CHAPTER 1: PROBABILITY

Nguyễn Hoàng Huy Tú

March 2, 2026

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 Introduction to Probability Theory

RANDOMNESS

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 Motivation

Why do we learn Probability Theory?

It helps us make better decisions in Economics.

It provides the theoretical foundation for Statistics.

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 Key Term

What do we study in Probability Theory? We will study Randomness

Events whose outcomes are uncertain.

Situations where we cannot predict the exact result in advance.

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 Idea

How can we understand Randomness?

Even in Randomness, there exists some pattern that is not purely random.

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 Example
Example: Tossing a coin.

There are two possible outcomes: Head and Tail.

However, we cannot predict which outcome will occur in a specific toss.
This phenomenon is called randomness.

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 Example

Example: Toss a coin. Construct a table with 3 columns:

The first column shows the number of trials: 10; 50; 100; 10,000; 20,000.
The second column shows the number of times a head occurs.
The third column shows the relative frequency.
Can you see the pattern?

(You can use technology such as ChatGPT, DeepSeek, Python, R, …)

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 Learning Objectives

In Chapter 1, we will answer two key questions:

What is probability?

How can we compute probabilities in different situations?

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 1.1. Basic Definitions Random Experiment and Sample Space

Random Experiment

Definition
A random experiment is a process that can lead to two or more possible outcomes,
without knowing in advance which outcome will occur.

Examples:
A coin is tossed; the outcome is either a head or a tail.
The number of persons admitted to a hospital emergency room during any hour
cannot be known in advance.
A customer enters a store and either purchases a shirt or does not.

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 1.1. Basic Definitions Random Experiment and Sample Space

Basic Outcomes and Sample Space

Definition
The possible outcomes of a random experiment are called the basic outcomes.
The set of all basic outcomes is called the sample space, denoted by S.

Example: An investor follows the Dow Jones Industrial Average. There are two basic
outcomes:
O1 : The index is higher than at yesterday’s close.
O2 : The index is not higher than at yesterday’s close.
Therefore, the sample space is
S = {O1 , O2 }.

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 1.1. Basic Definitions Random Experiment and Sample Space

Exercise

Ex 1: The left hand tosses a coin and the right hand rolls a die. Describe a basic outcome
and then construct the sample space.

Ex 2: Two letters are selected from {A, B, C} and arranged in order. Describe a basic
outcome and then construct the sample space.

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 1.1. Basic Definitions Random Experiment and Sample Space

Exercise

A royal family has two children, including Prince Harry. Consider how likely it is that
Prince Harry has a sister. Which of the following is a suitable sample space?
A. S = {B, G}
B. S = {BB, BG, GB}
C. S = {HB, BH, GH, HG}

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 1.1. Basic Definitions Events

Event

Definition
An event E is any subset of basic outcomes from the sample space. An event occurs if the
random experiment results in one of its constituent basic outcomes.
A basic outcome that belongs to E is said to satisfy the event E.
The empty set 0/ is called a null event.

Example: Roll a die. Consider the event A: “The outcome is an even number.” Then the
basic outcomes that satisfy A are 2, 4, 6. Therefore,

A = {2, 4, 6}.

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 1.1. Basic Definitions Events

Intersection of Events

Definition
Let A and B be two events in the sample space S. Their intersection, denoted by A ∩ B, is
the set of all basic outcomes in S that belong to both A and B. Hence, the intersection
A ∩ B occurs if and only if both A and B occur.

In particular, if the events A and B have no common basic outcomes, that is,

A ∩ B = 0,
/

they are called mutually exclusive.

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 1.1. Basic Definitions Events

S S

A B A B

Intersection: A ∩ B Mutually exclusive: A ∩ B = 0/

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 1.1. Basic Definitions Events

Union of Events

Definition
Let A and B be two events in the sample space S. Their union, denoted by A ∪ B, is the set
of all basic outcomes in S that belong to at least one of these two events. Hence, the
union A ∪ B occurs if and only if A or B (or both) occur.

