INTRODUCTORY BUSINESS STATISTICS
PROBABILITY TOPICS
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LEARNING OUTCOMES
By the end of this class, the student should be able
to:
• Understand the terminology of probability.
• Understand Basic Laws of Probability.
• Determine mutually exclusive and independent.
• Construct and interpret Contingency Tables.
• Understand discrete probability distribution
functions, in general.
• Recognize the Binominal distribution and Poisson
distribution and apply them appropriately.
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PART 1: TERMINOLOGY
Chapter 3.1 & 3.5
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TERMINOLOGY
• Experiment is a planned activity carried out
under controlled conditions.
• Outcome is a particular result of an
experiment.
• Sample Space is the set of all possible
outcomes of an experiment.
• Event is a subset of outcomes from the sample
space.
• Probability of any outcome is the long-term
relative frequency of that outcome.
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BASIC LAWS OF PROBABILITY
1. Probabilities are between zero and one,
inclusive.
2. P(A) = 0 means the event A never happen.
3. P(A) = 1 means the event A always happens.
4. The sum of the probabilities of all events in a
sample space must be equal to 1.
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TERMINOLOGY
• " ∪ " Event: The Union
An outcome is in the event A ∪ B if the outcome
is in A or is in B or is in both A and B.
For example, if we have the following:
A = {1, 2, 3, 4, 5, 6}
B = {6, 7, 8, 9}
Then, A ∪ B = {1, 2, 3, 4, 5, 6, 7, 8, 9}.
Notice that 6 is NOT listed twice.
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TERMINOLOGY
• Sometimes, we will use a Venn diagram to
represent the outcomes.
S
• A Venn diagram is a picture that represents the
outcomes of an experiment.
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TERMINOLOGY
• " ∩ " Event: The Intersection
An outcome is in the event A ∩ B if the outcome is
in both A and B at the same time.
For example, if we have the following:
A = {1, 2, 3, 4, 5, 6}
B = {6, 7, 8, 9}
Then A ∩ B = {6}
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TERMINOLOGY
• A′ (read "A prime")
The complement of event A is denoted A′. It
consists of all outcomes that are NOT in A. Notice
that P(A) + P(A′) = 1.
• P(A | B)
The conditional probability of A given B is written
P(A | B). It is the probability that event A will occur
given that the event B has already occurred.
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EXAMPLE
• The sample space S is the whole numbers
starting at one and less than 20.
Question
• Let event A = the even numbers and event B =
numbers greater than 13.
a. S = ________
b. A = ________, P(A) = ________
c. B = ________, P(B) = ________
d. A ∪ B = ________, P (A ∪ B) = ________
e. A ∩ B = ________, P (A ∩ B) = ________
f. P(A | B) = ________, P(B | A) = ________
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EXAMPLE
Solution
a. S = {1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14,
15, 16, 17, 18, 19}
b. A = {2, 4, 6, 8, 10, 12, 14, 16, 18}, P(A) =
c. B = {14, 15, 16, 17, 18, 19}, P(B) =
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EXAMPLE
Solution
d. A ∪ B = {2, 4, 6, 8, 10, 12, 14, 15, 16, 17, 18,
19}, P (A ∪ B) =
e. A ∩ B = {14,16,18}, P (A ∩ B) =
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EXAMPLE
Solution
f. P(A | B) =
P(B | A) =
As you can see, P(A | B) and P(B | A) are not
equal.
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PART 2: INDEPENDENT AND MUTUALLY EXCLUSIVE EVENTS
Chapter 3.2
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INDEPENDENT EVENTS
• Two events A and B are independent if the
knowledge that one occurred does not affect
the chance the other occurs.
• If two events are NOT independent, then we
say that they are dependent.
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INDEPENDENT EVENTS
• For example, the outcomes of two roles of a fair
die are independent events.
• The outcome of the first roll does not change
the probability for the outcome of the second
roll.
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MUTUALLY EXCLUSIVE EVENTS
• A and B are mutually exclusive events if they
cannot occur at the same time.
• If A occurred, then B cannot occur and vise-a-
versa. This means that A and B do not share
any outcomes and P(A∩B)=0.
• Note: Independent and mutually exclusive do
not mean the same thing.
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PART 3: CONTINGENCY TABLES
Chapter 3.4
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CONTINGENCY TABLES
• A contingency table provides a way of
portraying data that can facilitate calculating
probabilities.
