Statistics for Managers

Using Microsoft® Excel

5th Edition

Set 05 - Chapter 4
Basic Probability

Chap 4-1
Learning Objectives
In this chapter, you will learn:

 Counting techniques
 Basic probability concepts
 Sample Spaces and Events, Simple Probability, and
Joint Probability
 Conditional probability
 To use Bayes’ Theorem to revise probabilities

Chap 4-2
 Counting techniques

 Multiplication rule 1
If each event in a sequence of n events has k different
possibilities, then the total number of possibilities of the
sequence will be k*k*k*k*……k= kn

 Multiplication rule 2
In a sequence of n events in which the first one has k1
possibilities, the second event has k2, the third has k3, etc., the
total possibilities of the sequence will be k1*k2*k3*k4……kn

Chap 4-3
 Counting techniques
 1. Three dice are rolled. How many different outcomes are possible?

 2. A lecturer is giving a ten-question true-false quiz. If a student guesses on

each question, how many different ways could the ten questions be
answered?

 3. A nurse has three patients to visit. How many different ways can she
make her rounds if she visits each patient only once?

 4. The digits 0,1,2,3 and 4 are to be used in a four-digit id card. How many
different cards are possible if repetitions are permitted?

 5. A license plate consists of 3 letters followed by 3 digits. Repetitions are

allowed in the letters but not in the digits. How many different plates can
be made?

Chap 4-4
 Permutations
 A permutation is an arrangement of objects
without repetition where order is important.

 The number of permutations of N objects taken n

at a time is given by

 N N!
P    
N
n
 n  (N  n)!
where N! N(N - 1)(N - 2)............(2)(1)

and 0! 1

Chap 4-5
Combinations
 A combination is an arrangement of objects
without repetition where order is not important.

 The number of combination of N objects taken n

at a time is

N N!
C    
N
n
 n  n!( N  n)!
where N!  N(N - 1)(N - 2)............(2)(1)
n! n(n - 1)(n - 2).................(2)(1)
and 0! 1

Chap 4-6
 Permutations and Combinations
 How many different arrangements of three letters can be made
using the letters a, c, e, g, i, k and m?
 How many ways can four books be arranged on a shelf if they
can be selected from nine books?
 Harry has to visit ten cities. He can visit any three in one day.
How many different ways can he select three cities?
 In a club there are 7 women and 5 men. A committee of 3
women and 2 men are to be chosen. How many different
possibilities are there?
 Find the number of ways that 7 people can arrange
themselves: a, in a row of 7 chairs. b, around a circular table.

Chap 4-7
Distinguishable permutations

Chap 4-8
Definitions

 Probability: the chance that an uncertain

event will occur (always between 0 and 1)
 Event: Each possible type of occurrence or
outcome
 Simple Event: an event that can be described
by a single characteristic
 Sample Space: the collection of all possible
events

Chap 4-9
 Types of Probability
There are three approaches to assessing the probability of an
uncertain event:

1. a priori classical probability: the probability of an event is based

on prior knowledge of the process involved.

2. empirical classical probability: the probability of an event is

based on observed data.

3. subjective probability: the probability of an event is determined

by an individual, based on that person’s past experience, personal
opinion, and/or analysis of a particular situation.

Chap 4-10
 Calculating Probability

1. a priori classical probability

X number of ways the event can occur
Probability of Occurrence  
T total number of possible outcomes

2. empirical classical probability

number of favorable outcomes observed
Probability of Occurrence 
total number of outcomes observed

These equations assume all outcomes are equally likely.

Chap 4-11
 Example of a priori
classical probability
Find the probability of selecting a face card (Jack,
Queen, or King) from a standard deck of 52 cards.