In particular, given events E1 , E2 , . . . , En in the sample space S, if

E1 ∪ E2 ∪ · · · ∪ En = S,

then these events are said to be collectively exhaustive.

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 1.1. Basic Definitions Events

S S

A B E1 E2 E3

Union: A ∪ B Collectively exhaustive: E1 ∪ E2 ∪ E3 = S

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 1.1. Basic Definitions Events

Complement
Definition
Let A be an event in the sample space S. The set of basic outcomes that belong to S but
not to A is called the complement of A and is denoted by A.

Note that A = S \ A. Moreover, the events A and A are mutually exclusive (no basic
outcome can belong to both) and collectively exhaustive (every basic outcome belongs to
one or the other).

Complement: A = S \ A

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 1.1. Basic Definitions Events

Exercise
Ex 1: We designate four basic outcomes for the Dow Jones Industrial Average over two
consecutive days:
O1 : The average rises on both days.
O2 : The average rises on the first day but does not rise on the second day.
O3 : The average does not rise on the first day but rises on the second day.
O4 : The average does not rise on either day.
We consider two events:
A: “The average rises on the first day.”
B: “The average rises on the second day.”
Find the intersection, union, and complement of A and B.

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 1.1. Basic Definitions Events

Exercise
Ex 2: The sample space is
S = {E1 , E2 , E3 , E4 , E5 , E6 , E7 , E8 , E9 , E10 }.
Given A = {E3 , E5 , E6 , E10 } and B = {E3 , E4 , E6 , E9 }.
a. What is A ∩ B?
b. What is A ∪ B?
c. Is A ∪ B collectively exhaustive?
d. Use a Venn diagram to visualize A, B, A ∩ B, and A ∪ B.
e. Use the Venn diagram to check that A ∩ B and A ∩ B are mutually exclusive. Moreover,
A = (A ∩ B) ∪ (A ∩ B).
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 1.1. Basic Definitions Events

Exercise
Ex 3: Florin Frenti operates a small used-car lot that has three Mercedes (M1 , M2 , M3 )
and two Toyotas (T1 , T2 ). Two customers, Cezara and Anda, come to the lot, and each
selects a car. The customers do not know each other, and there is no communication
between them. Let events A and B be defined as follows:
A: The customers select at least one Toyota.
B: The customers select two cars of the same model.
a. Identify the sample space.
b. Define event A.
c. Define event B.
d. Find the intersection, union, and complement of A and B.
e. Find the intersection and union of A and B.
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 1.2. Probability Definitions

Classical Probability

Definition
Assume that all outcomes in a sample space are equally likely to occur. Then the
probability of an event A is defined by
NA
P(A) = ,
N
where
N = the total number of outcomes in the sample space.
NA = the number of outcomes that satisfy event A.

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 1.2. Probability Definitions

Example
A small computer store has three Hewlett-Packard and two Dell computers in stock.
Suppose that Susan Spencer comes to purchase two computers. Any computer on the
shelf is equally likely to be selected. What is the probability that Susan will purchase one
Hewlett-Packard and one Dell computer?

The sample space is

S = {H1 D1 , H1 D2 , H2 D1 , H2 D2 , H3 D1 , H3 D2 , H1 H2 , H1 H3 , H2 H3 , D1 D2 }.

If A is the event “one Hewlett-Packard and one Dell,” then

A = {H1 D1 , H1 D2 , H2 D1 , H2 D2 , H3 D1 , H3 D2 }.

Hence
NA 6
P(A) = = .
N 10
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 1.2. Probability Definitions

Ordering, Permutations, and Combinations

Formulas
The number of possible ways of arranging x objects in order is

x! = x(x − 1)(x − 2) · · · 2 · 1.

The number of possible ways of selecting and arranging in order x objects from n is
n!
Pnx = .
(n − x)!

The number of possible ways of selecting x objects from n is

n!
Cxn = .
x!(n − x)!

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 1.2. Probability Definitions

Example
Again consider the computer store with 3 Hewlett-Packard and 2 Dell computers.
Suppose Susan Spencer purchases two computers. Any pair is equally likely to be
chosen.

The sample space size:

N = C52 = 10.

