a number of events A],
Ag... A, are
exclusive and exhaustive then the summutuallyof the Example 4: A card is drawn from a well-shuffled pack of
individual probabilities of their happenings is playing cards. What is the probability that it is either a
equal to 1, i.e. , spade or a king?
P(A,)+ P(A,)+...+ P(A,) =1 Solution: The equi-probable sample space of the
ii) If the events are finite and experiment of drawing a card fromn a well shuffled pack of
mutually
then the probability of the occurrence of exclusive
atleast playing cards consists of 52 sample points.
one of them is equal to the sum of their individual Let A be the event that the card
drawn is a spade. Then A
probabilities.
ii) The event A and its compliment A are mutually consists of 13 sample points then, P(A) = 13
52
exclusive and exhaustive. Let B be the event that the card
drawn is a king. Then B
P(A) +P(A)=1» P(A) = 1-P(A) consists of 4 kings then P(B) = 4
52
Now (AnB) consists of only one
sample point, the king
1
A of spades then P(AnB)=
52
Hence, P (the card drawn is either a spade or a
= P(AUB) = P(A)+ P(B) - king)
Mutually Exclusively Events are Not Mutually
P(AnB)
Events Exclusive (By addition rule]
13 4 16 4
Figure 9.2: Two Events Associated with the +
Addition Theorem
52 52 52 52 13

Exampl e 3: Find the chance of getting a sum of 8 or more

a single point of throw with two dice.
Example 5: A card is
pack of 52 cards. Find thedrawn at random from a standard
1) probability
Ajack or a queen or an ace. of
getting:
SolNowutletA
ion: Thedenotesample space consisting of 36 elements.
the event of throwing asum 8in asingle 2) A two of spade or diamond.
throw with two dice. Therefore. A consists of five Solution:
elements
hence P(A)S
points: (2, 6), (3, 5), (4, 4), (5, 3), (6, 2), and 1) In a pack of 52 cards, we
have:
4 jacks, 4 queens and 4 ace.
Now, clearly a jack and a
36
Ler Bdenote the event of throwing 9in a single throw of mutually exclusive events. queen and an ace are
IWo dice. Therefore, Bconsists of 4sample points: Also,

(3,6), (4, 5), (5, 4), (6. 3), and hence P(B) =364 Pla jack) =2
52 13
|46(Unit-|V) MBA First Scmeslcr (Business Statistics and Analytics) AKTU

ii) IfA and Barc indepcndent then the complements of A

Plaqucen) C arc also independent.
and
S2 13
P(ANB)= P(A). P(B). i.e.,
I(an acc)-= 1
$2 13 2) Multiplication Theorem on
Dependent Events: If Aand B be
Probabilities for
:. By the Addition two
Thcorcm of Probability, events, where the occurrence of one event isdependent
P(a jack or a qucen or an
ace) = P(a jack) + P(a by thc occurrence of the other event, then affected
quccn) + P(an acc) probability that both Aand B will occur is P(A the
1
nB
3 = P(A)PB/A)
13 13 13 13
2) P(two of spade Proof: Suppose an experiment results in ,
or two of diamond) = exhaustive, mutually exclusive and equally likel
+ P(two of P(two of spade)
diamond) outcomes, m of them is being favourable to th
1 0Ccurrence of the event A.
52 52 26 Out of these n outcomes let mË be favourable to the
9.5.2. Occurrence of another event B.
Multiplication Theorem of Then the outcomes favourable to the happening of the
Probability
To obtain the
probability of
events A and B' are m,.

combined/simultaneous
Occurrence of several events, the theorem of multiplication
probability is used. The description of this P(AnB)=xm m m,

independent and dependent events is describedruleas for both follows:

