CONDITIONAL PROBABILITY & INDEPENDENCE

Applied Sta+s+cs and Compu+ng Lab Indian School of Business

Applied Sta+s+cs and Compu+ng Lab

Learning Goals
Condi6onal Probabili6es The Mul6plica6on Rule Independence of Events

Applied Sta+s+cs and Compu+ng Lab

An Example
10 candidates, go for an interview at rm X for the same job. Here is some informa6on on the candidates: Girls Boys A B C D E F G H I J Engineers Our Sample Space ( for the experiment that 10 candidates go for an interview and one gets selected) is: S = { A, B, C , D, E , F , G, H , I , J } The probabili6es of each candidate geTng the job , p are p 2 ,......... .. p respec6vely 1 10
Applied Sta+s+cs and Compu+ng Lab
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An Example (Contd)
Let us dene few event: B: A boy is selected G: A girl is selected E: An engineer is selected B={ A, B, C, D} and P(B) = p1 + p2 + p3 + p4 G={ E, F, G, H, I, J} and P(G) = p5 + p6 + p7 + p8 + p9 + p10 E={ C, D, E, F} and P(E) = p3 + p4 + p5 + p6 The results are expected within a week of the interview. For, some reason the rm hasnt go]en back to any of the candidates with the results. So, the anxious candidates speak with the HR manager. The manager assures them that one of them has been selected but she is not sure who it is. All she knows is that the candidate is an engineer. Now, given this informa6on what is the probability that a girl gets the job? 4

Applied Sta+s+cs and Compu+ng Lab

An Example (Contd)
We now have a new and smaller sample space, S1 = {C, D, E, F} Intui6vely we know that the respec6ve probabili6es in S1 here are propor6onal to their previous probabili6es Let us say the probabili6es are p , p , p , p such that ' ' p p p We also know that 1 1 1 = cp1
' 1 ' 2 ' 3 ' 4

i =1

p = 1 cp i = 1 c pi = 1 c =
i =1 i =1

' i

4 4

p
i =1

p3 p4 ' p = ' p2 = & p 3 + p 4 + p5 + p 6 p 3 + p 4 + p5 + p 6

' 1

p5 p6 ' p = ' p4 = p 3 + p 4 + p5 + p 6 p 3 + p 4 + p5 + p 6
' 3

Applied Sta+s+cs and Compu+ng Lab

An Example (Contd)
We want to obtain the probability that a girl will be selected given that an engineer has got the job, i.e. P( G given E has occurred) This is denoted by P(G|E) and read as Probability of G given E, we call such a probability a Condi+onal Probability Now, there are only two girls in the G and E category, the probability that one of them is selected is:

p5 p6 p5 + p 6 P (G | E ) = + = p 3 + p 4 + p 5 + p 6 p 3 + p 4 + p5 + p 6 p 3 + p 4 + p5 + p 6
Look at the event GE = {E,F} : P(G E ) = p5 + p6 Similarly, the event E={ C, D, E, F} : P( E ) = p3 + p4 + p5 + p6 So we have: P (G E ) P (G | E ) = P( E )
Applied Sta+s+cs and Compu+ng Lab
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Condi6onal Probability: Deni6on

Let E and F be two events, then: P( E F ) P ( E | F ) = , P( F ) > 0 P( F ) Another example: A farmer approaches a Rural Bank for a loan. From past experience the bank es6mates that the probability that this farmer will default on the loan is around 4%. The bank tells the farmer that they would get back to him in a week with a loan proposal. In the week that follows, a new research claims that farmers are more likely to default on loans when the economy is low than when it is high. With this new informa6on, the bank is no longer able to assume that the probability that the farmer would default on the loan is s6ll 4% Let D be the event that the farmer defaults L is the event that economy is low The research showed that 3% of the farmers that were scheduled to repay loans during the last economic low defaulted The probability that the economy will be low at any given 6me point is 7% So we have:

P( D | L ) =

P( D L ) 0.03 = 0.43 P( L ) 0.07

Which means that the probability that the farmer would default in a low economy is a whooping 43% ! Sta+s+cs and Compu+ng Lab Applied
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The Mul6plica6on Rule

Let us look at: Similarly, P( E F ) = P( F | E ) P( E ) Example:
P(E F ) P(F ) P( E F ) = P( E | F ) P( F ) ( MultiplicationRule) P(E | F ) =

Applied Sta+s+cs and Compu+ng Lab

8 Example from:Aczel A., Sounderpandian J. Complete business sta6s6cs

Independence
Another research of farmer and loan defaults, showed that the probability of default doesn't actually change as the economy changes That is P(D|L) is not dierent fro P(D), i.e. Economic situa6on doesnt have any eect on the default rates of farmers We then say that the event that the farmer defaults is independent from the event that the economy is low. A formal deni6on: Two events E & F are said to be independent if:

P(E | F ) = P(E ) P(E F ) = P(E ) P(F )

For several events: E1, E2 ................, En

P( Ei ) = P( Ei )
i=1 i=1

Applied Sta+s+cs and Compu+ng Lab

Independent Events vs. Disjoint Events

These are dierent concepts! To check for independence of events E and F we check if : P(E|F) = P(E) To check if they are Disjoint or Mutually Exclusive we check: P(EF) = 0 Example: Consider a deck of cards C: A card is a Club R: A card is Red Consider P(R|C) = P(R) 0 Not Independent! Consider P(CR) = 0 .. Disjoint!

Applied Sta+s+cs and Compu+ng Lab

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Thank you

Applied Sta+s+cs and Compu+ng Lab