X number of face cards

Probability of Face Card  
T total number of cards

Chap 4-12
 Example of empirical
classical probability
Find the probability of selecting a male taking statistics
from the population described in the following table:

Taking Not Taking Total

Stats Stats
Male 84 145 229
Female 76 134 210
Total 160 279 439

number of males taking stats

Probability of Male Taking Stats 
total number of people

Chap 4-13
 Examples of Sample Space
The Sample Space is the collection of all possible
events
ex. All 6 faces of a dice:

ex. All 52 cards in a deck of cards

ex. All possible outcomes when having a child:
Boy or Girl

Chap 4-14
 Events in Sample Space
 Simple event
 An outcome from a sample space with one
characteristic
 ex. A red card from a deck of cards
 Complement of an event A (denoted A/)
 All outcomes that are not part of event A
 ex. All cards that are not diamonds
 Joint event
 Involves two or more characteristics simultaneously
 ex. An ace that is also red from a deck of cards

Chap 4-15
 Visualizing Events in
Sample Space
 Contingency Tables: Ace Not Total
Ace
Black 2 24 26
Red 2 24 26
Total 4 48 52

 Tree Diagrams: 2
Ace
ck Card
Bla Not an Ace 24
Full Deck
of 52 Cards Ace 2
Sample Red C
ard
Space Not an
Ace 24

Chap 4-16
Definitions
Simple vs. Joint Probability
 Simple (Marginal) Probability refers to the
probability of a simple event.
 ex. P(King)
 Joint Probability refers to the probability of
an occurrence of two or more events.
 ex. P(King and Spade)

Chap 4-17
 Definitions
Mutually Exclusive Events
 Mutually exclusive events are events that cannot occur together
(simultaneously).

 example:
 Heads and tails in a coin toss are mutually exclusive if both the events
cannot occur simultaneously.
 example:
 A = queen of diamonds; B = queen of clubs
 Events A and B are mutually exclusive if only one card is selected
 example:
 B = having a boy; G = having a girl
 Events B and G are mutually exclusive if only one child is born

Chap 4-18
Mutually exclusive

 Determine which events are mutually exclusive

and which are not when a single die is rolled.

a. Getting an odd number and getting an even

number.
b. Getting a 3 and getting an odd number.
c. Getting an odd number and getting a number less
than 4.
d. Getting a number greater than 4 and getting a
number less than 4.

Chap 4-19
 Definitions
Collectively Exhaustive Events
 Collectively exhaustive events
 One of the events must occur
 The set of events covers the entire sample space
 Example:
 Heads and tails in a coin toss are collectively exhaustive events. One of
them must occur. If heads does not occur, tails must occur. If tails does
not occur, heads must occur.
 Being male and being female are mutually exclusive and collectively
exhaustive events. No one is both (the two are mutually exclusive), and
everyone is one or the other (the two are collectively exhaustive).
 A = aces; B = black cards; C = diamonds; D = hearts

Chap 4-20
Computing Joint and
Marginal Probabilities
 The probability of a joint event, A and B:

number of outcomes satisfying A and B

P( A and B) 
total number of elementary outcomes

 Computing a marginal (or simple) probability:

P(A)  P(A and B1 )  P(A and B2 )    P(A and Bk )

 Where B1, B2, …, Bk are k mutually exclusive and

collectively exhaustive events

Chap 4-21
Example:
Joint Probability
P(Red and Ace)
number of cards that are red and ace 2
 
total number of cards 52

Ace Not Total

Ace
Black 2 24 26
Red 2 24 26
Total 4 48 52

Chap 4-22
Example:
Marginal (Simple) Probability
P(Ace)
2 2 4
 P( Ace and Re d)  P( Ace and Black )   
52 52 52

Ace Not Ace Total

Black 2 24 26
Red 2 24 26
Total 4 48 52

Chap 4-23
 Joint Probability Using a
Contingency Table
Event
Event B1 B2 Total

A1 P(A1 and B1) P(A1 and B2) P(A1)

A2 P(A2 and B1) P(A2 and B2) P(A2)

Total P(B1) P(B2) 1

Joint Probabilities Marginal (Simple) Probabilities

Chap 4-24
 Probability
Summary So Far
 Probability is the numerical measure of the 1 Certain
likelihood that an event will occur.

