1. Define probability.

2. Describe the classical, the empirical, and the subjective

approaches to probability.
3. Understand the terms: experiment, event, outcome, permutations,
and combinations.
4. Define the terms: conditional probability and joint probability.
5. Calculate probabilities applying the rules of addition and the rules
of multiplication.
6. Use a tree diagram to organize and compute probabilities.
7. Calculate a probability using Bayes theorem.
8. Determine the number of permutations and the number of
combinations.


Chapter Five: A Survey of Probability
Concepts
GOALS
When you have completed this chapter, you will be able to:
Important: This file is a modified electronic version of Statistical Techniques in Business and Economics
The McGraw-Hill Companies, Inc., 1999
Definitions
Probability: A measure of the likelihood that an
event in the future will happen; it can only
assume a value between 0 and 1, inclusive.
Experiment: The observation of some activity
or the act of taking some measurement.
Outcome: A particular result of an experiment.
Event: A collection of one or more outcomes of
an experiment.
5-3
Approaches to Probability
Classical probability is based on the
assumption that the outcomes of an
experiment are equally likely.
Using this classical viewpoint,
Probability of an event =
Number of favorable outcomes
Total number of possible outcomes
5-4
P(A) = n(A)
n(S)
EXAMPLE 1
Consider the experiment of tossing
two coins once.
The sample space S = {HH, HT, TH,
TT}
Consider the event of one head.
Probability of one head = 2/4 = 1/2.
5-5
How many possible outcomes are there in throwing 2 dice?
Mutually Exclusive Events
Mutually Exclusive Events: The
occurrence of any one event means
that none of the others can occur at the
same time.
In EXAMPLE 1, the four possible
outcomes are mutually exclusive.
5-6
Collectively Exhaustive
Events
Collectively exhaustive: At least one of
the events must occur when an
experiment is conducted.
In EXAMPLE 1, the four possible
outcomes are collectively exhaustive.
In other words, the sum of
probabilities = 1 (0.25 + 0.25 + 0.25 +
0.25).
5-7
Relative Frequency Concept
The probability of an event happening
in the long run is determined by
observing what fraction of the time like
events happened in the past:
Probability of event =
Number of times event occured in the past
Total number of observations
5-8
EXAMPLE 2
Throughout her career Professor
Jones has awarded 186 As out of the
1200 students she has taught. What
is the probability that a student in her
section this semester will receive an
A?
By applying the relative frequency
concept, the probability of an A=
186/1200=0.155
5-9
Subjective Probability
Subjective probability: The likelihood
(probability) of a particular event
happening that is assigned by an
individual based on whatever
information is available.
Examples of subjective probability are
estimating the probability the
Washington Redskins will win the Super
Bowl next year and estimating the
probability of an earthquake in Los
Angeles this year.
5-10
Basic Rules of Probability
If events are mutually exclusive, then
the occurrence of any one of the
events precludes any of the other
events from occurring.
Rules of addition: If two events A and
B are mutually exclusive, the special
rule of addition states that the
probability of A or B occurring equals
the sum of their respective
probabilities:
P(A or B) = P(A) + P(B)
5-11
EXAMPLE 3
Cebu Pacific Air recently supplied the
following information on their
commuter flights from Davao to
Manila:
Arrival Frequency
Early 100
On Time 800
Late 75
Canceled 25
Total 1000
5-12
If A is the event that a flight arrives early,
then
P(A) = 100/1000 = 0.1
If B is the event that a flight arrives late,
then P(B) = 75/1000 = .075.
