Lecture 2

A Survey of Probability Concepts
Lecture 2
McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc. 2008

GOALS
 Define probability.
 Describe the classical, empirical, and subjective
approaches to probability.
 Explain the terms experiment, event, outcome,
permutations, and combinations.
 Define the terms conditional probability and joint
probability.
 Calculate probabilities using the rules of addition
and rules of multiplication.
 Apply a tree diagram to organize and compute
probabilities.
2
Definitions
3
Probability Examples
4
Probability - who needs it?
 Important in decision making as it provides a
mechanism to deal with uncertainties associated with
future events.
Applications of Probability
 the ‘chance’ that sales will fall if the price rises.
 the ‘likelihood’ that a new assembly method will
increase productivity.
 the ‘odds’ that an investment will be profitable.
 inference about a population from sample data.
5
Definitions continued
 An experiment is the observation

of some activity or the act of taking
some measurement.
 An outcome is the particular result
of an experiment.
 An event is the collection of one or
more outcomes of an experiment.
6
Definitions continued
7
Experiments, Events and Outcomes
8
Assigning Probabilities
Three approaches to assigning probabilities

– Classical
– Empirical
– Subjective
9
Classical Probability
Consider an experiment of rolling a six-sided die. What is the

probability of the event “an even number of spots appear face
up”?
The possible outcomes are:
There are three “favorable” outcomes (a two, a four, and a six) in

the collection of six equally likely possible outcomes.
10
Mutually Exclusive Events
 Events are mutually exclusive if the occurrence of any one event

means that none of the others can occur at the same time.
 Events are independent if the occurrence of one event does not
affect the occurrence of another.
11
Empirical Probability
The empirical approach to probability is based on what

is called the law of large numbers. The key to
establishing probabilities empirically is that more
observations will provide a more accurate estimate of
the probability.
12
Empirical Probability - Example
On February 1, 2003, the Space Shuttle Columbia

exploded. This was the second disaster in 113 space
missions for NASA. On the basis of this information,
what is the probability that a future mission is
successfully completed?
Number of successful flights

Probability of a successful flight 
Total number of flights
111
  0.98
113
13
Subjective Probability - Example
 If there is little or no past experience or information on which to base a

probability, it may be arrived at subjectively.
 Illustrations of subjective probability are:

1. Estimating the likelihood the New England Patriots will play in the Super Bowl next
year.
2. Estimating the likelihood you will be married before the age of 30.
3. Estimating the likelihood the U.S. budget deficit will be reduced by half in the next 10
years.
14
Summary of Types of Probability
15
16
17
18
19
20
Rules for Computing Probabilities
Rules of Addition
 Special Rule of Addition - If two events
A and B are mutually exclusive, the
probability of one or the other event’s
occurring equals the sum of their
probabilities.
P(A or B) = P(A) + P(B)
 The General Rule of Addition - If A and

B are two events that are not mutually
exclusive, then P(A or B) is given by the
following formula:
P(A or B) = P(A) + P(B) - P(A and B)
21
Addition Rule - Example
What is the probability that a card chosen at

random from a standard deck of cards will be
either a king or a heart?
P(A or B) = P(A) + P(B) - P(A and B)

= 4/52 + 13/52 - 1/52
= 16/52, or .3077
22
The Complement Rule
The complement rule is used to determine

the probability of an event occurring by
subtracting the probability of the event not
occurring from 1.
P(A) + P(~A) = 1
or P(A) = 1 - P(~A).
23
Joint Probability – Venn Diagram
JOINT PROBABILITY A probability that

measures the likelihood two or more events
will happen concurrently.
24
Conditional Probability
A conditional probability is the

probability of a particular event
occurring, given that another event
has occurred.
The probability of the event A given
that the event B has occurred is
written P(A|B).
25
Contingency Tables
A CONTINGENCY TABLE is a table used to classify sample

observations according to two or more identifiable
characteristics
E.g. A survey of 150 adults classified each as to gender and the

number of movies attended last month. Each respondent is
classified according to two criteria—the number of movies
attended and gender.
26
Contingency Tables - Example
27
28
29
30
31
32
33
34
Tree Diagrams
A tree diagram is useful for portraying

conditional and joint probabilities. It is
particularly useful for analyzing business
decisions involving several stages.
A tree diagram is a graph that is helpful in
organizing calculations that involve several
stages. Each segment in the tree is one stage of
the problem. The branches of a tree diagram are
weighted by probabilities.
35
Tree Diagrams
36
Tree Diagrams
37
Tree Diagrams
38
Tree Diagrams
39
Discrete Probability Distributions
McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc. 2008

Random Variables
Random variable - a quantity resulting from an

experiment that, by chance, can assume different
values.
41
Types of Random Variables
 Discrete Random Variable can assume only

certain clearly separated values. It is usually
the result of counting something
 Continuous Random Variable can assume an

infinite number of values within a given
range. It is usually the result of some type of
measurement
42
Discrete Random Variables - Examples
 The number of students in a class.