 The probability of any event must be

between 0 and 1, inclusively
 0 ≤ P(A) ≤ 1 for any event A.
.5
 The sum of the probabilities of all mutually
exclusive and collectively exhaustive
events is 1.
 P(A) + P(B) + P(C) = 1
 A, B, and C are mutually exclusive and
collectively exhaustive
0 Impossible

Chap 4-25
 General Addition Rule
General Addition Rule:
P(A or B) = P(A) + P(B) - P(A and B)

If A and B are mutually exclusive, then

P(A and B) = 0, so the rule can be simplified:

P(A or B) = P(A) + P(B)

for mutually exclusive events A and B

Chap 4-26
 Examples

 In a recent study, 6 people were found to have type A blood, 7

people were found to have type B blood, 3 were found to have
type AB blood, and 14 were found to have type O blood. Set
up the frequency distribution and find each of the following
probabilities.
A, A person has type O blood.
B, A person has type A or type B blood.
C, A person has neither type A nor type O blood.
D, A person does not have type AB blood.

Chap 4-27
 Examples

 A jar contains 3 red marbles, 2 blue marbles, and 1 white

marble. If a marble is selected, find the probability that it is
red or white.

 There are 3 children in a family. The probability that at least

one of them is a boy is?

 A single card is drawn from a deck. Find the probability that it

is an ace or a heart.

Chap 4-28
Examples
 On new year’s, the probability of a person driving
while intoxicated is 0.32, the probability of a person
having a driving accident is 0.09, and the probability of
a person having a driving accident while intoxicated is
0.06. what is the probability of a person driving while
intoxicated or having a driving accident?
 There are 12 boys and 8 girls in a class. ¼ of the boys
and ¼ of the girls wear glasses. What is the probability
that a student chosen at random from the class is a boy
not wearing glasses or a girl wearing glasses?

Chap 4-29
Exercise
 When three fair dice are thrown, what is the
probability that
a, the three numbers are different?
b, the product of the three numbers is even?

 Consider the following experiment involving two

boxes. Box 1 contains two white balls and one black
ball. Box 2 contains one white ball. A ball is drawn
from box 1and placed in box 2. then a ball is drawn
from box 2.what is the probability that the ball drawn
from box 2 will be white?

Chap 4-30
 General Addition Rule
Example
Find the probability of selecting a male or a statistics student
from the population described in the following table:

Taking Stats Not Taking Stats Total

Male 84 145 229

Female 76 134 210

Total 160 279 439

P(Male or Stat) = P(M) + P(S) – P(M and S)

Chap 4-31
 Conditional Probability
 A conditional probability is the probability of one event,
given that another event has occurred:

P(A and B) The conditional

P(A | B) 
P(B) probability of A given
that B has occurred

P(A and B) The conditional

P(B | A)  probability of B given
P(A) that A has occurred

Where P(A and B) = joint probability of A and B

P(A) = marginal probability of A
P(B) = marginal probability of B
Chap 4-32
 Computing
Conditional Probability
The Probability of the Event:
Event A given that Event B has occurred
P( A and B)
P(A B) =
P( B)
e.g.
P(Red Card given that it is an Ace) =

Chap 4-33
 Conditional Probability Using
Contingency Table
Conditional Event: Draw 1 Card. Note Kind & Color

Color
Type Red Black Total Revised
Sample
Ace 2 2 4 Space
Non-Ace 24 24 48
Total 26 26 52

P(Ace | Red) =

Chap 4-34
Computing Conditional
Probability
 Of the cars on a used car lot, 70% have air
conditioning (AC) and 40% have a CD
player (CD). 20% of the cars have both.
 What is the probability that a car has a CD
player, given that it has AC ?
 We want to find P(CD | AC).

