Business Statistics, 3e
by Ken Black
Discrete Distributions
Chapter 4
Probability
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-1
Learning Objectives
• Comprehend the different ways of assigning
probability.
• Discuss the structure of probability
• Understand and apply marginal, union,
joint, and conditional probabilities.
• Select the appropriate law of probability to
use in solving problems.
• Solve problems using the laws of
probability including the laws of addition,
multiplication and conditional probability
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-2
Methods of Assigning Probabilities
• Classical method of assigning probability
(rules and laws)
• Relative frequency of occurrence (cumulated
historical data)
• Subjective Probability (personal intuition or
reasoning)
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-3
Classical Probability
• Number of outcomes leading
P( E ) n
to the event divided by the 1
e
chance to roll a 4
total number of outcomes N 6
possible Where :
N total number of outcomes
• Each outcome is equally likely
n e
number of outcomes in E
• Determined a priori -- before
performing the experiment
• Applicable to games of chance
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-4
Relative Frequency Example
#Children Freq rel. freg
0 40 -
1 80 80/215= .37
2 50 -
3 30 -
4 10 -
5 5 -
sum 215
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-5
Subjective Probability
• Comes from a person’s intuition or
reasoning
• Useful for unique (single-trial) experiments
– New product introduction
– Initial public offering of common stock
– Site selection decisions
– Sporting events
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-6
Structure of Probability
• Experiment
• Event
• Elementary Events
• Sample Space
• Unions and Intersections
• Mutually Exclusive Events
• Independent Events
• Collectively Exhaustive Events
• Complementary Events
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-7
Structure of Probability
~Experiment Definitions
• Experiment: a process that produces outcomes
– An activity such as tossing a coin
– Selecting a part from an assembly line
• Event: an outcome of an experiment
– Getting 2 heads from the experiment of tossing a coin twice
– Selecting an unusable part from an assembly line
• Sample Space: list of all possible events
– If you toss a coin twice, the sample space is:
HH, HT, TH, TT
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-8
An Example Experiment
Experiment: Randomly select, without
replacement, two families from the residents of a
town with four families
Event: each family in
the sample has Children in Number of
Family
Household Automobiles
children in the
household A Yes 3
B Yes 2
C No 1
Event: the sample
D Yes 2
families own a total of
four automobiles
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-9
Sample Space
• A complete roster or listing of all
elementary events for an experiment
• Methods for describing a sample space
– roster or listing
– tree diagram
– set builder notation
– Venn diagram
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-10
Sample Space: Roster Example
• Experiment: randomly select, without
replacement, two families from the residents of
the small town
• Each ordered pair in the sample space is an
elementary event, for example -- (D,C)
Children in Number of Listing of Sample Space
Family
Household Automobiles
(A,B), (A,C), (A,D),
A Yes 3
(B,A), (B,C), (B,D),
B Yes 2
(C,A), (C,B), (C,D),
C No 1
(D,A), (D,B), (D,C)
D Yes 2
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-11
Sample Space: Tree Diagram for
Random Sample of Two Families
B
A C
D
A
B C
D
A
C B
D
A
D B
C
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-12
Sample Space
• 1. mn counting rule :
number of different ways m and n can
be done
• 2. Sampling with replacement
number of different possible
combinations assuming replacement
• 3. Sampling without replacement
number of different possible
combinations assuming no replacement
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-13
mn counting rule :
Plot many different possible 5-series BMW cars
could be in your car lot ?
Series Color Intenor
525 Black Leather
530 White Leatherette
540 Blue
Green
Red
Silver
m 。 n = 3*6*2 = 36 different possible BMWs.
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-14
Sampling with replacement
• There are 50 houses (all household own at least 1 animal
)in your database and you want to survey 3 houses
regarding their oldest animal. You don’t care if the same
house is surveyed 3 times.
N n
N = population size
n = sample size
There are 50^3 = 125,000 possible ways you could draw
your sample (sample space)
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-15
Sampling without replacement
• There are 50 houses in your database and you want
to have 3 household cam together for a focus group .
N!
N Cn
n!( N n )!
N = population size
n = sample size
There are 19600 possible
combinations of 3
19600 households that you could
50! [Link]....1
3!( 47)! 3.2.1.(47....1) select for your focus
group(sample space)
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-16
Sample space : Practice examples
• In your recent survey you asked people to
categorize themselves ( using nominal data )
regarding gender( m/f ), marital status( married,
single, divorce ) and economic status ( high,
medium, low )
• a. how many different possible group are there (i.e
m,m,h; f,m,h;…..etc.)
• b. If you want to sample 3 groups(with
replacement ) .What is your sample space?
• c. If you want to sample 3 groups (without
replacement ) What is your sample space?
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-17
Sample space : Practice examples
• a. How many outfits does John have if he
has 2 suits , 5 dress shirts, and 7 ties?
• b. What are your choices of winning the
‘Pick 3 ‘ lottery? ( You can select numbers
from 0 to 9)
• c. What are your chances of winning the
‘Big’ lottery? ( You cab select number from
1 to 50 ) What if we increase the number
you can select from 1 to 54 ?
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-18
Structure of probability
~Union vs. Intersection
X Y X Y
X 1,4,7,9 X 1,4,7,9
Y 2,3,4,5,6 Y 2,3,4,5,6
X Y 1,2,3,4,5,6,7,9 X Y 4
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-19
Union vs. Intersection Example
C = { IBM, DEC, Apple}
F = {Apple, Grape, Lime}
C F ? IBM , DEC , Apple , Grape , Lime
C F ? Apple
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-20
Structure of probability :
~Mutually Exclusive Events
• Events with no
common outcomes
X Y
• Occurrence of one
event precludes the
occurrence of the other
event X 1,7,9
Y 2,3,4,5,6
X Y P( X Y ) 0
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-21
Structure of probability
~Independent Events
• Occurrence of one event does not affect the
occurrence or nonoccurrence of the other
event
• Example: The conditional probability of
having a GIRL given your first child is a
BOY is equal to the probability of having a
GIRL.
