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CHAPTER 1. Probability (1) .Pps
CHAPTER 1. Probability (1) .Pps
and Economics
Chapter 1
Basic Probability
An Ace
A four
A Head
1.1: Events, Sample Spaces and
Probability
S: {1, 2, 3, 4, 5, 6}
Sample Space
The Sample Space is the collection of all
possible events
e.g. All 6 faces of a die:
example:
example:
A = aces; B = black cards;
C = diamonds; D = hearts
Events A, B, C and D are collectively exhaustive
(but not mutually exclusive – an ace may also be
a heart)
Events B, C and D are collectively exhaustive and
also mutually exclusive
1.1: Events, Sample Spaces and
Probability
What is a PROBABILITY?
- Probability is the chance that some
event will happen
What is a PROBABILITY?
0 ¼ or .25 ½ 0r .5 ¾ or .75 1
# favorable outcomes
P(event) = # possible outcomes
1
P(rolling a 4) =
6
The probability of rolling a 4 is 1 out of 6
Probability of Simple Events
Example 2: Roll a dice.
What is the probability of rolling an even
number?
# favorable outcomes
P(event) =
# possible outcomes
3 1
P(even #)6 = 2 =
# favorable outcomes
P(event) = # possible outcomes
1 1
P(green)4 = 4=
The probability of spinning green is 1 out of 4 or .25 or 25%
Probability of Simple Events
Example 4: Flip a coin.
What is the probability of flipping a tail?
# favorable outcomes
P(event) = # possible outcomes
1 1
P(tail) = =
2 2
The probability of spinning green is 1 out of 2 or .5 or 50%
Probability of Simple Events
Example 5: Deck of Cards.
What is the probability of picking a heart?
# favorable outcomes 13 1
P(heart) = = =
# possible outcomes 52 4
The probability of picking a heart is
1 out of 4 or .25 or 25%
What is the probability of picking a non heart?
# favorable outcomes 39 3
P(nonheart) = # possible outcomes
= = 52 4
The probability of picking a heart is
3 out of 4 or .75 or 75%
Probability of Simple Events
Key Concepts:
occur
0 Impossible
Assessing Probability
There are three approaches to assessing the probability
of an uncertain event:
1. The Classical Approach
X number of ways the event can occur
probability of occurrence
T total number of elementary outcomes
Union Intersection
A B A B
Either A or B, Both A and B
or both, occur occur
1.2: Unions and Intersections
1.2: Unions and Intersections
AB AC
A BC
B BC
C
1.3: Complementary Events
B: {Toss a number ≤ 3}
BC: {Toss a number ≥ 4}
A B = {1,2,3,4,6}
[A B]C = {5}
(Neither A nor B occur)
1.3: Complementary Events
( A B ) A .B
C C C
P( A) P( A ) 1
C
P( A) 1 P( A ) C
P( A ) 1 P( A)
C
1.3: Complementary Events
A: {At least one head on two coin flips}
AC: {No heads}
A : {HH , HT , TH }
AC : {TT }
P( A) 1 4 1 4 1 4 3 4
P( A ) 1 4
C
P( A) 1 P ( A ) 1 1 4 3 4
C
1.4. General Addition Rule
If A and B are mutually exclusive, then P(A B) = 0, so the rule can be simplified:
P(A B)
P(A|B)
P(B)
B BC
A A
P(A B)
P(A|B)
P(B)
B
A
CD No CD Total
Note:
A and B are independent P(A B) P(A) P(B)
1.6: The Multiplicative Rule and
Independent Events
Assume three of ten workers give illegal deductions
Event A: {First worker selected gives an illegal deduction}
Event B: {Second worker selected gives an illegal deduction}
P(A) = P(B) = .3
P(B|A) has only nine sample points, and two targeted
workers, since we selected one of the targeted workers in the
first round:
P(B|A) = .22
The probability that both of the first two workers selected will
have given illegal deductions
P(AB) = P(A) P(B|A) = .(3) (.22) = .066
1.6: The Multiplicative Rule and
Independent Events
Independent Events
P(A|B) = P(A) Since P(B|A) = P(B),
P(B|A) = P(B) P(AB) = P(A)P(B|A)
= P(A)P(B)
1.7. Marginal Probability
P( Hi | A) P ( Hi A) / P( A)
P( Hi) P ( A | Hi )
P ( H 1) P( A | H 1) P( H 2) P( A | H 2) P ( Hk ) P ( A | Hk )
1.8: Bayes’s Rule
Suppose the events B1, B2, and B3, are mutually exclusive and
complementary events with P(B1) = .2, P(B2) = .15 and P(B3) = .65.
Another event A has these conditional probabilities: P(A|B1) = .4, P(A|
B2) = .25 and P(A|B3) = .6.What is P(B1|A)?
P( B1 | A) P ( B1 A) / P ( A)
P ( B1) P ( A | B1)
P ( B1) P ( A | B1) P ( B 2) P ( A | B 2) P ( B 3) P ( A | B 3)
.2 .4 .08 .08
.158
.2 .4 .15 .25 .65 .6 .08 .0375 .39 .5075