Lecture 3 for Finals

Probability and Statistics

Introduction

DETERMINISTIC TECHNIQUE
Techniques that assume that no uncertainty exists in the model parameter. The
assumption is that conditions of complete certainty and perfect knowledge of the future
exists.

PROBABILISTIC TECHNIQUE
These techniques include uncertainty and assume that there can be more than one
model solution. These solutions are brought by some doubt which outcome will occur. The
solutions generated by these techniques have a probability of occurrence.

TYPES OF PROBABILITY
1. Objective Probability
A probability that an event will occur based on the analysis in which
measure is based on a recorded observation, or a long history of collected data.
a. Classical/ Priori Probability
These are probabilities that can be stated prior to the occurrence of an event.
b. Relative Frequency Probability
These are probabilities that are stated after the outcomes of an event have
been observed.
2. Subjective Probability
A probability that estimates are based on personal belief, experience, and
knowledge of the situation.

Fundamentals of Probability
1. The probability of an event is always greater than or equal to zero, and
2. It is less than or equal to 1.

EXPERIMENT
It is an activity that results in one of several outcomes.
EVENTS
Events in probability can be defined as certain likely outcomes of an experiment that
form a subset of a finite sample space. The probability of occurrence of any event
will always lie between 0 and 1. There could be many events associated with one
sample space.
MUTUALLY EXCLUSIVE EVENTS
The event in an experiment occurs one at a time. The sum of the probability of
mutually exclusive events is one.
FREQUENCY DISTRIBUTION
An organization of numeric data about the events in an experiment.
COLLECTIVELY EXHAUSTIVE
A set of events that includes events that can occur in an experiment.
MARGINAL PROBABILITY
A probability of a single event occurring.
EXAMPLE:
The Dean of the College of Accountancy would like to review the grades of the
students in Management Science for the past 4 years. The table of values shows the data
gathered:
Number of Relative Cumulative
EVENT (Grade) Probability
Students Frequency Probability
1.00 30 30/3000 0.01 0.01
1.25 120 120/3000 0.04 0.05
1.50 150 150/3000 0.05 0.10
1.75 600 600/3000 0.20 0.30
2.00 1500 1500/3000 0.50 0.80
2.25 450 450/3000 0.15 0.95
2.50 150 150/3000 0.05 1.00
3.00 0 0/3000 0.00 1.00
3000 1.00

JOINT PROBABILITY
The probability that two or more events that are not mutually exclusive can occur
simultaneously.
CUMULATIVE PROBABILITY DISTRIBUTION
Distribution of probability where the distribution is obtained by adding the
probability of the event to the sum of the previously listed probabilities in a
probability distribution.
PROBABILITY OF INTERSECTION OF EVENTS (And Probability)
The outcome must satisfy both conditions at the same time.
PROBABILITY OF UNION OF EVENTS (Or Probability)
The outcome must satisfy one condition, or the other condition, or both at the same
time.
P(A∪B) = P(A) + P(B) – P(A∩B)

Statistical Independence

INDEPENDENT EVENTS
If the occurrence of one event does not affect the probability of the occurrence of
another event.
P(A and B) = P(A) • P(B)
Example: What is the probability of getting a head, then a tail after tossing a coin
twice?
CONDITIONAL PROBABILITY
The probability that an event will occur, given that another event has already
occurred.
P(A|B) = P(A)
BINOMIAL DISTRIBUTION
A probability that indicates the probability of r successes in n trials.
𝑛!
P(r) = 𝑝𝑟 𝑞 𝑛−𝑟 , where p = probability of success
𝑟!(𝑛−𝑟)!
q = 1 – p (probability of failure)
n = number of trials
r = number of successes in n trials
EXAMPLE:
1. What is the probability of getting two tails in three tosses?
2. An electrical manufacturer produces microchips. The microchips are inspected
at the end of the production process at a quality control station. Out of every
batch, four are randomly selected and tested for defects. Given that 20% of all
the transistors are defective, what is the probability that each batch of
microchips will contain exactly two defective microchips?
3. Following the condition in number 2, the manager rejects the batch with two or
more defective microchips found. The manager wants to know the probability of
rejecting an entire batch of microchips.

Statistical Dependence

DEPENDENT EVENTS
If the occurrence of one event affects the probability of the occurrence of another
event.
P(A and B) = P(A) • P(B|A)
Example: Two buckets contain several colored balls. Bucket 1 contains two red
balls and four white balls, and bucket 2 contains one blue ball and five red balls.
A coin is tossed, if the result is head, a ball is drawn on Bucket 1. If the result is
tail, then a ball is drawn out of Bucket 2. What is the probability of getting a head,
then a red ball?
BAYESIAN ANALYSIS
A technique named after Thomas Bayes. Additional information is used to alter the
marginal probability of the occurrence of an event.
POSTERIOR PROBABILITY
The altered marginal probability of an event based on additional information.
P(C|A)•P(A)
P(A|C) = P(C|A)•P(A) + P(C|B)•P(B)

EXAMPLE:
A production manager for a manufacturing firm is supervising the machine setup to
produce a product. The machine operator sets up the machine. If the machine is set
up correctly, there is a 10% chance that an item produced on the machine will be
defective; if the machine is set up incorrectly, there is a 40% chance that an item will
be defective. The production manager knows from experience that there is a .50
probability that a machine will be set up correctly or incorrectly by an operator. To
reduce the chance that an item produced on the machine will be defective, the
manager has decided that the operator should produce a sample item. The manager
wants to know the probability that the machine has been set up incorrectly if the
sample item turns out to be defective.