Documente Academic
Documente Profesional
Documente Cultură
Required Readings
Anderson, David, Dennis J. Sweeney & Thomas A. Williams (2011): Statistics for Business
and Economics, 9th edition, CENGAGE Learning.
Spiegel, Murray, John Schiller & R. Alu Srinivasan (2012): Probability and Statistics, 4th
edition, Schaum’s outline series, McGraw-Hill.
Spiegel, Murray, & Stephens J. Larry (2008): Theory and Problems of Statistics, 4th edition,
Schaum’s outline series, McGraw-Hill.
In this unit, you will be introduced to probability concepts and theorems (e.g. counting
rules, properties of probability, conditional probabilities, and Bayes Theorem), discrete
and continuous probability distributions.
1.2 Unit Aim
This unit aims to familiarize you with concepts relating to probability.
By the time you finish working through this unit, you should be able to;
1
4. Conditional probabilities
Examples of experiments
Experiment Experimental outcomes
Toss a coin H, T
Roll a die 1,2,3,4,5,6
Play football games win, lose, tie
When all the possible experimental outcomes are specified, we have what we call a sample
space.
Business decisions are based on the analysis of uncertainties. The following questions are
asked?
From the above questions, we can observe probability is deeply rooted in business decisions.
1.6.1 Probability
Probability is the numerical measure of the likelihood that an event will occur. Probabilities
are used as degrees of uncertainties. Probabilities are always assigned on a scale 0 to 1.
2
Note: an experimental outcome is also called a sample point to identify it as an element of the
sample space. This implies that experimental outcome equals sample point. A collection of
sample points is called an event.
Example
Let us assume an experiment of tossing a coin once. Since the possible outcomes are head(H)
or tail (T), then the sample space dented by is 𝑆:
𝑆 = {𝐻, 𝑇}
1.6.2 COUNTING RULES, COMBINATIONS, AND PERMUTATIONS
To assign probabilities, we should be able to identify and count the experimental outcomes.
1.6.2.1 Multi-step experiments
This is the first counting rule. Let us consider tossing two coins. How many experimental
outcomes are possible for this experiment? Think of this experiment involving two steps:
Let 𝐻 −denote head and 𝑇 −denote tail. Then (𝐻, 𝐻) →head on the first coin and head on the
second coin. The sample space for this coin-tossing experiment is:
Therefore, the counting rule for multiple-step experiments makes it possible to determine the
number of experimental outcomes without listing them. Recall that we tossed two coins, one
after the other and the outcomes were:
3
First toss: 𝑛1 = 2
Second toss: 𝑛2 = 2
Using the counting rule, the total number of experimental outcomes are: 2*2=4 distinct
experimental outcomes.
Step 1 Step 2
H HH
H T
HT
H TH
T
T
TT
This is the second counting rule. It allows one to compute the number of sample points or
experimental outcomes when 𝑟 objects are to be selected from a set of 𝑁 distinct objects. Note
that with permutations the order of arrangements matters.
4
This implies that the same 𝑟 objects arranged in a different order is considered to be a different
experimental outcome: i.e
𝐴𝐵𝐶 ≠ 𝐵𝐴𝐶
1.6.3.1 Counting rule for permutations or arrangements
Assume we have 𝑁 distinct objects and we wish to arrange 𝑟 objects in a line. The number of
permutations of 𝑁 objects taken 𝑟 at a time is given by
𝑁 𝑁!
N
𝑃𝑟 = 𝑃𝑟𝑁 = 𝑁! ( ) = (𝑁−𝑟)! Where the notation ! means factorial.
𝑟
Example
3 3!
𝑃2 = (3−2)! = 6 𝑝𝑒𝑟𝑚𝑢𝑡𝑎𝑡𝑖𝑜𝑛𝑠
1.6.4 Combinations
This is the third counting rule. Recall that in permutations, we are interested in the order of
arrangement of objects. In combinations, we are only interested in selecting or choosing objects
without any order. Therefore, combinations allow one to count the number of experimental
outcomes when the experiment involves selecting 𝑟 objects from a set of 𝑁 distinct outcomes.
𝑁 𝑁! N𝑃
N
𝐶𝑟 = 𝐶𝑟𝑁 = ( ) = (𝑁−𝑟)!𝑟! = 𝑟!𝑟
𝑟
Example
The number of ways in which 2 letters can be chosen or selected from the letters 𝐴, 𝐵, 𝐶 is:
N 3 3!
