PROBABILITY

Introduction
Probability theory is the branch of mathematics concerned with analysis of random
phenomena. As a mathematical foundation for statistics, probability theory is essential to
many human actiities that inole !uantitatie analysis of lar"e sets of data. Probability
is a way of e#pressin" $nowled"e or belief that an eent will occur or has occurred. In
mathematics the concept has been "ien an e#act meanin" in probability theory, that is
used e#tensiely in such areas of study as mathematics, statistics, finance, "amblin",
science, and philosophy to draw conclusions about the li$elihood of potential eents and
the underlyin" mechanics of comple# systems.
%arious terms in probability
RANDOM EXPERIMENT:
An experiment to whose all possible outcomes are nown but the outcome in a
particular trial cannot be pre!icte! is calle! ran!om experiment"
#AMP$E #PA%E:
The set o& all the possible !istinct outcomes o& an experiment is calle! the sample
space" An element o& the sample space is calle! a sample point" It is !enote! by S"
AN E'ENT:
An e(ent is a subset o& sample space"
TYP&' O( &%&)T'*
An elementary or simple eent*
If an eent contains one and only one element, then the
eent is called a simple or an elementary eent.
An Impossible &ent*
If an eent is an empty set, then it is called an impossible
eent.
A +ertain &ent or 'ure &ent*
If an eent is as same as the sample space S, then it is
called a certain eent.
+omplement of an &ent*
Let the eent A be the subset of the sample S.A
,istory
The mathematical theory of probability has its roots in attempts to analy-e "ames of
chance by .erolamo +ardano in the si#teenth and by Pierre de (ermat and Blaise Pascal
in the seenteenth century Initially, probability theory mainly considered !iscrete eents,
and its methods were mainly combinatorial. &entually, analytical considerations
compelled the incorporation of continuous ariables into the theory.
This culminated in modern probability theory, the foundations of which were laid by
Andrey )i$olaeich /olmo"oro. /olmo"oro combined the notion of sample space,
introduced by Richard on 0ises, and measure theory and presented his a#iom system
for modern probability theory.
Applications
Two ma1or applications of probability theory in eeryday life are in ris$ assessment and
in trade on commodity mar$ets. .oernments typically apply probabilistic methods in
enironmental re"ulation where it is called 2pathway analysis2, often measurin" well3
bein" usin" methods that are stochastic in nature, and choosin" pro1ects to underta$e
based on statistical analyses of their probable effect on the population as a whole.
A "ood e#ample is the effect of the perceied probability of any widespread 0iddle &ast
conflict on oil prices 3 which hae ripple effects in the economy as a whole. An
assessment by a commodity trader that a war is more li$ely s. less li$ely sends prices up
or down, and si"nals other traders of that opinion. Accordin"ly, the probabilities are not
assessed independently nor necessarily ery rationally. The theory of behaioral finance
emer"ed to describe the effect of such "roupthin$ on pricin", on policy, and on peace and
conflict.
It can reasonably be said that the discoery of ri"orous methods to assess and combine
probability assessments has had a profound effect on modern society. Accordin"ly, it may
be of some importance to most citi-ens to understand how odds and probability
assessments are made, and how they contribute to reputations and to decisions, especially
in a democracy.
Another si"nificant application of probability theory in eeryday life is reliability. 0any
consumer products, such as automobiles and consumer electronics, utili-e reliability
theory in the desi"n of the product in order to reduce the probability of failure. The
probability of failure may be closely associated with the product4s warranty.
* Probability theory is an important part of statistical theory that
bridges descriptive in inferential statistics. It is the science of
uncertainty or chance, or likelihood.
* Probability is mainly used in statistics and mathematics field.
* In share market field we have to use probability theory for risk
assessment and trading commodity markets.
* In the field of environment, we are using probabilistic method in
the name of pathway analysis.
* And the population measuring as a whole world is also using the
statistical and probability based.
* A commodity trader by an assessment in war is more likely vs.
less likely sends prices up or down, and signals of other traders.
Accordingly, the probabilities are not assessed independently very
rationally.
* Another main application of probability is in everyday life is
more reliability. Many consumers products, like as jewels, electronics,
and automobiles use reliability theory in their designs of the products
to reduce the probability of failure.
* probability is used in some other fields like biology,
psychology, engineering, agricultural, science, philosophy, economics,
stochastic, currency echange and medical fields.
* In agricultural field, their scientists perform analysis of
variance and how effective fertili!ers are performing in increasing
crop yields.
* "nderstanding probability is helpful for decision#making.
Specific applications
Insurance an! health ris
.amblin" is a ris$3increasin" inestment, wherein money on hand is ris$ed for a possible
lar"e return, but with the possibility of losin" it all. Purchasin" a lottery tic$et is a ery
ris$y inestment with a hi"h chance of no return and a small chance of a ery hi"h return.
In contrast, puttin" money in a ban$ at a defined rate of interest is a ris$3aerse action
that "ies a "uaranteed return of a small "ain and precludes other inestments with
possibly hi"her "ain.