n m n m
m

P(AnB)=P(A). P(B/A)
Multiplication Theorem Note: In the case of three events A, B, C, P(A n
BO)=
P(A). PB/A). ie., the probability of occurrence of
Multiplication Theorem
on Probabilities for
A.B
A, B and C is equal to the
Indenendent Events Multiplication Theorem
on Probabilities for probability of B given that Aprobability of A times the
has occurred, times the
Dependent Events probability of C given that bothA and B have occurred.
1) Multiplication Theorem Example 6: A coin is tossed
three times in
on
Independent Events: If two events A and B are Probabilities for succession. What is the probability that all the three
are heads?
independent, then the probability of simultaneous
occurrence of both the events is equal to the product of Solution: Let,
their individual properties. Thus, P(A B) =P(A).PB) A denote the event that
first toss
Proof: Out of n, possible cases let m, denote the event that second toss is ais "a head",B
favorable for the occurrence of the event cases be denote the event that third toss is "a head",
C
A. head".
P(A) n, Now the result of the first
toss
n, influence the result of the second onedoes
and
in no way
hence A, B.
Out of D, possible cases, let m, cases be Care all independent events.
for the occurrence of the event B favourable P(A) =P(B) =P(C) = Moreover,
P(B) "2 .:. P (that all the
three are heads) =
n, =
P(A).P(B).P(C) as all events arePAnBOC)
Each of n, possible cases can be
associated with each independen
of the n, possible cases.
Therefore the total number of possible cases for
occurrence of the event A' and B' is n x the nT.
Example 7: A person is known to hit a target in 4
Similarly each of the m, favourable cases can be of 5shots, where as 0u!
associated with each of the m, favourable cases. So 3out of 4 shots. Findanother person is known to hit
hit at all when the probability that the target 1S
the total number of favourable cases for the they both try.
event 'A'
and B' is mx m2. Solution: Let A be the event that the first
P(AnB)= m, m, m, m, = P(A). P(B) the target, person n

Note
i) The theorem can be extended to three or more
PA)=and P(A»)==
Let Bbe the
independent events. If A, B, C.... be independent event that another person hits the target,
events, then P(A BnC...) = P(A).P(B).P(C)... P(B) =and P(B*) =4
Probab1lity (Chapter 9) |47

Ler X be the event that the target is hit at in a SmallTown

they both try. This will happen when at all when Table 9.1: Categorization of the Adults
least one of Employed Unemployed Totnl
them hits the target. 60 500
Male 440
X= A UB 160 240 400
Female 900
Again note that it is easy to 600 300
.he complement of X and calculate
Total
the
also that A probability
and B are One of these individuals is to be selected at random for
a
independent events.
pX) =P (that the target is not hit at all]) tour throughout the country to publicise the advantages bcof
establishing new industries in the town. We shall
= P(AnB)
concerned with the following events:
M: A man is chosen,
= P(A). P(B')
5 4 E: The one chosen is employed.
20

target[Independent events]
= P (that the
Using the reduced sample space E, we find that:
.. P(X) is hit at all) 440 11
P(ME) = 600
=1-P(X) =1- 1 19 15
20 20
Let n(A) denote the number of elements in any set A.
Using this notation, we can write:
9.6. CONDITIONAL n(E M) n(En M)/ n(S) n(EnM)
PROBABILITY P(ME) = n(E) n(E)/n(S) P(E)
Where, P(En M) and P(E) are found from the original
Generally, conditional probability analysis involves sample space S. To verify this result, note that:
estimating the probability of occurence of a particular 600 2 440 22
event (A) as conditional upon the occurrence of a P(E)= and P(E OM) =
narticular event (B). This probability is usually 900 900 45
P(A/B) and is read "the probability of A given B."written
as
Hence, P(MIE) = 22/45 22x3 11
, as before.
Or 2/3 45x2 15
For (wo events A and B, then the conditional
of A(given B) is that the probability of probability Example 8: A pair of dice is rolled. If the sum of 8 has
that B has occurred) is given by: occurring A (given appeared, find the probability that one of the dice shows 3.
P(AB)= P(AnB) Provided P(B) > 0. Solution: The equi-probable sample space consisting of
P(B) 36 sample points.
The event A =The sumn of the scores is 8 has five sample
Similarly, the conditional probability of B, given A, points (2, 6), (3, 5), (4, 4), (5, 3), (6, 2) and it has reduccd
denoted by P(B) is defincd by:
sample space.
P(B|A) = P(AnB)
P(A)
Provided P(A)>0. P(A) =
n(A)
n(S) 36
For example, consider the experiment of
eight sided dice. There can be eight possible throwing
outcomes
an
in
Under the assumption that A has happened, the event B =
one of the dice shows 3 has only two
this experiment. These eight possible outcomes will form a sample points, that is
sample space. So, the sample space will be, (AnB)= [(3, 5), (5, 3)].
S= {1,2, 3, 4, 5, 6,7, 8} .:. P(AOB) = n(AnB) 2 1
Let A be the event of getting an odd number, B is the n(S) 36 18
event getting at least 7. Also using the formula, we get p(RA) P(AnB)
Then, A=(1,3, 5, 71, B =(7, 8) and AnB=(7) 1/18 136 2 P(A)
4 5/36 18 5
:. P(A)=*= P(B) = and P(A B) =
2 Example 9: An box contains 3 white and 5
draws of one ball each are made red balls. Two
P(B0A) P(A^B)_1/8_1!: What is the probability that one is redwithout replacement.
P(A) 1/2 S 1 4
Solution: Probability of drawing a and the other white?
red ball in the first
P(A|B) = P(ANB)_1/8
P(B) 1/4 8 1
draw. P(A)= 5