• The table helps in determining conditional
probabilities quite easily.
• The table displays sample values in relation to
two different variables that may be dependent
or contingent on one another.
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EXAMPLE
• Suppose a study of speeding violations and
drivers who use cell phones produced the
following fictional data:
Driver had a Driver had no
Total
violation violation
Driver is a cell
25 280 305
phone user
Driver is not a
45 405 450
cell phone user
Total 70 685 755
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EXAMPLE
Question
• Calculate the following probabilities using the
table.
a. Find P(Driver is a cell phone user).
b. Find P(Driver had no violation ∩ is a cell phone user).
c. Find P(Driver is a cell phone user ∪ driver had no
violation).
d. Find P(Driver is a cell phone user | driver had a
violation).
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EXAMPLE
Solution
a. Find P(Driver is a cell phone user).
b. Find P(Driver had no violation ∩ is a cell phone user).
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EXAMPLE
Solution
c. Find P(Driver is a cell phone user ∪ driver had no
violation).
d. Find P(Driver is a cell phone user | driver had a
violation).
Note: The sample space is reduced to the number of
drivers who had a violation.
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EXAMPLE
• The following table describes the distribution of
a random sample S of 100 individuals,
organized by gender and whether they are
right- or left-handed.
Right- Left-
handed handed
Males 43 9
Females 44 4
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EXAMPLE
Question
• Let’s denote the events M = the subject is male,
F = the subject is female, R = the subject is
right-handed, L = the subject is left-handed.
a. P (M ∩ R) = ?
b. P (F | L) = ?
c. P(M) = ?
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EXAMPLE
Solution
a. P (M ∩ R) = 43 / 100 = 0.43
b. P (F | L) = 4 / (9 + 4) = 0.3077
c. P(M) = (43 + 9) / 100 = 0.52
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PART 4: DISCRETE RANDOM
VARIABLES
Chapter 4: Introduction
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DISCRETE RANDOM VARIABLES
• Discrete data are data that you can count, that
is, the random variable can only take on whole
number values.
• A random variable describes the outcomes of
a statistical experiment in words.
• The values of a random variable can vary with
each repetition of an experiment, often called a
trial.
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RANDOM VARIABLE NOTATION
• The upper-case letter X denotes a random
variable.
• Lower-case letters like x or y denote the value
of a random variable.
• If X is a random variable, then X is written in
words, and x is given as a number.
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RANDOM VARIABLE NOTATION
For example:
• X = the number of heads you get when you
toss three fair coins.
• Sample space is TTT; THH; HTH; HHT; HTT;
THT; TTH; HHH.
• x = 0, 1, 2, 3.
Here, X is in words and x is a number
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PROBABILITY DENSITY FUNCTIONS (PDF)
• Probability Distribution Function (PDF) is a
mathematical description of a discrete random
variable (RV).
• It is given either in the form of an equation
(formula) or in the form of a table.
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PROBABILITY DENSITY FUNCTIONS (PDF)
• A probability density function has two
characteristics:
1. Each probability is between zero and one,
inclusive.
2. The sum of the probabilities is one.
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COUNTING FORMULAS
• To repeat, the probability of event A , P(A), is
simply the number of ways the experiment will
result in A, relative to the total number of
possible outcomes of the experiment.
• As an equation this is:
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COUNTING FORMULAS
Why do we need this formula?
• When we looked at the sample
space for flipping 2 coins, we
could easily write the full sample
space.
• As we have larger numbers of
items in the sample space, such
as a full deck of 52 cards, the
ability to write out the sample
space becomes impossible.
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EXAMPLE
• A box contains 30 red balls and 20 blue balls.
Ten balls are picked at random.
Question
1. What is the probability of getting 5 blue balls?
2. What is the probability of getting more than 5
blue balls?
3. What is the probability of getting less than 4
blue balls?
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EXAMPLE
Solution
1. What is the probability of getting 5 blue balls?
• P(x = 5)
2. What is the probability of getting more than 5
blue balls?
• P(x > 5)
3. What is the probability of getting less than 4
blue balls?
• P(x < 4)
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EXAMPLE
• If we have following data from an experiment:
x P(x)
0 0.12
1 0.18
2 0.30
3 0.15
4 ?
