Probability

Managerial and Statistical Questions:

 Suppose a special bonus is being given to one person

in the technical area this year. If the bonus is
randomly awarded, what is the probability that it will
go to a woman given that worker is in technical area?
 Is this discrimination against male technical workers?
 What factors might enter into the awarding of the bonus
other than random selection?

Dr. Himani Gupta

Definitions

 Probability: the chance that an uncertain

event will occur (always between 0 and 1)
 Event: Each possible type of occurrence or
outcome
 Simple Event: an event that can be described
by a single characteristic
 Sample Space: the collection of all possible
events

Dr. Himani Gupta

 Types of Probability

There are three approaches to assessing the probability of an

uncertain event:

1. a priori classical probability: the probability of an event is based

on prior knowledge of the process involved.

2. empirical classical probability: the probability of an event is

based on observed data.

3. subjective probability: the probability of an event is determined by

an individual, based on that person’s past experience, personal
opinion, and/or analysis of a particular situation.
Dr. Himani Gupta
 Calculating Probability

1. a priori classical probability

X number of ways the event can occur
Probabilit y of Occurrence  
T total number of possible outcomes

2. empirical classical probability

number of favorable outcomes observed
Probabilit y of Occurrence 
total number of outcomes observed

These equations assume all outcomes are equally likely.

Dr. Himani Gupta

 Example of a priori
classical probability
Find the probability of selecting a face card (Jack, Queen,
or King) from a standard deck of 52 cards.

X number of face cards

Probabilit y of Face Card  
T total number of cards

X 12 face cards 3
 
T 52 total cards 13

Dr. Himani Gupta

 Example of empirical
classical probability
Find the probability of selecting a male taking statistics
from the population described in the following table:

Taking Not Taking Total

Stats Stats
Male 84 145 229
Female 76 134 210
Total 160 279 439

number of males taking stats 84

Probabilit y of Male Taking Stats    0.191
total number of people 439

Dr. Himani Gupta

 Examples of Sample Space
The Sample Space is the collection of all possible
events
ex. All 6 faces of a die:

ex. All 52 cards in a deck of cards

ex. All possible outcomes when having a child:
Boy or Girl

Dr. Himani Gupta

 Events in Sample Space
 Simple event
 An outcome from a sample space with one
characteristic
 ex. A red card from a deck of cards
 Complement of an event A (denoted A/)
 All outcomes that are not part of event A
 ex. All cards that are not diamonds
 Joint event
 Involves two or more characteristics simultaneously
 ex. An ace that is also red from a deck of cards

Dr. Himani Gupta

 A construction company submits bid for two
projects. Listed here are the profit and the
probability of winning each project. Assume
that the outcomes of the two bids are
independent.

Profit Chance of winning Bid

Project A $ 75,000 .50

Project B $ 120, 000 .65

List the possible outcomes (win, not win) for the two
projects and find their probabilities (later).

Dr. Himani Gupta

 Subjective Probability
 Comes from a person’s intuition or reasoning
 Subjective -- different individuals may (correctly)
assign different numeric probabilities to the same
event
 Degree of belief
 Useful for unique (single-trial) experiments
 New product introduction
 Initial public offering of common stock
 Site selection decisions
 Sporting events

Dr. Himani Gupta

 Visualizing Events in
Sample Space
 Contingency Tables: Ace Not Total
Ace
Black 2 24 26
Red 2 24 26
Total 4 48 52

 Tree Diagrams: 2

24
Full Deck
of 52 Cards 2
Sample
Space
24

Dr. Himani Gupta

Definitions
Simple vs. Joint Probability
 Simple (Marginal) Probability refers to the
probability of a simple event.
 ex. P(King)
 Joint Probability refers to the probability of
an occurrence of two or more events.
 ex. P(King and Spade)

Dr. Himani Gupta

 Definitions
Mutually Exclusive Events
 Mutually exclusive events are events that cannot occur
together (simultaneously).