The event A: one Hewlett-Packard and one Dell.

NA = C31 · C21 = 6.

Therefore,
NA 6
P(A) = = .
N 10

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 1.2. Probability Definitions

Exercise

Ex 1: A personnel officer has 20 candidates to fill 3 identical positions. 15 candidates are

men and 5 are women. If every combination of candidates is equally likely:

a. What is the probability that no women will be hired? 91/228

b. What is the probability that no men will be hired? 1/114
c. What is the probability that at least one woman will be hired? 137/228

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 1.2. Probability Definitions

Exercise

Ex 2: You are 1 of 7 female candidates auditioning for 2 roles in a play: the heroine and
her best friend. All candidates are equally likely to be chosen.

a. Find the probability that you will be chosen as the heroine.

b. Find the probability that you will be chosen for one of the two roles.

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 1.2. Probability Definitions

Exercise

Ex 3: Three customers enter a bank with 6 service counters. Find the probability that:
a. All 3 customers go to the same counter. 1/36
b. Each customer goes to a different counter. 5/9
c. Exactly two of the three customers go to the same counter. 5/12

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 1.2. Probability Definitions

Relative Frequency Probability

Definition
The relative frequency probability of event A is the limit of the proportion of times that A
occurs in a large number of trials n:
nA nA
P(A) = lim ≈ ,
n→∞ n n
where
nA is the number of times event A occurs.
n is the total number of trials.

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 1.2. Probability Definitions

Example

There were 54,345 households in City X, and 31,496 had incomes above $75,000. The
probability of event A, “family income greater than $75,000,” is
nA 31,496
P(A) = = ≈ 0.58 = 58%.
n 54,345

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 1.2. Probability Properties

Properties
Properties
i. For any event A in the sample space S,

0 ≤ P(A) ≤ 1.

ii. If A is an event in S and Oi denote the basic outcomes, then

P(A) = ∑ P(Oi ).
Oi ∈A

iii.
P(S) = 1, P(0)
/ = 0.

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 1.3. Probability Rules Complement Rule

Complement Rule

Rule
Let A be an event and A its complement. Then the complement rule is

P(A) = 1 − P(A).

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 1.3. Probability Rules Addition Rule

Addition Rule
Rule
Let A and B be two events. The addition rule states:

P(A ∪ B) = P(A) + P(B) − P(A ∩ B).

As a corollary:
If A and B are mutually exclusive, then
P(A ∪ B) = P(A) + P(B).

P(A ∩ B) = P(A) − P(A ∩ B).

P(A ∩ B) = P(B) − P(A ∩ B).

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 1.3. Probability Rules Addition Rule

Example
Example 1: P(A) = 0.60, P(B) = 0.45, and P(A ∩ B) = 0.30. What is P(A ∪ B)?

P(A ∪ B) = P(A) + P(B) − P(A ∩ B)

= 0.60 + 0.45 − 0.30
= 0.75

Example 2: P(A) = 0.40, P(B) = 0.45, and P(A ∪ B) = 0.85. What is P(A ∩ B)?

P(A ∩ B) = P(A) + P(B) − P(A ∪ B)

= 0.40 + 0.45 − 0.85
= 0

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 1.3. Probability Rules Addition Rule

Example

Example A survey shows that 55% of students like coffee, 45% like tea, and 25% like
both.
a. What is the probability that a student likes at least one of these beverages? 0.75
b. What is the probability that a student likes coffee but not tea? 0.3

c. What is the probability that a student dislikes both tea and coffee? 0.25

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 1.3. Probability Rules Addition Rule

Exercise

Ex 1: A cell phone company found that 65% of all customers want text messaging, 70%
want photo capability, and 40% want both.
a. What is the probability that a customer wants at least one of these? 0.95
0.25
b. What is the probability that a customer wants text messaging but not photo capability?
c. What is the probability that a customer only wants photo capability? 0.3

Ex 2: A customer randomly takes out 4 products at once to check a box of 20 products,

of which 5 are defective. If there are at most 1 defective product among the 4, the
customer buys the box. Find the probability that the box will be purchased. 728/969

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 1.3. Probability Rules Conditional Probability

Example

Example: Three suspects—Peter, Jack, and Mary (two men and one woman)—are
equally likely to be the murderer. Let A be the event “Peter is the murderer.”
Initially,
1
P(A) = .
3
After investigation, the police conclude that the murderer must be a man.

