MGT 205- Introduction to

Statistics

Lecture 3
Probability

İstanbul Şehir University

Gökçen Arkalı Olcay
Fall 2016-2017

Fall 2016-2017 MGT 205 1

 Contents
1. Events, Sample Spaces, and Probability
2. Unions and Intersections
3. Complementary Events
4. The Additive Rule and Mutually Exclusive
Events
5. Conditional Probability
6. The Multiplicative Rule and Independent
Events
7. Bayes’s Rule

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 Learning Objectives

1. Develop probability as a measure of

uncertainty
2. Introduce basic rules for finding
probabilities
3. Use probability as a measure of reliability
for an inference

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 Events, Sample Spaces,
and Probability

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 Experiments & Sample Spaces
1. Experiment
• Process of observation that leads to a single
outcome that cannot be predicted with certainty
2. Sample point
• The basic possible outcomes to an experiment
are called sample points.
3. Sample space (S)
• Collection of all the sample points of an
experiment.
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 Example 1- Listing the Sample
Points
Two coins are tossed and their up faces are recorded.
List all the sample points for this experiment.

1st coin
Head Tail

2nd coin
Head Head
Tail Tail

H,H H,T T,H T,T

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 Examples of Experiments and
their Sample Spaces
Experiment Sample Space
• Toss a Coin, Note Face • {Head, Tail}
• Toss 2 Coins, Note Faces • {HH, HT, TH, TT}
• Select 1 Card, Note Kind • {2♥, 2♠, ..., A♦} (52)
• Select 1 Card, Note Color • {Red, Black}
• Play a Football Game • {Win, Lose, Tie}
• Inspect a Part, Note Quality • {Defective, Good}
• Observe Gender • {Male, Female}
• Roll a • {1,2,3,4,5,6}
die
S = {1,2,3,4,5,6}: Sample space for rolling a die
S = {Head, Tail}: Sample space for tossing a coin

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 Visualizing Sample Space
1. Listing
S = {Head, Tail}

2. Venn Diagram

T
H
S
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 Probabilities of the Sample Points
What’s the probability
of getting a tail on the
toss of a single fair coin?

•If we toss a balanced coin a very large number of

times, what is probability of getting the sample point
Observe a Tail? What about Observe a Head?

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 Many Repetitions!
Total Tails
Number of Tosses
1.00

0.75

0.50

0.25

0.00
0 25 50 75 100 125
Number of Tosses

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 Assigning Probabilities to the
Sample Points
• Classical method: Assigning probabilities
based on the assumption of equally likely
outcomes
• Relative frequency method: Assigning
probabilities based on experimentation or
historical data
• Subjective method: Assign probabilities
based on judgment

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 Probability Rules for Sample
Points
Let pi represent the probability of sample point i.
1. All sample point probabilities must lie between 0
and 1 (i.e., 0 ≤ pi ≤ 1).
2. The probabilities of all sample points within a
sample space must sum to 1 (i.e.,  pi = 1).

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 Classical Method
If an experiment has n possible outcomes, this
method would assign a probability of 1/n to each
outcome.
Example
Experiment: Rolling a die
•Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a
1/6 chance of occurring

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 Relative Frequency Method
Example
Lucas Tool Rental would like to assign probabilities to the
number of car polishers it rents each day. Office records
show the following frequencies of daily rentals for the last
40 days.
Number of Number
Polishers Rented of Days
0 4
1 6
2 18
3 10
4 2
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 Relative Frequency Method
Each probability assignment is given by dividing the
frequency (number of days) by the total frequency
(total number of days).
Number of Number
Polishers Rented of Days Probability
0 4 .10
1 6 .15
2 18 .45
10 .25 4/40
3
4 2 .05
40 1.00
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 Subjective Method
• When economic conditions and a company’s
circumstances change rapidly it might be inappropriate
to assign probabilities based solely on historical data.
• We can use any data available as well as our
experience and intuition, but ultimately a probability
value should express our degree of belief that the
experimental outcome will occur.
• The best probability estimates often are obtained by
combining the estimates from the classical or relative
frequency approach with the subjective estimate.
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 Subjective Method
• Tom and Judy make an offer to purchase a house.
Two outcomes are possible:
– E1: Their offer is accepted
– E2: Their offer is rejected

• Judy: P(E1)=0.8, P(E2)=0.2 Personal nature

of the
• Tom: P(E1)=0.6, P(E2)=0.4 subjective
method

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 Events

Specific collection of sample points

1. Simple Event
• Contains only one sample point
2. Compound Event
• Contains two or more sample points

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 Venn Diagram
Experiment: Toss 2 Coins. Note Faces.
Sample Space S = {HH, HT, TH, TT}
Compound
Event: At
least one
TH Tail
Outcome HH HT

TT
S
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 Event Examples
Experiment: Toss 2 Coins. Note Faces.
Sample Space: HH, HT, TH, TT
Event Outcomes in Event
1 Head & 1 Tail HT, TH
Head on 1st Coin HH, HT
At Least 1 Head HH, HT, TH
Heads on Both HH

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 Probability of an Event
1. Numerical measure of
the likelihood that event 1 Certain
will occur
• P(Event)
• P(A)
.5
2. Lies between 0 & 1
3. is calculated by summing
the probabilities of the
sample points in A 0 Impossible

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 Steps for Calculating Probability
1. Define the experiment; describe the process used to
make an observation and the type of observation
that will be recorded
2. List the sample points
3. Assign probabilities to the sample points
4. Determine the collection of sample points contained
in the event of interest
5. Sum the sample points probabilities to get the event
probability
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 Example 2- Finding the Probability of
a Collection of Sample Points

A fair die is tossed, and the up face is observed.

If the face is even, you win $1. Otherwise, you
lose $1. What is the probability that you win?

