The Basics of Probability

Probability
• The chance that a particular event will occur.
• The probability value will be in the range 0 to 1.
Experiment
• A process that produces a single outcome whose result cannot be predicted with certainty.
Sample Space
• The collection of all outcomes that can result from a selection, decision, or experiment.

Examples

Experiment: Starting a new business.

Probability:
Chance of a new business succeeding
P(Succeed) = 0.25

Sample Space: (Business Succeeds, Business Fails)

Experiment: Employee is hired and begins work.

Probability:
Chance of a new hire quitting within 1st month on the job
P(Quit) = 0.10

Sample Space: (Employee quits, Employ does not quit)

Experiment: Drill an oil well.

Probability:
Likelihood of an oil well containing oil
P(Oil) = 0.60

Sample Space: (Strike Oil, Do Not Strike Oil)

Experiment: Produce products for one hour and inspect for defects.

Probability:
Chance of producing 3 or more defects in one hour
P(x > 3) = 0.20

Sample Space: (x = 0, 1, 2, 3, or more)

H1: Type 1 Hamburger
H2: Type 2 Hamburger
H3: Type 3 Hamburger

The sample space (SS):

SS = {H1H1,H1H2,H1H3,H2H1,H2H2,H2H3,H3H1,H3H2,H3H3}

Y: response is yes
N: response is No

The sample space (SS):

SS = {YYY,YYN,YNY,YNN,NYY,NYN,NNY,NNN}

Types of Events

Mutually Exclusive Events

Two events are mutually exclusive if the occurrence of one event precludes the occurrence of the other event.
(𝐴 ∩ 𝐵 = ∅ 𝑜𝑟 𝑃(𝐴 ∩ 𝐵) = 0
Independent Events
Two events are independent if the occurrence of one event in no way influences the probability of the occurrence
of the other event. 𝑃(𝐴 ∩ 𝐵) = 𝑃(𝐴)𝑃(𝐵)
Dependent Events
Two events are dependent if the occurrence of one event impacts the probability of the other event occurring.
𝑃(𝐴 ∩ 𝐵) ≠ 𝑃(𝐴)𝑃(𝐵)
Examples:
Mutually Exclusive Events: In the experiment of rolling a die once.
Event A – The number appears on the face is odd.
A = {1,3,5}

Event B – The number appears on the face is even.

B = {2,4,6}

If Event A occurs, then Event B can not also occur (𝐴 ∩ 𝐵 = ∅), A and B are mutually exclusive events.

Independent Events
Event A – Business is started by a person in North Carolina
Event B – Business is started by a person in Oregon

Whether or not the business in Oregon (Event B) is successful is in no way influenced by whether the North Carolina
business (Event A) is successful.

Dependent Events
A Company has 10 employees – 3 male and 7 female. Two employees are selected at random to attend a
conference.

Event A – First person selected is female.

Event B – Second person selected is male.

Events A and B are dependent because the chance of a male selected second depends on whether a male or female
is selected first.

Assigning Probability

P(Ei) = Probability of event Ei occurring.

1. Classical Probability Assessment

The method is based on the ratio of the number of ways an outcome or event of interest can occur to the
number of ways any outcome or event can occur when the individual outcomes are equally likely.

Example: Company with 10 employees – 7 female and 3 male. Assess the probability of a female employee being
selected at random to travel to a convention.

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑒𝑚𝑎𝑙𝑒𝑠 7
𝑃(𝑓𝑒𝑚𝑎𝑙𝑒) = = = 0.7
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 10

Example: New car dealer has 5 GM, 6 Ford, 3 Toyota, 8 Nissan, and 2 BMW cars. If one car is selected to be placed
on sale, what is the probability that it is a Nissan?

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑁𝑖𝑠𝑠𝑎𝑛 𝑐𝑎𝑟𝑠 8 8

𝑃(𝑎 𝑁𝑖𝑠𝑠𝑎𝑛) = = = = 0.33
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑎𝑟𝑠 5 + 6 + 3 + 8 + 2 24
2. Relative Frequency Probability Assessment

The method defines probability as the number of times an event occurs divided by the total number of times
an experiment is performed in a large number of trials.

Example: A local pub has tracked beer purchases. Of the past 500 purchases, 120 have been for “light” beers. What
is the probability that the next beer ordered will be “light”?

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑙𝑖𝑔ℎ𝑡 𝑏𝑒𝑒𝑟𝑠 𝑜𝑐𝑐𝑢𝑟𝑠 120

𝑃(𝑙𝑖𝑔ℎ𝑡) = = = 0.24
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 500

Example: A basketball player has taken 90 free throws during games and made 68. What is the probability that the next
free throw will be made?