For example, suppose that our sample space S is the Probabilityof drawing a white ball in
the second
Population of adults in small town who have completed
given that the first draw has given a red balldraw
3 or
requirements for a college degree. We shall categorise P (since only 7 balls are left in the
them according to gender and emplovment status. The data 7 bag and three
are given in table 9.1. white balls are still there).
 (Business Statistics and
148 (Unit-IV) MBA First Semester Analytics)
Posterior
)AKTU
However, the Bayesian, or the
Probability of the combined event
P(AB)= P(A n B)= P(A)×
probabilities
always conditional probabilities which are calculated arefor
P(B/A) = 53 15 every events as follows:
87 56 1) Mutually Excusive Events: If there exists
But it could also happen that in the combination with
first draw a white ball Occurrence of an event Ein
was drawn then, Probability of
drawing a white b¡ll in the the mutually exclusive events Ej, Ez ...E, then one of
first draw, P(A) = and P(E, )P(E /E,)
8 PERE)=
Probability of drawing a red ball in the second draw given
that the first draw gave a
white ball or P Where k=1,2, ....n
The combined probability of the
two events is, 2) Mutually Exclusive and Exhaustive Events: Thacs
P (AB) or P (AnB) = P 15 are two mutually exclusive and exhaustive evente A
(A)x P =(BIA) and A, and the occurrence of the event B is
7 56
Now any one of the two combination with A, and A, then for event Athe
situations
ball first or we draw a white ball (when we draw a red
first), would conditional probability, given the event Bis as under.
conditions of the problem. These two events aresatisfy the P(A,)P(B /lA,)
exclusive. So the probability that any one of mutually P(A, /B) =
happens is the sum of the two probabilities i.e., the two P(A)P(B/A)+P(A,)P(B/A,)'
Required probability = 15 15 15 P(A, /B) = P(A,)P(B /lA,)
56 56 28
P(A,)P(B/lA,)+ P(A,)P(B/A,)
9.7 BAYE'S THEOREM 9.7.1. Need of Baye's Theorem
There are various names assigned to this Baye's theorem is applied in the case where the following
like, posterior probability, revised probability, conditions exist in the problems:
probability,
inverse probability. This was introduced by Thomasor 1) The sample space is further divided into a
set of
Baye (an English mathematician) in his famous work mutually exclusive events (A, Az... Ag}.
on Bayesian Decision Theory. This theory states 2) Within the sample space,
about event B exists, lor which
the finding of the probability of an
event by P(B) > 0.
the available sample information. considering 3) Computation of a conditional
P (Ag| B) is the detailed probability of the form:
According to Baye's Theorem uncertainty can be 4) Either one of the two sets of
objective.
measured. On the basis of probability theory, this theorem below. probabilities is described
establishes a rule for refining a hypothesis by allotting i)
additional evidence and circumstantial information which P(A, n B) for each A7,
results in a number, representing the degree of probability ii) P(A;) and P(B |A,) for
that hypothesis is true. For example, for an event A., a each A:
chosen sample of 3 defective itemns out of 100 can be used 9.7.2.
to estimate the probability for an event B that a machine is
1) The Applications of Baye's Theorem
not working properly. theorem stipulates inmultiplying the preceus
distribution by the likelihood
to attain posterior function and directing
The Bayesian probability is based on the conditional
probability, where A, and A, are the events that are 2) Baye's theorem being
distribution.
mutually exclusive and exhaustive. Whereas B is asimple fomal is valid to all commou
event which intersects with each of the A vents as interpretations of probability. Hence
Bayesian interpretation. probabilitiesaccording to
displayed in the Venn diagrams as shown in figure 9.3. are subject
logical coherent degree of faith, or adegree offaithin
the given proposition pertaining to the body of well
A A specified information.
B
Example 10: Abag Acontains 3 white and 4black balls
and a bag Bcontains 5 white and 3 black bals. One ballis
Figure 9.3: Bayesian Probability drawn at random from one of the bags and it is foundtto be
This is known as posterior probability as it is calculated black. Find the probability that it was drawn fromthe bagB.
after the information isrecorded. It is the revised probability Solution: Let, X;= The event of ball being drawnfrom
as it is derived by the revision of the prior probabilities bag A,
under the accumulated additional information. Further, it is X,= The event of ball being drawn from bag
also kncwn as inverse probability, i.., determining the
B and
probability of a probability.
X=The event of ba!l being black