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Example 3- Applying the Five Steps to Find
a Probability in Diversity Training
Diversity training of employees is the latest trend in U.S. Business. USA Today
reported on the primary reasons businesses give for making diversity training
part of their strategic planning process. The reasons are summarized below.
Assume that one business is selected at random from all U.S. Businesses that
use diversity training, and the primary reason is determined.
Reason Percentage a) Define the experiment and list the
Comply with personnel 7 sample points.
policies (CPP) b) Assign probabilities to the sample
Increase productivity 47 points.
(IP) c) What is the probability that the
Stay competitive (SC) 38 primary reason for diversity training is
business related, that is, related to
Social responsibility (SR) 4 competition or productivity?
d) What is the probability that social
Other (O) 4 responsibility is not a primary reason
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 Example 4- The Probability of Investing in
a Successful Venture
You have the capital to invest in two of four ventures, each of
which requires approximately the same amount of investment
capital. Unknown to you, two of the investments will eventually
fail and two will be successful. You research the four ventures
because you think that your research will increase your
probability of a successful choice over a purely random selection,
and you eventually decide on two. If you used none of the
information generated by your research and selected two
ventures at random, what is the probability that you would select
at least one successful venture?

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 Combinations Rule
A sample of n elements is to be drawn from a set of N
elements. The, the number of different samples possible
æ Nö
is denoted by ç ÷ and is equal to
èn ø
æ Nö N!
ç ÷=
è n ø n!(N - n)!
where the factorial symbol (!) means that
n! = n(n-1)(n- 2)...(3)(2)(1)

For example, 5! = 5.4.3.2.1. 0! is defined to be 1.

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 Example 5- Using the Combinations Rule

i) Refer to Example 4 where we selected two

ventures from four in which to invest. Use the
Combinations Rule to determine how many
different selections can be made.
ii) Suppose you plan to invest equal amounts of
money in each of five business ventures. If you
have 20 ventures from which to make the
selection, how many different selection of five
ventures can be selected from the 20?

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 Unions and Intersections

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 Unions & Intersections
1. Union
• Outcomes in either events A or B or both
• ‘OR’ statement
• Denoted by  symbol (i.e., A  B)
2. Intersection
• Outcomes in both events A and B
• ‘AND’ statement
• Denoted by  symbol (i.e., A  B)

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 Example 6- Unions and Intersections
in a Die-Toss Experiment
Consider the die-toss experiment. Define the
following events:
A: {Toss an even number}
B: {Toss a number less than or equal to 3}
a) Describe AÈB
b) Describe AÇB
c) Calculate P(AÈB) and P(AÇB) assuming the die
is fair.

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 Example 7- Finding Probabilities in a
Two-Way Table for a Mass Mailing
Many firms undertake direct marketing campaigns to promote their products.
The campaigns typically involve mailing information to millions of households.
The response rates are carefully monitored to determine the demographic
characteristics of respondents.
Suppose a distributor of mail-order tools is analyzing the results of a recent
mailing. The probability of response is believed to be related to income and age.
The percentages of the total number of respondents to the mailing are given by
income and age classification (See Table). This table is called a two-way table
because the responses are classified according to two variables (income and
age). Define the following events:

A: {A respondent’s income is more than $50,000}

B: {A respondent’s age is 30 or more}

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 Example 7- Finding Probabilities in a
Two-Way Table for a Mass Mailing
INCOME

AGE < $25,000 $25,000-$50,000 >$50,000

<30 years 5% 12% 10%
30-50 14% 22% 16%
>50 years 8% 10% 3%

a) Find P(A) and P(B)

b) Find P(AÈ B)
c) Find P(AÇ B)

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 Complementary Events

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 Complementary Events
Complement of Event A
• The event that A does not occur
• The event consisting of all sample points that
are not in event A
• Denote complement of A by AC

AC
A

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 Rule of Complements
The sum of the probabilities of complementary events
equals 1:

P(A) + P(AC) = 1
P(A) = 1- P(AC)

AC
A

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S •35
 Example 8- Complementary Events in
a Coin-Tossing Experiment
Consider the experiment of tossing two fair coins. Use
the complementary relationship to calculate the
probability of event

A: {Observing at least one head}

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 The Additive Rule and
Mutually Exclusive Events

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 Additive Rule of Probability
The probability of the union of two events:

P(A OR B) = P(A  B)
= P(A) + P(B) – P(A  B)

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 Example 9- Applying the Additive
Rule
Hospital records show that 12% of all patients are
admitted for surgical treatment, 16% are admitted for
obstetrics, and 2% receive both obstetrics and surgical
treatment. If a new patient is admitted to the hospital,
what is the probability that the patient will be admitted
either for surgery, obstetrics, or both? Use the additive
rule of probability to arrive at the answer.

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 Mutually Exclusive Events
Mutually Exclusive Events
•Events do not occur
simultaneously
•A B does not contain any sample points

The additive rule for mutually exclusive events:

P(A OR B) = P(A B) = P(A) + P(B)

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 Example 10
Suppose we have a sample space with five equally
likely experimental outcomes: E1, E2, E3, E4, E5. Let
A={E1, E2}
B={E3, E4}
C={E2, E3, E5}

a) Find P(A), P(B), and P(C).

b) Find P(AUB). Are A and B mutually exclusive?
c) Find Ac, Cc, P(Ac), and P(Cc).
d) Find P(BUC).

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 Example 11
A survey of magazine subscribers showed that
45.8% rented a car during the past 12 months for
business reasons, 54% rented a car for personal
reasons, and 30% rented a car for both business
and personal reasons.
a) What is the probability that a subscriber rented a car for
business or personal reasons?
b) What is the probability that a subscriber did not rent a
car for either business or personal reasons?

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