P( X | Y ) P( X ) and P(Y | X ) P(Y )
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-22
Structure of probability
~Complementary Events
• All elementary events not in the event ‘A’
are in its complementary event.
P( Sample Space ) 1
Sample
Space A A P( A) 1 P( A)
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-23
Summarize Probability Structure
~ assume you have a coin and a die
• Mutually exclusive
You can get a heads OR tails. You
could roll a 2 OR 4
• Independent exclusive
If you get a heads 1st; the chance of
getting a heads again is still 50%
• Complementary exclusive
If you roll a 1, then 2-6 are complements
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-24
Four Types of Probability
~ with cards example
Marginal Union Joint Conditional
P( X ) P( X Y ) P( X Y ) P( X | Y )
The probability The probability The probability The probability
of X occurring of X or Y of X and Y of X occurring
occurring occurring given that Y has
occurred
X X Y X Y
Y
P( heart) On first P(heart or 10) on P(heart and 10) on P(10 | heart) ~10
draw = 13/52 first draw = 15/52 first draw = 1/52 given you know
you have a heart
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-25
=1/13
General Law of Addition:
Used for Union Probabilities
P( X Y ) P( X ) P(Y ) P( X Y )
X Y
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-26
General Law of Addition -- Example:
Employee
Employee Survey
Survey on
on Noise
Noise Reduction
Reduction and
and Storage
Storage Space
Space
P( N S ) P( N ) P( S ) P( N S )
N S P ( N ) .70
P ( S ) .67
.56 P ( N S ) .56
.70 .67
P ( N S ) .70.67 .56
0.81
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-27
Office Design Problem
Probability Matrix
Increase
Storage Space
Yes No Total
Noise Yes .56 .14 .70
Reduction No .11 .19 .30
Total .67 .33 1.00
P ( N S ) .56.14 .11
.81
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-28
Venn Diagram
of the X or Y but Not Both Case
X Y
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-29
Complement of a Union:
The Neither/Nor Region
X Y
P ( X Y ) 1 P ( X Y )
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-30
Office Design Problem:
The Neither/Nor Region
P( N S ) 1 P( N S )
1 .81
N S
.19
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-31
Special Law of Addition
If X and Y are mutually exclusive,
P( X Y ) P( X ) P(Y )
Y
X
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-32
Demonstration Problem 4.1
Type of Gender
Position Male Female Total
Managerial 8 3 11
Professional 31 13 44
Technical 52 17 69
Clerical 9 22 31
Total 100 55 155
P(T C ) P(T ) P(C ) P( P C ) P( P) P(C )
69 31 44 31
155 155 155 155
.645 .484
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-33
Demonstration Problem 4.3
Type of Gender
Position Male Female Total
Managerial 8 3 11
Professional 31 13 44
Technical 52 17 69
Clerical 9 22 31
Total 100 55 155
P(T C ) P(T ) P(C )
69 31
155 155
.645
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-34
Demonstration
Demonstration Problem
Problem 4.3,
4.3, continued
continued
Type of Gender
Position Male Female Total
Managerial 8 3 11
Professional 31 13 44
Technical 52 17 69
Clerical 9 22 31
Total 100 55 155
P( P C ) P( P) P(C )
44 31
155 155
.484
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-35
Law of Multiplication
P( X Y ) P( X ) P(Y | X ) P(Y ) P( X | Y )
100
P ( Male) 0.645
155
P (Clerical | Male) 9 / 100 .09
P ( M C ) P ( M ) P (C | M )
(0.645)(0.09) 0.058
or 9 / 155 .058
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-36
Law of Multiplication
Probability Matrix
of Employees
Married
Supervisor Yes No Total
Yes .1143 .1000 .2143
No .4571 .3286 .7857
Total .5714 .4286 1.00 P( M S ) P( M ) P( S | M )
(0.5714)(0.20) 0.1143
P ( M S ) ?
P ( M S ) ?
P ( M ) ?
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-37
Law of Multiplication
and Demonstration Problem 4.5
P( X Y ) P( X ) P(Y | X ) P(Y ) P( X | Y )
80
P( M ) 0. 5714
140
P( S| M ) 0. 20
P( M S ) P( M ) P( S| M )
( 0. 5714 )( 0. 20 ) 0.1143
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-38
Law of Conditional Probability
• The conditional probability of X given Y is
the joint probability of X and Y divided by
the marginal probability of Y.
P( X Y ) P(Y | X ) P( X )
P( X | Y )
P(Y ) P(Y )
p( s | m) p( s m) .1143
p ( m) .5714
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-39
Office Design Problem
Increase
Storage Space
Yes No Total
Noise Yes .56 .14 .70
Reduction No .11 .19 .30
Total .67 .33 1.00
What is the P(S| N) ? What is the P (not N | S) ?
P ( N ) .70
P( N S )
P ( N S ) .56 P( N | S )
P( N S )
P( S )
P( S | N ) .11
P( N )
.56 .67
.70
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning
.164 4-40
.80
Practice Problems Using
Demonstration Problem 4.2
Geographic Location
Northeast Southeast Midwest West
D E F G
Finance A .12 .05 .04 .07 .28
Manufacturing B .15 .03 .11 .06 .35
Communications C .14 .09 .06 .08 .37
.41 .17 .21 .21 1.00
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 4-41