PROBABILITY

INTRODUCTION TO PROBABILITY
LEARNING OUTCOMES

 Describe and use probability in decision making

 Use three methods of probability calculation

 Understand addition & multiplication rule

 Calculate conditional probability

 Use Baye’s theorem for effective decision making

 Develop the skill to formulate and solve business problems

PERMUTATION AND COMBINATION
PERMUTATION AND COMBINATION AS COUNTING PRINCIPLE
THE FACTORIAL NOTATION

Factorial is the continued periodic product of the first natural numbers. Symbolically, it is
written as . And it can be given by .

 Few examples;
INTRODUCTION

 The permutation describes the arrangements and combination describes the groups. The

mathematical representation of both counting principles can be given as per following

description

 If objects are to be arranged out of objects. The number of permutations can be given by

 If objects are to be grouped out of objects. The number of combinations can be given by
SOME IMPORTANT RESULTS

For Permutation or arrangements: Remark

The number of

Putting , permutations of
things where are of
Putting one kind and are of
another kind the
Putting permutation is given
by;
SOME IMPORTANT RESULTS

For Combinations or groups: Remark

If part of a work can

Putting , be finished in 2 ways

and the next part of
Putting the work can be
finished in 3 ways.
Putting The total number of
ways the complete
work can be finished
in ways,
SOLVED EXAMPLES

 How many ways the letters of the word ACT can be arranged?
 As there are total number of letters in the word ACT hence the total number of letters to be arranged
out of .
 Hence the permutation is given by

And these arrangements can be given by (A, C), (A, T), (C, T), (C, A), (T, A) and (T, C). If the repetition is
allowed the possible number of arrangements are 3 x 3 x 3 = 27
 How many teams of two members can be grouped out of 3 employees?
 As there are 2 members are to be selected for a team out of 3 employees i.e., out of .
 Hence the combination is given by
PROBABILITY DEFINED

 A numerical measure of uncertainty is provided by a very important branch of statistics known as

Theory of Probability.
 In modern days in all fields of study and practice, theory of probability plays an important role in
decision making. In business management the scope is very wide as it helps the organizations to
calculate and manage risk as well.
 For example:
 In production, knowing the probability of failure of a machine helps the organization to keep the
production going smoothly as timely maintenance or replacement can be ensured.
 In macro level management, the probable projection of demand for the next year may help the firm
in identifying their expenses, requirement of manpower, income and taxes well in advance.
 In finance, knowing the probable income may help the firm in budgeting.
HISTORICAL DEVELOPMENT

• Through his work • Fermat is credited • famous for he • In 1812 published his
in probability, with carrying out may be credited book,
Pascal invented the first-ever with having entitled “Théorie
the binomial rigorous written the first Analytique des
coefficients whic probability published work Probabilités”
h are now known calculation. on probability.
as Pascal’s
Christaa
Blaise
Triangle. Pierre de Jakob
n
Pascal Fermat Bernoulli
Huygens
HISTORICAL DEVELOPMENT

In 1933 by a
Russian mathematician
A. Kolmogorov outlined an axiomatic
approach that forms the basis for
the modern theory in his work
Foundations of Probability Theory

S.R. Srinivasa Varadhan,

awarded the 2007 Abel Prize “
for his fundamental
contributions to “Probability
theory”
SOME IMPORTANT DEFINITIONS

Random Experiment
 An experiment that can result in any of the two or more possible outcomes if repeated under

identical conditions is known as a random experiment. For example: tossing a coin is a random
experiment that may result in one of the two possible outcomes i.e., head or tail. The outcome
in this case may not be essentially same during the repetition of the experiment. Rolling of a die
is another random experiment as the outcome of this random experiment may result in any of
the six known outcomes.
SOME IMPORTANT DEFINITIONS
Trial and Event
 The performance of a random experiment is called a trial and outcome an event. Thus tossing a

coin can be called a trial and the results of getting head or tail is called an event.

 An event could be simple or composite. An event is simple if it corresponds to a simple possible

outcome. However if an event can be decomposed further into simple events it is known as a
compound event.