Does the probability that Peter is the murderer change?

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 1.3. Probability Rules Conditional Probability

Conditional Probability

Definition
Let A and B be two events. The conditional probability of A given B is

P(A ∩ B)
P(A|B) = , P(B) > 0.
P(B)

Similarly,
P(A ∩ B)
P(B|A) = , P(A) > 0.
P(A)

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 1.3. Probability Rules Multiplication Rule

Multiplication Rule

Rule
For two events A and B, the multiplication rule states:

P(A ∩ B) = P(A|B) P(B) = P(B|A) P(A).

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 1.3. Probability Rules Multiplication Rule

Exercise

Ex 1: A cell phone company found that 65% of customers want text messaging, 70%
want photo capability, and 40% want both.
a. If a person wants photo capability, what is the probability they also want text
messaging?
b. If a person wants text messaging, what is the probability they also want photo
capability?

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 1.3. Probability Rules Multiplication Rule

Exercise

Ex 2: A device has 2 parts. The probability that part 1 is broken is 0.1; for part 2, it is 0.2.
The probability that both are broken is 0.04. Find the probability that:
a. At least one part works well. b. Both parts work well. c. Only part 1 works well. d.
Exactly one part works well. e. Part 1 works well, given that part 2 is broken. f. Part 1
works well, given that exactly one part is broken.

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 1.3. Probability Rules Multiplication Rule

Exercise

Ex 3: A lawn-care service makes telephone solicitations. Records show: - 15% of calls

produce new customers. - Of these new customers, 80% had used a rival service the
previous year. - Of all calls, 60% are to people who had used a rival service.
Find the probability that a call to a person who had used a rival service will produce a
new customer. 0.2

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 1.3. Probability Rules Multiplication Rule

Exercise

Ex 4: An editor may use up to three strategies to enhance book sales: a. Expensive

prepublication promotion b. Expensive cover design c. Bonus scheme for sales
representatives
In the past: - All three were used together for only 2% of books. - 20% of books had an
expensive cover design; of these, 80% also had prepublication promotion.
A rival editor learns that a new book will have both promotion and cover design. Find the
probability that it will also include a bonus scheme. 0.125

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 1.3. Probability Rules Multiplication Rule

Quick Review
Exercise 1: In a campus restaurant, 35% of customers order vegetarian meals and 50%
are students. Moreover, 25% of student customers order vegetarian meals.
a. What is the probability that a randomly chosen customer is both a student and orders a
vegetarian meal? 0.6
b. If a randomly chosen customer orders a vegetarian meal, what is the probability that
the customer is a student? 5/7

Exercise 2: Let A and B be events. Prove that

P(A|B) = 1 − P(A|B).

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 1.3. Probability Rules Statistical Independence

Statistical Independence

Definition
Two events A and B are statistically independent if

P(A ∩ B) = P(A) P(B).

It follows that

P(A|B) = P(A) (P(B) > 0), P(B|A) = P(B) (P(A) > 0).

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 1.3. Probability Rules Statistical Independence

Example

Example 1 (Check by formula): In a country, 54% of bachelor’s degrees are earned by

women, 20% are in business, and 8% are by women in business.
Let A: “degree holder is a woman,” B: “degree is in business.”

P(A) = 0.54, P(B) = 0.20, P(A ∩ B) = 0.08

Since
P(A)P(B) = (0.54)(0.20) = 0.108 ̸= 0.08 = P(A ∩ B),
the events are not independent.

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 1.3. Probability Rules Statistical Independence

Example

Example 2 (By nature of experiment): Tossing a fair coin two or more times. The
probability of a head on any toss remains the same and is not influenced by previous
outcomes.

