Introduc)on

to Probability
Module 2-1

Learning Objec)ves
Roles of probability in decision making
Develop probability as a measure of uncertainty
oAssign probabili)es
Basic rules of probabili)es

What is probability?
Probability provides a numerical measure of the likelihood of
an event occurring
Increasing likelihood
0
0%

0.5
50%

1
100%

Lies between 0 and 1 (inclusive)

In an experiment, the sum of the probabili)es for all possible
outcomes is 1.
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Why/when do we use probability?

A measure of likelihood/uncertainty that can be used to
improve decisions
Examples of decisions
oChoose inventory levels for a product that has
random demand
oDetermine how much to charge for dierent types of
insurance policies
oPerform a cost-benet analysis of dierent
alterna)ves
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Probability Deni)ons:
What is an experiment, a sample point, and
sample space?
Experiment

Possible outcomes (sample points)

Toss a coin
Inspec)on a part
Conduct a sales call
Roll a die
Play a football game

Head, tail
Defec)ve, non-defec)ve
Purchase, no purchase
1, 2, 3, 4, 5, 6
Win, lose, )e

Sample Space: the collection of all possible outcomes

Probability Deni)ons (Con)nued):

What is an Event?
An event is a collec)on of sample points, i.e., a subset of the
sample space.
Example:
o Experiment: Roll a fair 6-sided die
o Sample space: S = { 1, 2, 3, 4, 5, 6}
o Let Event A = Ge`ng an even number when rolling
a die
o A = {2, 4, 6}
o P(A) = 3/6 = 0.5
Note: The probability of any event is equal to

Probability of event A

the sum of the probabili)es of the sample

points in the event.

Assigning Probabili)es: How?

Probability rules for sample points
1) individual probabili)es must lie between 0 and 1 (inclusive)
2) the sum of probabili)es of all sample points in a sample space must equal 1

1. Classical Method
o Assigning probabili)es based on the assump)on of equally likely outcomes

2. Rela)ve Frequency Method

o Assigning probabili)es based on historical data

3. Subjec)ve Method
o Assigning probabili)es based on judgment

Classical Method
If an experiment has n possible outcomes, the classical method
would assign a probability of 1/n to each outcome.

o Experiment: rolling a die
o Sample Space: S = {1, 2, 3, 4, 5, 6}
o Probabili)es:
Each sample point has a 1/6 chance of occurring

Rela)ve Frequency Method

Rela)ve frequency of an event =

# of sample points in the event

Total # of sample points in the historical data

Lucas Tool Rental would like to assign probabili)es

to the number of car polishers it rents each day.
Oce records show the following frequencies of daily
rentals for the last 40 days.
Number of
polishers Rented

Number of days

Probability

5/40 = 0.125

15

15/40 = 0.375

20

20/40 = 0.5

40

Total

Subjec)ve Method
Express our degree of belief that the experimental outcome will
occur

Tim and Judy just made an oer to purchase a house.
Two outcomes are possible:



E1 = their oer is accepted

E2 = their oer is rejected

Judy believes the probability their oer will be accepted is 0.8

Judy would set P(E1) = 0.8 and P(E2) = 0.2.
Tim, however, believes the probability that their oer will be
accepted is 0.6
Tim would set P(E1) = 0.6 and P(E2) = 0.4.

What if?
Can you u)lize the deni)ons/concepts for probability,
experiment, outcome, and event?

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Example
Experiment: Toss a fair coin twice and note faces.
What is the sample space for this experiment?


What is the probability of ge`ng two tails?

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Example
In an opaque bag, there are
5 green M&Ms, 2 red M&Ms, and 3 blue M&Ms.

If you randomly pick 1 M&M from the bag, what is

the probability that
a) you get a green M&M?
b) you get a blue M&M?
c) you get a red M&M?

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Example
The table below provides probabili)es for the number of
calls received by the Marke)ng main oce during lunch
)me (12:00 1:00 PM) on a given workday. The oce
receives at most 4 calls during lunch )me per day.
# of calls

0.4
0.2
Probability 0.1
1. P(3 calls) = ?
2. P(At least 1 call during lunch )me) = ?

4
0.1

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Take Aways
1) Probability is always between 0 and 1, inclusive.
2) The Sum of the probabili)es of all sample points in an
experiment is 1.
3) Can you explain how to assign probabili)es?
4) What do the following terms mean?
Experiment, outcome (sample point), sample space, event

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