 For Example;

1. Getting a tail in toss of a coin is simple event

2. Getting a red card from a pack of cards can be further decomposed in 26 simple outcomes or
events.
SOME IMPORTANT DEFINITIONS
Exhaustive Cases
 The total number of possible outcomes of an experiment is known the set of

exhaustive events or cases. For example: the set of exhaustive events or cases
for a random experiment of tossing a fair coin can be given by {H, T}. Likewise,
the exhaustive events or cases associated with a random experiment of
throwing a fair die can be given by a set {1, 2, 3, 4, 5, 6}. Collection of all
possible events is also known as a sample space.

 Remark: Complement of an event A is defined as the collection of all the events

apart from A and can be given by Ac

SOME IMPORTANT DEFINITIONS

Favorable Cases
 The number of cases or events that associate with the desired outcome are known as

favorable outcomes. For example; an observer may secure a win if the random experiment of
rolling a die result in an odd number. This observer will secure the win if face of the die shows
1, 3 or 5. Hence, the number of favorable cases for the observer are three.

Mutually Exclusive Events

 The events or cases than cannot occur simultaneously are known as mutually exclusive

events or cases. For Instance: a random experiment cannot result into the events of getting a
head and getting a tail at the same time. If a bag contains 2 orange and 3 green balls. Hence,
the events of getting a head and getting a tail as an event of same toss are mutually
exclusive. The random experiment of drawing a ball cannot result in getting an orange ball
and one green ball at the same time. Hence, the events are mutually exclusive.
SOME IMPORTANT DEFINITIONS

Equally Likely Events

 If all the events associated with a random experiment have equal chance of occurrence, the events
are known as equally likely events. For example; in a random experiment of rolling of die, all six
numbers have an equal chance of occurrence and hence known as equally likely events.
Independent and Dependent Event

 If the happening of one event is impacting the event of other event the events are known as
dependent events otherwise independent. For instance; if there are 4 red and three white balls in an
urn. The random experiment is conducted in drawing two balls one by one without replacement. In
this case the 2nd draw depends on the outcome of first event and hence the events are called as
independent. Further if the ball drawn in first draw is replaced the outcome of second draw is not
impacted by the first draw and the events are known as independent.

 Remark: two events are known as complementary events if they are (i) collectively exhaustive and, (ii)

mutually exclusive.
CLASSICAL OR MATHEMATICAL DEFINITION

 If an experiment can result in N equally likely and, mutually exclusive and exhaustive cases

and n of them are favorable to the occurrence of event ‘A’ and the remaining, i.e., (N – n) are
against the occurrence of event ‘A’. Then the probability of occurrence of event A denoted by
P(A), is defined as the ratio n/N i.e., the probability of occurrence of A is given by:
RELATIVE FREQUENCY APPROACH

 Under this approach of probability of happening of an event is the proportion of the time that event

of same kind will occur in the long run if an experiment is repeated N times under identical conditions
and an event E occurs ‘n’ times then;
SUBJECTIVE OR PERSONALISTIC APPROACH

 This is also known as personalist approach of probability as it presumes that any decision reflects the

personality of decision maker, and subjective matters are important in assigning probability to an
event.

 For example; calculating probability of Indian cricket winning team against Australia in next cricket

match to be held in India may vary from expert to expert. Some of the experts may consider all the
matches between India and Australia, while some may consider matches that are all played in India
only and so on.
AXIOMATIC APPROACH

Given by Russian Mathematician A. Kolmogorov. This is a purely mathematical definition and complete in itself. This
definition is given by;

Let be a sample space, Let F be a over . A real valued set function P defined on F satisfying;

 If are mutually disjoint events in F then

Is called a probability. The triplet is known as the probability space.

ADDITION THEOREM OF PROBABILITY

 If A and B are two events then the probability that at least one of them occurs is denoted by P (A  B)

and is given by: . Mutually, Exclusive events have no common sample points in them, Therefore, if A
and B are two mutually exclusive events then A  B =.