Chap 4-35
Computing Conditional
Probability
CD No CD Total

AC 0.2 0.5 0.7

No 0.2 0.1 0.3

AC
Total 0.4 0.6 1.0

Chap 4-36
 Statistical Independence

 Two events are independent if and only if:

P(A | B)  P(A)

 Events A and B are independent when the

probability of one event is not affected by the
other event

Chap 4-37
Multiplication Rules for
independent events
 Multiplication rule for two events A and B:

P(A and B)  P(A | B) P(B)

 If A and B are independent, then P(A | B)  P(A)

and the multiplication rule simplifies to:

P(A and B)  P(A) P(B)

Chap 4-38
Independent events example

In a class there are 30 boys and 20 girls. 12

of the boys and 6 of the girls wear glasses.
A student is to be chosen at random. Let E
denote the event that the chosen student is
a boy, and F the event that the chosen
student wears glasses.
Find P(E) ,P(F) and P(E and F).
Find P(E|F) and P(F|E)
Are the events E and F independent?
Chap 4-39
Bayes’ Theorem

 Bayes’ Theorem is used to revise previously

calculated probabilities based on new
information.
 Developed by Thomas Bayes in the 18th
Century.
 It is an extension of conditional probability.

Chap 4-40
 Marginal Probability Using
Multiplication Rules
 Marginal probability for event A:

P(A)  P(A | B1 ) P(B1 )  P(A | B2 ) P(B2 )    P(A | Bk ) P(Bk )

 Where B1, B2, …, Bk are k mutually exclusive and

collectively exhaustive events

Chap 4-41
 Bayes’ Theorem

P(A | Bi )P(Bi )
P(Bi | A) 
P(A | B1 )P(B1 )  P(A | B 2 )P(B2 )    P(A | B k )P(Bk )

where:
Bi = ith event of k mutually exclusive and
collectively exhaustive events
A = new event that might impact P(Bi)

Chap 4-42
 Bayes’ Theorem
Example
 A drilling company has estimated a 40% chance of
striking oil for their new well.
 A detailed test has been scheduled for more
information. Historically, 60% of successful wells
have had detailed tests, and 20% of unsuccessful
wells have had detailed tests.
 Given that this well has been scheduled for a
detailed test, what is the probability that the well
will be successful?

Chap 4-43
 Bayes’ Theorem
Example
 Let S = successful well
U = unsuccessful well
 P(S) = .4 , P(U) = .6 (prior probabilities)
 Define the detailed test event as D
 Conditional probabilities:
 P(D|S) = .6 P(D|U) = .2
 Goal: To find P(S|D)

Chap 4-44
 Bayes’ Theorem
Example
Apply Bayes’ Theorem:
P(D | S)P(S)
P(S | D) 
P(D | S)P(S)  P(D | U)P(U)
(.6)(.4)

(.6)(.4)  (.2)(.6)
.24
  .667
.24  .12

So, the revised probability of success, given that this

well has been scheduled for a detailed test, is .667

Chap 4-45
Bayes’ Theorem:
Contingency Table
 In a telephone survey of 1000 adults,
respondents were asked about the expense of
a college education and the relative necessity
of some form of financial assistance. The
respondents were classified according to
whether they currently had a child in college
and whether they thought the loan burden for
most college students is too high, the right
amount, or too little.

Chap 4-46
 Too Right Too little
high amount (B3)
(B1) (B2)

Child in college 0.35 0.08 0.01

(A1)

No child in 0.25 0.2 0.11

college (A2)

A, What is the probability that the respondent

has a child in college?
B, Given that the respondent has a child in
college, what is the probability that he or she
ranks the loan burden as “too high”?

Chap 4-47
 Chapter Summary
In this chapter, we have

Discussed basic probability concepts.

Sample spaces and events, contingency tables, simple
probability, and joint probability
Examined basic probability rules.
General addition rule, addition rule for mutually
exclusive events, rule for collectively exhaustive events.
Defined conditional probability.
Statistical independence, marginal probability, decision
trees, and the multiplication rule
Discussed Bayes’ theorem.

Chap 4-48
 Supplementary Reading & Exercises:

Statistics for Managers Using Microsoft Excel

---David Levine et al (Fifth edition)

Chapter 4

Ex. 4.13; 4.19; 4.21; 4.27; 4.29

Chap 4-49