Economic ris
&conomic ris$s can be manifested in lower incomes or hi"her e#penditures than
e#pected. The causes can be many, for instance, the hi$e in the price for raw materials,
the lapsin" of deadlines for construction of a new operatin" facility, disruptions in a
production process, emer"ence of a serious competitor on the mar$et, the loss of $ey
personnel, the chan"e of a political re"ime, or natural disasters.
5667
In business
0eans of assessin" ris$ ary widely between professions. Indeed, they may define these
professions8 for e#ample, a doctor mana"es medical ris$, while a ciil en"ineer mana"es
ris$ of structural failure. A professional code of ethics is usually focused on ris$
assessment and miti"ation 9by the professional on behalf of client, public, society or life
in "eneral:.
In the wor$place, incidental and inherent ris$s e#ist. Incidental ris$s are those that occur
naturally in the business but are not part of the core of the business. Inherent ris$s hae a
ne"atie effect on the operatin" profit of the business.
Ris)sensiti(e in!ustries
'ome industries mana"e ris$ in a hi"hly !uantified and numerate way. These include the
nuclear power and aircraft industries, where the possible failure of a comple# series of
en"ineered systems could result in hi"hly undesirable outcomes. The usual measure of
ris$ for a class of eents is then*
R ; probability of the eent < C
The total ris$ is then the sum of the indiidual class3ris$s.
In &inance
In finance, ris$ is the probability that an inestment4s actual return will be different than
e#pected. This includes the possibility of losin" some or all of the ori"inal inestment.
* +ramin,
(ramin"
56=7
is a fundamental problem with all forms of ris$ assessment. In particular,
because of bounded rationality 9our brains "et oerloaded, so we ta$e mental shortcuts:,
the ris$ of e#treme eents is discounted because the probability is too low to ealuate
intuitiely. As an e#ample, one of the leadin" causes of death is road accidents caused by
drun$ driin">partly because any "ien drier frames the problem by lar"ely or totally
i"norin" the ris$ of a serious or fatal accident.
(or instance, an e#tremely disturbin" eent 9an attac$ by hi1ac$in", or moral ha-ards:
may be i"nored in analysis despite the fact it has occurred and has a non-ero probability.
Or, an eent that eeryone a"rees is ineitable may be ruled out of analysis due to "reed
or an unwillin"ness to admit that it is belieed to be ineitable. These human tendencies
for error and wishful thin$in" often affect een the most ri"orous applications of the
scientific method and are a ma1or concern of the philosophy of science.
All decision3ma$in" under uncertainty must consider co"nitie bias, cultural bias, and
notational bias* )o "roup of people assessin" ris$ is immune to 2"roupthin$2*
acceptance of obiously wron" answers simply because it is socially painful to
disa"ree, where there are conflicts of interest. One effectie way to sole framin"
problems in ris$ assessment or measurement 9althou"h some ar"ue that ris$
cannot be measured, only assessed: is to raise others4 fears or personal ideals by
way of completeness.
Permutation
Permutation: Permutation means arrangement of things. The word arrangement
is used, if the order of things is considered.
Combination: Combination means selection of things. The word selection is
used, when the order of things has no importance
Addition rule: If an experiment can be performed in n wa!s, " another
experiment can be performed in m wa!s then either of the two experiments can
be performed in #m$n% wa!s. This rule can be extended to an! finite number of
experiments.
&ultiplication 'ule: If a wor( can be done in m wa!s, another wor( can be done
in n wa!s, then both of the operations can be performed in m x n wa!s. It can be
extended to an! finite number of operations.
)actorial n: The product of first n natural numbers is denoted b! n*.
++
Important note
Note ,* - .
Proof : n* -n #n/.%*
0r #n/.%* - 1n x #n/.%*23n - n* 3n
Putting n - ., we ha4e
0* - .*3.
or , - .
Permutation
5umber of permutations of n different things ta(en r at a time is gi4en b!:/
n
Pr - n*3#n/r%*
++
Note: )actorial of negati4e/number is not defined. The expression 67* has no
meaning.
#8ses of permutation are that the! are used in probabilit!, combinatorics
" in group theor!%
Applications
Permutations are used in the interleaer component of the error detection and correction
al"orithms, such as turbo codes, for e#ample ?.PP Lon" Term &olution mobile
telecommunication standard uses these ideas .'uch applications raise the !uestion of fast
"eneration of permutation satisfyin" certain desirable properties. One of the methods is
based on the permutation polynomials.

COMBINATION
+ombination* &ach of the different selections made by ta$in" some or all of a number of
ob1ects, irrespectie of their arran"ements is called a combination.
@I((&R&)+& B&TA&&) A P&R0BTATIO) A)@ A +O0BI)ATIO)
In a combination only selection is made whereas in a permutation not only a
selection is made but also an arran"ement in a definite order is considered.
In a combination, the orderin" of the selected ob1ects is immaterial
whereas in a permutation ,the orderin" is important.
Practically to find the permutations of n different items, ta$en r at time, we
first select r items from n itemsC then arran"e them. 'o usually, the number of
permutation e#ceeds the number of combinations.
&ach combination corresponds to many permutations.
DD 9.enerally, we use the word Earran"ementF or permutationsC EselectionsF for
combinations:
)otation* The number of all combinations ta$en r at a time is "enerally denoted by +9n,r:
or
n
c
r.
nc
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