 In this case P (A  B ) = 0. In case of mutually exclusive events; P (A  B ) = P (A) + P (B)

 If there are three events A, B and C

 In case events A, B and C are mutually exclusive Then, P (A  B  C ) = P (A) + P (B) + P (C)
CONDITIONAL PROBABILITY

 Let ‘A’ be any event in a sample space S, where P (A) > 0.

 The probability then an event ‘B’ occurs subject to the condition that event ‘A’ has already occurred is

called the conditional probability of the occurrence of the event ‘B’ on the assumption that event ‘A’
has already occurred (or happened) and is denoted by the symbol P(B|A) and is read as the
probability of ‘B’ given ‘A’.

 If P (B|A) = 1, Then the occurrence of A  Occurrence of B.

MULTIPLICATION THEOREM
 The Probability of simultaneous occurrence (or joint occurrence) of the two events ‘A’ and ‘B’ denoted by P (A

 B) is given by the product of unconditional probability of the occurrence of event ‘A’ by the conditional
probability of the occurrence of event ‘B’ on the assumption that event ‘A’ has already occurred. Symbolically,

 It is also called as ‘Joint Probability’. Where, shall be read as Probability of happening of A given B. Also known

as conditional probability. If A and B are independent events then the probability of happening of A and B is
given by

In case of three events A and B and C the probability of happening of A, B and C is given by

In case A, B and C are independent events then;

SOLVED PROBLEMS

 If a ball is drawn at random from a bucket of 5 orange and 3 red balls, write the number of
successes and failures for the ball to be red. What is the probability of drawing a red ball

Favorable Unfavorabl Total

(Red) e (Others)
Available 3 5 8
To choose 1 0 1
Choices

𝐶 ( 3 , 1) 3
𝑃 ( 𝐺𝑒𝑡𝑡𝑖𝑛𝑔 𝑎 𝑟𝑒𝑑 𝑏𝑎𝑙𝑙 )= =
𝐶 ( 8 , 1) 8
CONTINGENCY TABLE APPROACH

Finance Major
Total
Yes No

Male 48 12 60
Gender
Female 25 15 40

73 27 100

Find
(i) P (Y|M)(iii) P(N |F) (v) P(M) (vii) P(Y) (ix) P(YM) (xi) P(F Y)
(ii) P (M|Y) (iv) P (F|N) (vi) P(F) (viii) P(N) (x) P(Y M) (xii) P(F N)
BAYES' THEOREM
BAYE’S THEOREM

 Given by Thomas Bayes. It is one of the most important concept in

probability theory. Thomas Baye’s mentioned that the prior

knowledge of the conditions of the events can be associated with
computation of probability of the event.
ILLUSTRATIONS
 Approximately 1% of people aged 40 – 50 have cancer. A person with cancer has a 90%

chance of positive test from a mammogram, while a person has a 10% chance of false
positive result.

 What is the probability a person has cancer given that he just had a positive test result.

Let B = The person has the cancer

And A = The test is positive
 + .90
Cancer
.01
- .10
Start Test
+ .10
No Cancer
.99
- .90

𝑃 ¿
ILLUSTRATION

 Suppose a Bowl B1 has 2 red and 4 blue balls; Bowl B2 has 1 red and 2 blue balls;

and bowl B3 contains 5 red and 4 blue balls. Suppose probabilities of selecting the
Bowls is not same but are;

 (I) What is the probability of drawing a red ball? (II) Assuming that a red ball was

drawn, find the probability that it came from bowl 1?

 Red
B1 2/6
1/3 Blue
4/6
Red 2 1
×
B2 1/3 ( 𝐵¿ ¿ 1) 6 3 1
Start 𝑃 ( 𝐵1∨𝑅 ) =𝑃 ( 𝑅|𝐵1 ) × 𝑃 = = ¿
1/6 𝑃 ( 𝑅) 1 2 1 1 1 5 4
Blue × + × + ×
2 6 6 3 2 9
2/3
Red
B3 5/9
1/2 Blue
4/9
ILLUSTRATION
 Suppose the probability that a particular student will get first division in the
external examination is 1/10. The student appeared in 10 class tests and obtained
first division in 4 of them. What is the probability now that the student will get a
first division in annual examination?
THANK YOU