5 0.10
6 0.05
Question
1. P(x = 4) = ?
2. P(x ≥ 5) = ?
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EXAMPLE
Solution
1. P(x = 4) = 1 – [P(x = 0) + P(x = 1) + P(x = 2) +
P(x = 3) + P(x = 5) + P(x = 6)] = 1 – [0.12 +
0.18 + 0.30 + 0.15 + 0.10 + 0.05] = 0.10
2. P(x ≥ 5) = P(x = 5) + P(x = 6) = 0.10 + 0.05 =
0.15
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PART 5: BINOMIAL DISTRIBUTION
Chapter 4.2
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BINOMIAL DISTRIBUTION
• Flipping a coin is a binomial process because
the probability of getting heads or tails does
not depend upon what has happened in
PREVIOUS flips.
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BINOMIAL DISTRIBUTION
• The binomial distribution will compute
probabilities for any binomial process.
• A binomial process is any case where there are
only two possible outcomes in any one trial,
called successes and failures.
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BINOMIAL DISTRIBUTION
Characteristics
1. There are only two possible outcomes for
each trial. The letter p denotes the probability
of a success on any one trial, and q denotes
the probability of a failure. Here, p + q = 1.
2. There are a fixed number of trials, n.
3. All trials are independent and are repeated
using identical conditions.
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BINOMIAL DISTRIBUTION
• b(x) is the probability of X successes in n trials
when the probability of a success in ANY ONE
TRIAL is p.
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EXAMPLE
• A fair coin is flipped 15 times. Each flip is
independent. Let X = the number of heads in 15
flips of the fair coin. X takes on the values 0, 1,
2, 3, ..., 15.
Question
• What is the probability of getting more than ten
heads? State the probability question
mathematically.
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EXAMPLE
Solution
• P(x > 10)
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EXAMPLE
• Sixty-five percent of people pass the state
driver’s exam on the first try. A group of 50
individuals who have taken the driver’s exam is
randomly selected.
Question
• Why this is a binomial problem?
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EXAMPLE
Solution
• There are only two possible outcomes for the
exam: pass or fail.
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PART 6: POISSON DISTRIBUTION
Chapter 4.4
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POISSON DISTRIBUTION
• Poisson distribution, or waiting time distribution
is used to determine how many checkout clerks
are needed to keep the waiting time in line to
specified levels, how may telephone lines are
needed to keep the system from overloading,
and many other practical applications.
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POISSON DISTRIBUTION
• Poisson Probability Distribution is a discrete
random variable that counts the number of
times a certain event will occur in a specific
interval.
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POISSON DISTRIBUTION
Characteristics
1. The probability that the event occurs in a
given interval is the same for all intervals.
2. The events occur with a known mean and
independently of the time since the last event.
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POISSON DISTRIBUTION
• P(X) is the probability of X successes,
• μ is the expected number of successes based
upon historical data,
• e ≈ 2.718282…… (mathematical constant)
• X is the number of successes per unit, usually
per unit of time.
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EXAMPLE
• You drive your Mercedes-AMG to buy a cup of
Starbucks from the drive-through window. As a
student who get the A in BUSI 2342, you are
interested in your waiting time.
Question
• What’s the probability that a drive-through
window will have three customers in one
minute? Recall that the window usually has two
customers per minute. P(X=3)
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EXAMPLE
Solution
• Let X = the number of coming in one minute.
•We want to calculate the probability of
having 3 customers in one minute, so x = 3.
• The window usually has two customers per
minute, thus μ = 2.
• We can use either the formula or Excel to
solve this question.
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EXAMPLE
Using formula to solve this question.
• Note: The factorial of n or n! = n x (n - 1) x (n -
2) x … x 1
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EXAMPLE
Using Excel to solve this question
(Recommend)
• Download “CH04-Poisson [Link]”
from Canvas -> Week 3 - Discrete Random
Variables Enter given
values here
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EXAMPLE
Solution
• We can say that there is a 18.04% chance that
the drive-through window will have three
customers in one minute.
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SUMMARY
• Part 1: Terminology (Chapter 3.1 & 3.5)
• Part 2: Independent and Mutually Exclusive
Events (Chapter 3.2)
• Part 3: Contingency Tables (Chapter 3.4)
• Part 4: Discrete Random Variables (Chapter 4
Introduction)
• Part 5: Binomial Distribution (Chapter 4.2)
• Part 6: Poisson Distribution (Chapter 4.4)