The probability that a flight is either early or
late is P(A or B) = P(A) + P(B) = 0.1 + 0.075
=0.175.
The Complement Rule
The complement rule is used to
determine the probability of an event
occurring by subtracting the
probability of the event not occurring
from 1. If P(A) is the probability of
event A and P(~A) is the complement
of A,
P(A) + P(~A) = 1
OR P(A) = 1- P(~A)
5-14
The Complement Rule continued
A Venn diagram illustrating the
complement rule would appear as:
A
~A
5-15
EXAMPLE 4
Recall EXAMPLE 3.
If C is the event that a flight arrives on
time, then P(C) = 800/1000 = 0.8
If D is the event that a flight is
canceled, then P(D) = 25/1000 =
0.025
Use the complement rule to show that
the probability of an early (A) or a late
(B) flight is 0.175
5-16
EXAMPLE 4 continued
P(A or B) = 1 - P(C or D) = 1 -[0.8 +0.025]
=0.175
C
.8
D
.025
~(C or D) = (A or B)
0.175
5-17
The General Rule of Addition
If A and B are two events that are not
mutually exclusive, then P(A or B) is
given by the following formula:
P(A or B) = P(A) + P(B) - P(A and B)
5-18
The General Rule of Addition
The Venn Diagram illustrates this rule:
A and B
A
B
5-19
EXAMPLE 5
In a sample of 500 students, 320 said
they had a stereo, 175 said they had
a TV, and 100 said they had both:
Stereo
220
Both
100
TV
75
5-20
EXAMPLE 5 continued
If a student is selected at random,
what is the probability that the student
has only a stereo, only a TV, and both
a stereo and TV?
P(S) = 220/500 = 0.44
P(T) = 75/500 = 0.15
P(S and T) = 100/500 = 0.20
5-21
EXAMPLE 5 continued
If a student is selected at random,
what is the probability that the student
has either a stereo or a TV in his or
her room?
P(S or T) = P(S) + P(T) - P(S and T)
= 0.44 +0.15 -0.20
= 0.39
5-22
Joint Probability
Joint Probability is a probability that
measures the likelihood that two or
more events will happen concurrently.
An example would be the event that a
student has both a stereo and TV in
his or her dorm room.
5-23
Special Rule of Multiplication
The special rule of multiplication
requires that two events A and B are
independent.
Two events A and B are independent if
the occurrence of one has no effect on
the probability of the occurrence of the
other.
The special rule is written:
P(A and B) = P(A)*P(B).
5-24
EXAMPLE 6
Chris owns two stocks which are
independent of each other. The
probability that stock A increases in
value next year is 0.5. The probability
that stock B will increase in value next
year is 0.7.
What is the probability that both stocks
increase in value next year?
P(A and B) = (0.5)(0.7) = 0.35
5-25
EXAMPLE 6 continued
What is the probability that at least
one of these stocks increase in value
during the next year (this implies that
either one can increase or both)?
Thus, P(at least one) = (0.5)(0.3) +
(0.5)(0.7) +
(0.7)(0.5)
= 0.85.
5-26
Conditional Probability
Conditional probability is the
probability of a particular event
occurring, given that another event
has occurred.
Note: The probability of the event A
given that the event B has occurred is
denoted by P(A|B).
5-27
General Multiplication Rule
The general rule of multiplication is
used to find the joint probability that
two events will occur, as it states: for
two events A and B, the joint
probability that both events will
happen is found by multiplying the
probability that event A will happen by
the conditional probability of B given
that A has occurred.
5-28
General Multiplication Rule
The joint probability, P(A and B) is
given by the following formula:
P(A and B) = P(A)*P(B|A)
OR
P(A and B) = P(B)*P(A|B)
5-29
EXAMPLE 7
The Dean of the College of Engineering
collected the following information about
undergraduate students in his college:
MAJOR Male Female Total
Electronics 170 110 280
Electrical 120 100 220
Civil 160 70 230
Mechanical
150 120 270
Total 600 400 1000