 example:
 A = queen of diamonds; B = queen of clubs
 Events A and B are mutually exclusive if only one card is
selected
 example:
 B = having a boy; G = having a girl
 Events B and G are mutually exclusive if only one child is
born

Dr. Himani Gupta

 Definitions
Collectively Exhaustive Events
 Collectively exhaustive events
 One of the events must occur
 The set of events covers the entire sample space

 example:
 A = aces; B = black cards; C = diamonds; D = hearts
 Events A, B, C and D are collectively exhaustive (but not
mutually exclusive – a selected ace may also be a heart)
 Events B, C and D are collectively exhaustive and also
mutually exclusive

Dr. Himani Gupta

 Four Types of Probability

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

Dr. Himani Gupta

 General Law of Addition

P( X  Y )  P( X )  P(Y )  P( X  Y )

X Y

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 Problem

Mr. John conducted a survey for the American Society of

Interior designer in which workers were asked which changes
in office would increase the productivity. Respondents were
allowed to answer more than one type of design change. The
number one change that 70% of the workers said would
increase productivity was reducing noise. In second place was
storage/filling space, selected by 67%. Suppose 56% of all
respondent to the survey had said that both noise reduction and
increased storage/filling space would improve productivity. If
one of the survey respondent was randomly selected and asked
what office design changes would increase worker productivity,
what is the probability that this person would select reducing
noise or more storage/filling?

Dr. Himani Gupta

 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

Dr. Himani Gupta

 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 )  P( N )  P( S )  P( N  S )
.70.67 .56
.81

Dr. Himani Gupta

 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

Dr. Himani Gupta

Venn Diagram of the X or Y
but not Both Case
X Y

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The Neither/Nor Region

X Y

P( X  Y )  1  P( X  Y )

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The Neither/Nor Region

X Y

P( N  S )  1  P( N  S )
 1.81
.19
Dr. Himani Gupta
Special Law of Addition

If X and Y are mutually exclusive,

P( X  Y )  P( X )  P(Y )

Y
X

Dr. Himani Gupta

 Joint Probability Using a
Contingency Table
Event
Event B1 B2 Total

A1 P(A1 and B1) P(A1 and B2) P(A1)

A2 P(A2 and B1) P(A2 and B2) P(A2)

Total P(B1) P(B2) 1

Joint Probabilities Marginal (Simple) Probabilities

Dr. Himani Gupta

Computing Joint and
Marginal Probabilities
 The probability of a joint event, A and B:

number of outcomes satisfying A and B

P( A and B) 
total number of elementary outcomes

 Computing a marginal (or simple) probability:

P(A)  P(A and B1 )  P(A and B2 )    P(A and Bk )

 Where B1, B2, …, Bk are k mutually exclusive and

collectively exhaustive events

Dr. Himani Gupta

 The client company data from the decision dilemma
reveal that 155 employees worked on of the four
types of positions. Shown here again in the raw
matrix with the frequency counts for each category
and their subtotals by type of professional and
gender.
 Employee is either Technical or Clerical?
 Employee is either Professional or Clerical?
 If any employee is female or a professional?

Dr. Himani Gupta

 Demonstration Problem
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
Dr. Himani Gupta
 Demonstration Problem
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
Dr. Himani Gupta
 Law of Multiplication
Demonstration
A company has 140 employees of which 30 are supervisor. Eighty of the
employees are married, and 20% of the married are supervisors. If a company
employees is randomly selected, what is the probability that the employee is
married and is supervisor?

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
Dr. Himani Gupta
 Law of Multiplication
Demonstration
30
Probability Matrix P( S )   0.2143
of Employees 140
80
Married P( M )   0.5714
Supervisor Yes No Total 140
Yes .1143 .1000 .2143 P( S | M )  0.20
No .4571 .3286 .7857 P( M  S )  P( M )  P( S | M )
Total .5714 .4286 1.00  (0.5714)(0.20)  0.1143

