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# Definition of 'Subjective Probability' A probability derived from an individual's personal judgment about whether a specific outcome is likely to occur.

Subjective probabilities contain no formal calculations and only reflect the subject's opinions and past experience. Investopedia explains 'Subjective Probability' Subjective probabilities differ from person to person. Because the probability is subjective, it contains a high degree of personal bias. An example of subjective probability could be asking New York Yankees fans, before the baseball season starts, the chances of New York winning the world series. While there is no absolute mathematical proof behind the answer to the example, fans might still reply in actual percentage terms, such as the Yankees having a 25% chance of winning the world series. Definition of 'Conditional Probability' Probability of an event or outcome based on the occurrence of a previous event or outcome. Conditional probability is calculated by multiplying the probability of the preceding event by the updated probability of the succeeding event. Investopedia explains 'Conditional Probability' Conditional probabilities are contingent on a previous result. For example, suppose you are drawing three marbles - red, blue and green - from a bag. Each marble has an equal chance of being drawn. What is the conditional probability of drawing the red marble after already drawing the blue one? First, the probability of drawing a blue marble is about 33% because it is one possible outcome out of three. Assuming this first event occurs, there will be two marbles remaining, with each having a 50% of being drawn. So, the chance of drawing a blue marble after already drawing a red marble would be about 16.5% (33% x 50%). Definition of 'Unconditional Probability' The probability that an event will occur, not contingent on any prior or related results. An unconditional probability is the independent chance that a single outcome results from a sample of possible outcomes. To find the unconditional probability of an event, sum the outcomes of the event and divide by the total number of possible outcomes.

## Also referred to as marginal probability.

Investopedia explains 'Unconditional Probability' Conditional probability measures the chance of an occurrence ignoring any knowledge gained from previous or external events. Since this probability ignores new information, it remains constant. For example, let's examine a group of stocks. A stock can either be a winner, which earns a positive income, or a loser, which has a negative income. Out of five stocks, stock A and B are winners, while C, D and E are losers. What is the unconditional probability of choosing a winning stock? Since two outcomes out of a possible five will produce a winner, the unconditional probability is 40% ( 2 / 5 ). Definition of 'Probability Distribution' A statistical function that describes all the possible values and likelihoods that a random variable can take within a given range. This range will be between the minimum and maximum statistically possible values, but where the possible value is likely to be plotted on the probability distribution depends on a number of factors, including the distributions mean, standard deviation, skewness and kurtosis. Investopedia explains 'Probability Distribution' Academics and fund managers alike may determine a particular stock's probability distribution to determine the possible returns that the stock may yield in the future. The stock's history of returns, which can be measured on any time interval, will likely be comprised of only a fraction of the stock's returns, which will subject the analysis to sampling error. By increasing the sample size, this error can be dramatically reduced. There are many different classifications of probability distributions, including the chi square, and normal and binomial distributions. Definition of 'Sampling Error' A statistical error to which an analyst exposes a model simply because he or she is working with sample data rather than population or census data. Using sample data presents the risk that results found in an analysis do not represent the results that would be obtained from using data involving the entire population from which the sample was derived. Investopedia explains 'Sampling Error' The use of a sample relative to an entire population is often necessary for practical and/or monetary reasons. Although there are likely to be some differences between sample analysis results and population analysis results, the degree to which these can differ is not expected to be substantial. Methods of reducing sampling error include increasing the sample size and ensuring that the sample adequately represents the entire population.

Definition of 'Sampling' A process used in statistical analysis in which a predetermined number of observations will be taken from a larger population. The methodology used to sample from a larger population will depend on the type of analysis being performed, but will include simple random sampling, systematic sampling and observational sampling. The sample should be a representation of the general population. Investopedia explains 'Sampling' When taking a sample from a larger population, it is important to consider how the sample will be drawn. To get a representative sample, the sample must be drawn randomly and encompass the entire population. For example, a lottery system could be used to determine the average age of students in a University by sampling 10% of the student body, taking an equal number of students from each faculty. Definition of 'Normal Distribution' A probability distribution that plots all of its values in a symmetrical fashion and most of the results are situated around the probability's mean. Values are equally likely to plot either above or below the mean. Grouping takes place at values that are close to the mean and then tails off symmetrically away from the mean. Also known as a "Gaussian distribution" or "bell curve".

Investopedia explains 'Normal Distribution' The normal distribution is the most common type of distribution, and is often found in stock market analysis. Given enough observations within a sample size, it is reasonable to make the assumption that returns follow a normally distributed pattern, but this assumption can be disproved. As with any distribution, the distributions mean, skewness and kurtosis coefficients should be calculated in order to determine the type of distribution you may be dealing with.