 The number of children in a family.
 The number of cars entering a carwash in a hour.
 Number of home mortgages approved by Coastal
Federal Bank last week.
43
Continuous Random Variables -
Examples
 The distance students travel to class.

 The time it takes an executive to drive to
work.
 The length of an afternoon nap.
 The length of time of a particular phone call.
44
Features of a Discrete Distribution
The main features of a discrete probability

distribution are:
 The sum of the probabilities of the various
outcomes is 1.00.
 The probability of a particular outcome is
between 0 and 1.00.
 The outcomes are mutually exclusive.
45
The Mean of a Probability Distribution
MEAN
•The mean is a typical value used to represent
the central location of a probability
distribution.
•The mean of a probability distribution is also
referred to as its expected value.
46
The Variance, and Standard
Deviation of a Probability Distribution
Variance and Standard Deviation
• Measures the amount of spread in a distribution

• The computational steps are:
1. Subtract the mean from each value, and square this
difference.
2. Multiply each squared difference by its probability.
3. Sum the resulting products to arrive at the variance.
The standard deviation is found by taking the positive square
root of the variance.
47
Mean, Variance, and Standard
Deviation of a Probability Distribution - Example
John Ragsdale sells new cars for Pelican Ford.

John usually sells the largest number of cars
on Saturday. He has developed the following
probability distribution for the number of cars
he expects to sell on a particular Saturday.
48
Mean of a Probability Distribution - Example
49
Variance and Standard
Deviation of a Probability Distribution - Example
50
Binomial Probability Distribution
Characteristics of a Binomial Probability

Distribution
 There are only two possible outcomes on a
particular trial of an experiment.
 The outcomes are mutually exclusive,
 The random variable is the result of counts.
 Each trial is independent of any other trial
51
Example of a Binomial Distribution
Experiment: Toss a
coin three times.
Observe the number
of heads. The
possible results are:
zero heads, one
head, two
heads, and three
heads.
What is the
probability
52 distribution for the
Probability Distribution of Number of
Heads Observed in 3 Tosses of a Coin
53
Characteristics of a Probability
Distribution
54
Binomial Probability Formula
55
Binomial Probability - Example
There are five flights

daily from Pittsburgh
via US Airways into
the Bradford,
Pennsylvania,
Regional Airport.
Suppose the
probability that any
flight arrives late
is .20.
What is the probability
that none of the
flights are late today?
56
Binomial Probability - Excel
57
Binomial Dist. – Mean and Variance
58
Binomial Dist. – Mean and Variance: Example
For the example

regarding the number
of late flights, recall
that  =.20 and n = 5.
What is the average
number of late flights?
What is the variance of
the number of late
flights?
59
Binomial Dist. – Mean and Variance:
Another Solution
60
Binomial Distribution - Table
Five percent of the worm gears produced by an automatic, high-

speed Carter-Bell milling machine are defective. What is the
probability that out of six gears selected at random none will be
defective? Exactly one? Exactly two? Exactly three? Exactly
four? Exactly five? Exactly six out of six?
61

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A Survey of Probability Concepts

McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc. 2008

 An experiment is the observation

Three approaches to assigning probabilities

Consider an experiment of rolling a six-sided die. What is the

There are three “favorable” outcomes (a two, a four, and a six) in

 Events are mutually exclusive if the occurrence of any one event

The empirical approach to probability is based on what

On February 1, 2003, the Space Shuttle Columbia

Number of successful flights

 If there is little or no past experience or information on which to base a

 Illustrations of subjective probability are:

 The General Rule of Addition - If A and

What is the probability that a card chosen at

P(A or B) = P(A) + P(B) - P(A and B)

The complement rule is used to determine

JOINT PROBABILITY A probability that

A conditional probability is the

A CONTINGENCY TABLE is a table used to classify sample

E.g. A survey of 150 adults classified each as to gender and the

A tree diagram is useful for portraying

McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc. 2008

Random variable - a quantity resulting from an

 Discrete Random Variable can assume only

 Continuous Random Variable can assume an

 The number of students in a class.

 The distance students travel to class.

The main features of a discrete probability

Variance and Standard Deviation

• Measures the amount of spread in a distribution

John Ragsdale sells new cars for Pelican Ford.

Characteristics of a Binomial Probability

There are five flights

For the example

Five percent of the worm gears produced by an automatic, high-

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