P( M  S )  P( M )  P( M  S )
 0. 5714  0.1143  0. 4571
P( M  S )  P( S )  P( M  S )
 0. 2143  0.1143  0.1000
P( M )  1  P( M )
 1  0. 5714  0. 4286
P( S )  1  P( S )
 1  0. 2143  0. 7857
P( M  S )  P( S )  P( M  S )
 0. 7857  0. 4571  0. 3286

Dr. Himani Gupta

 Special Law of Multiplication
for Independent Events
 General Law

P( X  Y )  P( X )  P(Y| X )  P(Y )  P( X| Y )
 Special Law
If events X and Y are independent,
P( X )  P( X | Y ), and P(Y )  P(Y | X ).
Consequently ,
P( X  Y )  P( X )  P( Y )
Dr. Himani Gupta
 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 )

Dr. Himani Gupta

 Law of Conditional Probability
P ( N ) .70
S N P ( N  S ) .56
P( N  S )
P( S | N ) 
.56
.70 P( N )
.56

.70
.80

Dr. Himani Gupta

 Office Design Problem
What is the probability that a randomly selected worker believes
noise reduction would not improve productivity given that the
worker does believes storage space would improve productivity?

Increase
Storage Space
Yes No Total
Noise Yes .56 .14 .70
Reduction No .11 .19 .30
Total .67 .33 1.00

P( N  S ) .11
P( N | S )  
P( S ) .67
 .164

Dr. Himani Gupta

 Independent Events

 If X and Y are independent events, the occurrence

of Y does not affect the probability of X occurring.
 If X and Y are independent events, the occurrence
of X does not affect the probability of Y occurring.

If X and Y are independent events,

P( X | Y )  P( X ), and
P(Y | X )  P(Y ).

Dr. Himani Gupta

 Shown here are the raw values matrix for the result
of a national survey of 200 executives who were
asked to identify the geographic locale of their
company and their company’s industry type. The
executives were only allowed to select one locale and
one industry type. Find the corresponding probability
matrix.
Geographic Location
Northeast Southeast Midwest West
D E F G
Finance A 24 10 8 14 56

Manufacturing B 30 6 22 12 70

Communications C 28 18 12 16 74

82 34 42 42 200 Dr. Himani Gupta

 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

What is the probability that the respondent is from the Midwest (F)
What is the probability that the respondent is from the communication
industry or from the northeast.
What is the probability that the respondent is from the finance industry
and from the Southeast.

Dr. Himani Gupta

 Independent Events
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

P( A  G ) 0.07
P( A| G )    0.33 P( A)  0.28
P(G ) 0.21
P( A| G )  0.33  P( A)  0.28
Dr. Himani Gupta
 Independent Events

D E
A 8 12 20 8
P( A | D)   .2353
B 20 30 50
34
20
P( A)   .2353
C 6 9 15 85
P( A | D)  P( A)  0.2353
34 51 85

Dr. Himani Gupta

Computing Conditional
Probability
 Of the cars on a used car lot, 70% have air
conditioning (AC) and 40% have a CD
player (CD). 20% of the cars have both.
 What is the probability that a car has a CD
player, given that it has AC ?
 We want to find P(CD | AC).

Dr. Himani Gupta

 Computing Conditional
Probability
CD No CD Total

AC 0.2 0.5 0.7

No 0.2 0.1 0.3

AC
Total 0.4 0.6 1.0

P(CD and AC) .2

P(CD | AC)    .2857
P(AC) .7

Given AC, we only consider the top row (70% of the cars). Of these,
20% have a CD player. 20% of 70% is about 28.57%.

Dr. Himani Gupta

 Problem
 Suppose a city council is composed of 5
democrats, 4 republicans, and 3 independents.
Find the probability of randomly selecting a
democrat followed by an independent.

P(I and D)  P(I | D) P(D)  (3/11)(5/12)  5/44  .114

 Note that after the democrat is selected (out of 12
people), there are only 11 people left in the
sample space.

Dr. Himani Gupta

Bayes’ Theorem

 Bayes’ Theorem is used to revise previously

calculated probabilities based on new
information.
 Developed by Thomas Bayes in the 18th
Century.
 It is an extension of conditional probability.