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 1.3. Probability Rules Statistical Independence

Exercise

A quality-control manager found: - 30% of work-related problems occur on Mondays. -

20% occur in the last hour of a shift. - 4% occur in the last hour of Monday’s shift.
a. What is the probability that a Monday problem does not occur in the last hour? 13/157u7

b. Are the events “problem occurs on Monday” and “problem occurs in the last hour”
independent? no

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 1.4. Bayes’ Theorem Total Probability Rule

Total Probability Rule

Rule
Let E1 , E2 , . . . , En be a system of events that are both mutually exclusive and collectively
exhaustive. Let A be an event. Then

P(A) = P(E1 )P(A|E1 ) + P(E2 )P(A|E2 ) + · · · + P(En )P(A|En ).

In particular, since A and A are mutually exclusive and collectively exhaustive, for any
event B we have
P(B) = P(A)P(B|A) + P(A)P(B|A).

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 1.4. Bayes’ Theorem Bayes’ Theorem

Bayes’ Theorem
Theorem
Let E1 , E2 , . . . , En be a system of events that are both mutually exclusive and collectively
exhaustive. Let A be an event. Then
P(A|Ei )P(Ei )
P(Ei |A) = ,
P(A)

or equivalently,

P(A|Ei )P(Ei )
P(Ei |A) = .
P(E1 )P(A|E1 ) + P(E2 )P(A|E2 ) + · · · + P(En )P(A|En )

In particular,
P(A)P(B|A) P(A)P(B|A)
P(A|B) = = .
P(B) P(A)P(B|A) + P(A)P(B|A)
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 1.4. Bayes’ Theorem Bayes’ Theorem

Solution Steps for Total Probability and Bayes’ Theorem

1 Define the events in the problem.

2 Identify the probabilities and conditional probabilities for these events.
3 Determine the system of events that is mutually exclusive and collectively
exhaustive (include complements if necessary).
4 Apply the appropriate formula.

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 1.4. Bayes’ Theorem Bayes’ Theorem

Exercise
.

Ex 1: A stock market analyst examines the performance of many corporations. Results: -

25% perform much better than average, - 25% perform much worse, - 50% perform
about the same as the average.
The analyst rated as “good buys”: - 40% of the much-better stocks, - 20% of the average
stocks, - 10% of the much-worse stocks.
a. What is the probability that a stock is rated a good buy? 0.225

b. What is the probability that a stock rated a good buy actually performed much better
than average? 4/9

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 1.4. Bayes’ Theorem Bayes’ Theorem

Exercise

Ex 2: In a showroom, 10% of people who talk to a salesperson purchase a car. To

improve sales, a free dinner with a salesperson is offered. Data: - 40% of those who
purchased cars had a free dinner, - 10% of those who did not purchase cars had a free
dinner.
a. What is the probability that a person will accept a free dinner? 0.13

b. What is the probability that a person who accepts a free dinner will purchase a car? 4/13

c. What is the probability that a person who does not accept a free dinner will purchase a
car? 2/29

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 1.4. Bayes’ Theorem Bayes’ Theorem

Exercise

Ex 3: Disease X affects 5% of the population. A diagnostic test has the following

accuracy rates: - 90% of infected people test positive. - 95% of uninfected people test
negative.
What is the probability that a person with a positive test result is actually infected?
18/37

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 1.4. Bayes’ Theorem Bayes’ Theorem

Exercise

Ex 4: The Watts New Lightbulb Corporation ships large consignments of bulbs. When
production is functioning correctly (90% of the time), 10% of bulbs are defective. When
malfunctioning (10% of the time), 50% are defective.
a. If a defective bulb is found, what is the probability that production is functioning
correctly? 9/14
b. If a non-defective bulb is found, what is the probability that production is functioning
correctly? 81/86

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 1.4. Bayes’ Theorem Bayes’ Theorem

Exercise

Ex 5: There are 3 identical boxes: - Box 1: 10 products, 4 defective. - Box 2: 15

products, 5 defective. - Box 3: 20 products, 5 defective.
A box is chosen at random, and then one product is selected at random. What is the
probability of selecting a defective product? 86/315

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