5-30
EXAMPLE 7 continued
If a student is selected at random,
what is the probability that the student
is a female electronics major? P(A and
F) = 110/1000.
Given that the student is a female,
what is the probability that she is an
electronics major? P(A|F) = [P(A and
F)]/[P(F)]
= [110/1000]/[400/1000]
= 0.275
5-31
Tree Diagrams
A tree diagram is very useful for
portraying conditional and joint
probabilities and is particularly useful
for analyzing business decisions
involving several stages.
EXAMPLE 8: In a bag containing 7
red chips and 5 blue chips you select
2 chips one after the other without
replacement. Construct a tree
diagram for this information.
5-32
EXAMPLE 8 continued
R1
B1
R2
B2
R2
B2
7/12
5/1
2
6/11
5/11
7/11
4/11
5-33
Bayes Theorem
Bayes Theorem is given by the
formula:
P A B
P A P B A
P A P B A P A P B A
( | )
( ) * ( | )
( ) * ( | ) ( ) * ( | )
1
1 1
1 1 2 2

5-34
EXAMPLE 9
Duff Beer Company has received several
complaints that their bottles are under-filled.
A complaint was received today but the
production manager is unable to identify
which of the two Springfield plants (A or B)
filled this bottle. What is the probability that
the under filled bottle came from plant A?
5-35
EXAMPLE 9 continued

P(A|U) =
[(.55)(.03)]/[(.55)(.03)+(.45)(.04)]
= 0.4783.

% of Total
Production
% of under-
filled bottles
A 55 3
B 45 4


5-36
P A B
P A P B A
P A P B A P A P B A
( | )
( ) * ( | )
( ) * ( | ) ( ) * ( | )
1
1 1
1 1 2 2

Some Principles of Counting

The Multiplication Formula: If there are
m ways of doing one thing and n ways
of doing another thing, there are m x n
ways of doing both.
Example 10: Dr. Delong has 10 shirts
and 8 ties. How many shirt/tie outfits
does he have? (10)(8) = 80.
5-37
Some Principles of Counting
Permutation: Any arrangement of r
objects selected from n possible
objects.


Note: The order of arrangement is
important in permutations.
n
n
n r
P
!
( )
r

!
5-38
Some Principles of Counting
Combination: The number of ways to
choose r objects from a group of n
objects without regard to order.
n r C
n
r n r

!
!( )
!
5-39
EXAMPLE 11
Coach Thompson must pick five
players among the twelve on the team
to comprise the starting lineup. How
many different groups are possible?
12C5 = (12!)/[5!(12-5)!] =792
Suppose Coach Thompson must rank
them: 12P5 = (12!)/(12-5)! = 95,040.
5-40
Assignment: Write solution in short bond paper.
1. Given 2 dice. What is the probability of getting 7 in
a throw of two dice?
2. What is the probability of getting 7 or an 11in a
throw of two dice?
3. A bag contains 5 red and 3 white balls. What is the
probability of getting 3 red balls?
4. In a toss of a die, what is the probability of getting
less than 4 and greater than 2?
5. How many permutations are there of the letters in
the word vivid?
6. How many 3-member committess can be formed
from 10 persons?
Given 2 dice. What is the
probability of getting 7 in a throw of
two dice?
A = {(3,4), (4,3), (5,2), (2,5), (1,6), (6,1)}

Then P(A) = 6/36 = 1/6
Given 2 dice. What is the
probability of getting 7 or 11 in a
throw of two dice?
A
1
= {(3,4), (4,3), (5,2), (2,5), (1,6), (6,1)}
A
2
= {(5,6), (6,5)

Then P(A) = P(A
1
)+P(A
2
)=6/36 +2/36= 8/36 = 2/9
A bag contains 5 red and 3 white
balls. What is the probability of
getting 3 red balls?
P(A) =
5
C
3
=5!/3!2!

8
C
3
8!/3!5
Then P(A) = 5/28
In a toss of a die, what is the
probability of getting less than 4 and
greater than 2?
A
1
= {x/x<4}
A
2
= {x/x>2}

Then P(A
1
and A
2
) = 1/6
n r C
n
r n r

!
!( )
How many permutations are there of
the letters in the word vivid?
Since there are 2vs, 2is and 1 d, then
P = 5! = 5 4 3 2 1 = 30
2!2!1! 2 1 2 1 1

How many 3-member committess
can be formed from 10 persons?
Any three persons regardless of order in which
their names appear, hence, this problem is one
That involves combination.
Thus, = 10! = 109 8 = 120
3!7! 3 2 1
n r C
n
r n r

!
!( )