Dr. Himani Gupta

 Bayes’ Theorem

P(A | Bi )P(Bi )
P(Bi | A) 
P(A | B1 )P(B1 )  P(A | B2 )P(B2 )    P(A | Bk )P(Bk )

where:
Bi = ith event of k mutually exclusive and
collectively exhaustive events
A = new event that might impact P(Bi)

Dr. Himani Gupta

 Bayes’ Theorem
Example
 A drilling company has estimated a 40% chance of
striking oil for their new well.
 A detailed test has been scheduled for more
information. Historically, 60% of successful wells
have had detailed tests, and 20% of unsuccessful
wells have had detailed tests.
 Given that this well has been scheduled for a
detailed test, what is the probability that the well
will be successful?

Dr. Himani Gupta

 Bayes’ Theorem
Example
 Let S = successful well
U = unsuccessful well
 P(S) = .4 , P(U) = .6 (prior probabilities)
 Define the detailed test event as D
 Conditional probabilities:
 P(D|S) = .6 P(D|U) = .2
 Goal: To find P(S|D)

Dr. Himani Gupta

 Bayes’ Theorem
Example
Apply Bayes’ Theorem:

P(D | S)P(S)
P(S | D) 
P(D | S)P(S)  P(D | U)P(U)
(.6)(.4)

(.6)(.4)  (.2)(.6)
.24
  .667
.24  .12

So, the revised probability of success, given that this

well has been scheduled for a detailed test, is .667

Dr. Himani Gupta

 Bayes’ Theorem
Example
 Given the detailed test, the revised probability of a
successful well has risen to .667 from the original estimate
of 0.4.

Prior Conditional Joint Revised

Event
Prob. Prob. Prob. Prob.

S (successful) .4 .6 .4*.6 = .24 .24/.36 = .667

U (unsuccessful) .6 .2 .6*.2 = .12 .12/.36 = .333

Dr. Himani Gupta

 Problem
 An economist believes that during periods of high economic growth, the U.S.
dollar appreciates with probability 0.70; in periods of moderate economic
growth, the dollar appreciates with probability 0.40; and during periods of
low economic growth, the dollar appreciates with probability 0.20.
 During any period of time, the probability of high economic growth is 0.30,
the probability of moderate economic growth is 0.50, and the probability of
low economic growth is 0.20.
 Suppose the dollar has been appreciating during the present period. What is
the probability we are experiencing a period of high economic growth?

Partition: Event A  Appreciation

H - High growth P(H) = 0.30 P( A H )  0.70
M - Moderate growth P(M) = 0.50 P( A M )  0.40
L - Low growth P(L) = 0.20 P( A L)  0.20

Dr. Himani Gupta

 P( H  A)
P( H A) 
P( A)
P( H  A)

P( H  A)  P( M  A)  P( L  A)
P( A H ) P( H )

P ( A H ) P ( H )  P ( A M ) P ( M )  P ( A L) P ( L)
( 0.70)( 0.30)

( 0.70)( 0.30)  ( 0.40)( 0.50)  ( 0.20)( 0.20)
0.21 0.21
 
0.21 0.20  0.04 0.45
 0.467

Dr. Himani Gupta

 (Tree Diagram)
Prior Conditional Joint
Probabilities Probabilities Probabilities
P ( A H )  0.70 P ( A  H )  ( 0.30)( 0.70)  0.21

P ( A H )  0.30
P ( H )  0.30 P ( A  H )  ( 0.30)( 0.30)  0.09

P ( A M )  0.40 P ( A  M )  ( 0.50)( 0.40)  0.20

P ( M )  0.50

P ( A M )  0.60 P ( A  M )  ( 0.50)( 0.60)  0.30

P ( A L)  0.20
P ( L)  0.20 P ( A  L )  ( 0.20)( 0.20)  0.04

P ( A L)  0.80 P ( A  L )  ( 0.20)( 0.80)  0.16

Dr. Himani Gupta

Thank you

Dr. Himani Gupta