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑟𝑒𝑒 𝑡ℎ𝑟𝑜𝑤𝑠 𝑚𝑎𝑑𝑒 68

𝑃(𝑓𝑟𝑒𝑒 𝑡ℎ𝑟𝑜𝑤 𝑤𝑖𝑙𝑙 𝑏𝑒 𝑚𝑎𝑑𝑒) = = = 0.76
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑟𝑒𝑒 𝑡ℎ𝑟𝑜𝑤𝑠 90

3. Subjective Probability Assessment

• The method defines probability of an event as reflecting a decision maker’s state of mind regarding the chances
that the particular event will occur.
• Represents a person’s belief that an event will occur.

Example: A manager is asked to assess the chances that a shipment from a new supplier will arrive on time.
Taking into account such factors as:
• Supplier’s reputation
• Weather conditions
• Size of the order
• Etc.

She might assess the probability as: P(on time) = 0.75.

No, the events are independent since drawing a king from the deck will not affected by the output of the
coin toss.
Example: Roll a 6 sided die. What is the probability that the value will be an odd number?

Example: Flip a coin twice. What is the probability that we will get:

A. Exactly one head

B. At least one tail.
C. No heads.
D. Two tails.

Example: A sales manager has placed three products on display in a store. The following shows the probabilities
associated with the number of these products that sell in the first 30 minutes on display. What is the probability that 2
or more products will sell?

Example: Real Estate Investment

x = Return P(x)
-$100,000 0.10
$0 0.20
+$20,000 0.50
+$500,000 0.20
What is the probability of making at least $20,000?

The complement of an event E is the collection of all possible outcomes not contained in event E.

Example: An inspector checks 7 products to see if they are defective.

The possible number of defects and their probabilities are given. What is
the probability of 1 or more defects?
Example: Of the cars on a used car lot, 70% have air conditioning (AC) and 40% have a CD player. 20% of the cars have both.
(a) What is the probability that a car has a CD player given that it has air conditioning?
(b) Are the events of having air conditioning and having a CD player statistically independent? Why?

Example: A company has 500 employs. Of these 300 hold college degrees. Suppose two employees are to be randomly selected
to receive a front row parking space. What is the probability that the second person selected has a college degree, given that
the first person selected also has a college degree?

Example: The time an employee is with the company with the employee’s gender is given in the table below. A
person was selected from this company.

A. What is the probabilty that the selected person is male and spent 1-3 years in the company.
B. What is the probabilty that the selected person is male given that he spent 1-3 years in the company.
C. What is the probabilty that the selected person spent over 20 years given that she was a female.
D. Check for Independence of the time an employee is with the company with the employee gender.
If we do not know the joint relative frequencies, the multiplication rule for two events can be used.

Example: A small boutique hotel has 20 rooms. Five of the rooms are suites with a living room and bedroom while
the other 15 are traditional hotel rooms. What is the probability that first two rooms booked during the week of
October 13-19 are both suites if the bookings are assumed to be random?

Event: S = Suite T = Traditional

5 4
𝑃(𝑆 and 𝑆 ) = 𝑃(𝑆 ) 𝑃 𝑆 𝑆 = = 0.053
20 19
Example: Vehicles use one of two types of fuel; gasoline or diesel. The types of vehicles are; trucks, cars, and SUVs.
Assume that the following events and probabilities are given.

E1=Gasoline 𝑃(𝐸 ) = 0.80

E2=Diesel 𝑃(𝐸 ) = 0.20
E3=Truck
E4=Car 𝑃 𝐸 𝐸 = 0.20
E5=SUV 𝑃 𝐸 𝐸 = 0.50
𝑃 𝐸 𝐸 = 0.30
𝑃 𝐸 𝐸 = 0.60
𝑃 𝐸 𝐸 = 0.10
Determine the probabilities for each of the following:

𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.8(0.2) = 0.16

𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.8(0.5) = 0.40
𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.8(0.3) = 0.24
𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.2(0.6) = 0.12
𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.2(0.1) = 0.02
𝑃(𝐸 and 𝐸 ) = 𝑃(𝐸 ) 𝑃(𝐸 |𝐸 ) = 0.2(0.3) = 0.06
The joint probability of two independent events is simply the product of the probabilities of the two events.

Example: A small mid-western city has three major airlines that serve the airport. Suppose that 60% of the
passengers fly United Airlines, 30% fly Delta, and 10% fly Southwest. Further, suppose that 70% of the fliers are
flying for pleasure and 30% fly for business. Assuming type of trip and the airline used are independent, what is
the probability that a flier uses United and is a business traveler?