𝐶𝑟 = ( ) = (3−1)!∗2! = 3 𝑐𝑜𝑚𝑏𝑖𝑛𝑎𝑡𝑖𝑜𝑛𝑠
2
1.7 Axioms of probability
Let us assume we have a sample space 𝑆 and an event 𝐴 in a class of events 𝐶. If the probability
of 𝑆 and 𝐴 are given by 𝑃(𝑆) and 𝑃(𝐴) respectively, we have the following axioms.
5
AXIOM 1
AXIOM 2
AXIOM 3
Sample space
event A
𝐴′
6
(a) Union of two events
The union of 𝐴 and 𝐵 is the event containing all sample points belonging to
𝐴 or 𝐵 or both, and is denoted by 𝐴 ∪ 𝐵
(b) Intersection of two events
The intersection of 𝐴 and 𝐵 is the event containing the sample points
belonging to both 𝐴 and 𝐵 denoted by 𝐴 ∩ 𝐵
Therefore, the addition law is:
Two events are said to be mutually exclusive if the events have no sample points in common.
In this case 𝑃(𝐴 ∩ 𝐵) = 0 and 𝑃(𝐴 ∪ 𝐵) = 𝑃(𝐴) + 𝑃𝐵)
𝑃(𝐴∩𝐵)
𝑃(𝐴|𝐵) = , 𝑃(𝐵) > 0
𝑃(𝐵)
Since 𝐵 is known to have occurred, it now becomes our sample space. To understand
conditional probabilities, let us look at what we call the joint distribution probability table.
1.10 Independent events
If two events 𝐴 and 𝐵 are independent, then
𝑃(𝐴|𝐵) = 𝑃(𝐴)
7
𝑃(𝐵|𝐴) = 𝑃(𝐴)
If one event is not affected by the occurrence or non-occurrence of another event then we say
the events are independent.
1.10.1 Theorems on conditional probabilities
A B
𝐴∩𝐵
We know 𝐵 has occurred therefore the only way 𝐴 can occur is if 𝐴 ∩ 𝐵 occurs.
Example
Let us consider the performance of students in ECN 2331 in the table below, and find the
probability that
I. The student passed the course given that the student is male.
II. The student failed the course given that the student is female.
III. Given that the student failed the course, what is the probability that the student is male.
8
Male Female
Passed 30 30 60
Fail 60 20 80
90 50 140
Solution
To solve the questions above, we first need to find the joint probability distribution table of the
above information as illustrated below;
Male(M) Female(F)
Passed(P) 𝑃(𝑃 ∩ 𝑀) 𝑃(𝑃 ∩ 𝐹) 𝑃(𝑃)
Male(M) Female(F)
30 30 60
Passed(P) = 0.21 = 0.21 = 0.43
140 140 140
60 20 80
Fail(Fa) = 0.43 = 0.14 = 0.57
140 140 140
90 50
= 0.64 = 0.36 1
140 140
I. The probability that student passed the course given that the student is male is;
9
𝑃(𝑃 ∩ 𝑀)
𝑃(𝑃|𝑀) =
𝑃(𝑀)
0.21
𝑃(𝑃|𝑀) = = 0.32
0.64
II. The probability that student failed the course given that the student is female is;
𝑃(𝐹𝑎 ∩ 𝐹)
𝑃(𝐹𝑎|𝐹) =
𝑃(𝐹)
0.14
𝑃(𝐹𝑎|𝐹) = = 0.39
0.36
III. Given that the student failed the course, what is the probability that the student is male;
𝑃(𝑀 ∩ 𝐹𝑎)
𝑃(𝑀|𝐹𝑎) =
𝑃(𝐹𝑎)
0.43
𝑃(𝑀|𝐹𝑎) = = 0.75
0.57
𝐵3
𝐵4
𝐵5
𝐴 = (𝐴 ∩ 𝐵1 ) ∪ (𝐴 ∩ 𝐵2 ) ∪ (𝐴 ∩ 𝐵3 ) … ∪ (𝐴 ∩ 𝐵𝑘 )
10
𝑃(𝐴) = 𝑃(𝐴 ∩ 𝐵1 ) + 𝑃(𝐴 ∩ 𝐵2 ) + 𝑃(𝐴 ∩ 𝐵3 ) + ⋯ + 𝑃(𝐴 ∩ 𝐵𝑘 )
= ∑ 𝑃(𝐴 ∩ 𝐵𝑖 ) … … … … … … … … 1
𝑖=1
𝑃(𝐴 ∩ 𝐵𝑖 )
𝑃(𝐴|𝐵𝑖 ) =
𝑃(𝐵𝑖 )
𝑃(𝐴) = ∑ 𝑃(𝐴 ∩ 𝐵𝑖 )
𝑖=1
Example
Let us assume we are looking at the pass rate of EC students in econometrics. Kasonde’s (class
rep) pass rate assessment suggests that EC majors minoring in mathematics have pass rate of
70%, those minoring in development studies have a pass rate of 50% and those minoring in
sociology have a pass rate of 20%.
11
Solution
𝑃(𝑃|𝑀) = 0.7
𝑃(𝑃|𝐷) = 0.5
𝑃(𝑃|𝑆) = 0.5
𝑃 = (𝑃 ∩ 𝑀) ∪ (𝑃 ∩ 𝐷) ∪ (𝑃 ∩S)
= 0.52
1.12 Bayes’ theorem
This theorem is a consequence of the law of total probability. Recall that we stated, during the
discussion of conditional probabilities that probabilities change when new information is made
available. Bayes’ theorem provides a way of computing the new probabilities. If
𝐵1 , 𝐵2 , 𝐵3 , … 𝐵𝑘 are mutually exclusive events that constitute a partition of the sample space,
then for 𝑖 = 1,2,3, … 𝑘
𝑃(𝐴|𝐵𝑖 )𝑃(𝐵𝑖 )
𝑃(𝐵𝑖 |𝐴) = 𝑘
∑𝑖=1 𝑃(𝐴|𝐵𝑖 )𝑃(𝐵𝑖 )
Example 2
Refer to example to example 1. Assuming that the student that Andrew picks passes, what is
the probability that the picked student is minoring in mathematics.
12
Solution
𝑃(𝑀∩𝑃)
Therefore, we seek 𝑃(𝑀|𝑃) = 𝑃(𝑃)
𝑃(𝑃|𝑀)𝑃(𝑀)
=
𝑃(𝑃)
0.7 ∗ 0.3
=
0.52
= 0.40
1.13 Formative Evaluations
1. A husband and wife appear in an interview for two vacancies in the same post. The
1 1
probability of husband’s selection is 7 and that of wife’s selection is 5. Find the
probability that:
(i) Both of them will be selected
(ii) Only one of them will be selected
(iii) None of them will be selected
2. Prove that for any finite number of mutually exclusive events 𝐴𝑖 , 𝐴𝑗 , … , 𝐴𝑘 , then
𝑃(⋃𝑘𝑗=1 𝐴𝑗 )=∑𝑘𝑗 𝑃(𝐴𝑗 )
13
6. A box contains 4 black, 6 white and 2 red balls. Balls are picked out of the box at random
without replacement. Find the probability that;
i. The first ball pick is black and the second one is white.
ii. The second ball picked is white.
iii. The first ball picked is black, the second is white and the third is red.
iv. The first three balls picked are of different colours.
7. A random sample of 200 adults is classified below according to sex and the level of
education attained.
If a person is picked at random from the group, find the probability that the person is;
i. a female
ii. a male, given that the person has secondary education.
iii. not a college graduate, given that the person is a female.
8. A certain diagnostic test for a certain disease is said to be 90% accurate in that, if an
animal has a disease, the test will detect it with probability 0.9. Also if an animal does
not have the disease, the test will report that the animal does not have it with
probability 0.9. Only 1% of the animal population has the disease in question. If an
animal is selected at random from the population and the test indicates that the animal
has the disease, what is the probability that the animal does, in fact, have the disease?
9. In a factory for manufacturing razor blades, machine A, B and C manufacture
respectively 25%, 35% and 40% of the total produce. The percentage of defective
razor blades from machines A, B and C are 5, 4 and 2 respectively.
i) A razor blade is selected at random. What is the probability that it is
defective?
ii) A razor blade selected at random and found to be defective, what is the
probability that it was manufactured by machine B?
iii) A razor blade is selected at random and found to be non-defective. What is the
probability that it was manufactured by machine A?
10. At Kasumbalesa border there are five adjacent offices to be occupied by five new
officers.
14
i) In how many ways can the five officers be assigned to the five offices?
ii) Suppose that there were only three offices, how many ways can the five
officers be assigned the three offices?
15