3 Probability

Mathematics and Statistics
Permutations and
Combinations
In this section, we summarize some basics on combinations. In

particular, we investigate two questions:
(1) How many possibilities exist of sequencing the elements
of a set?
(2) How many possibilities exist of selecting a certain number
of elements from a set?
Let us start with the determination of the number of possible
sequences formed with a set of elements. To this end, we first
introduce the notion of a permutation.
Definition 1.19 Let M = {a1, a2, . . . , an}. Any sequence (ap1 , ap2 ,
. . . , apn ) of all elements of set M is called a permutation.
In order to determine the number of permutations, we

introduce n! (read: n factorial) which is defined as follows: n!
= 12 . . . (n 1) n for n 1.
For n = 0, we define 0! = 1.
Given 6 cities, how many possibilities exist of organizing a tour
starting from one city visiting each of the remaining cities exactly
once and to return to the initial city? Assume that 1 city is the
starting point, all remaining 5 cities can be visited in arbitrary
order.
P(5) = 5! = 1 2 . . . 5 = 120
In a school, a teacher wishes to put 13 textbooks of three

types (mathematics, physics, and chemistry textbooks)
on a shelf. How many possibilities exist of arranging the
13 books on a shelf when there are 4 copies of a
mathematics textbook, 6 copies of a physics textbook and
3 copies of a chemistry textbook? The problem is to find
the number of possible permutations with nondistinguishable (copies of the same textbook) elements.
In the arrangements of a,b,c,d,e taken all at

a time, how many begin with a?
How many ways can you arrange the letters

in REFERENCE?
How many ways 4 fruits can be selected

out of 10 fruits to exclude the smallest
fruit?
Probability Basics
Methods of Assigning Probabilities

Classical method of assigning probability
(rules and laws)
Relative frequency of occurrence
(cumulated historical data)
Subjective Probability (personal intuition or
reasoning)
Classical Probability
Number of outcomes leading
to the event divided by the
total number of outcomes
possible
Each outcome is equally likely
Determined a priori -- before
performing the experiment
Applicable to games of chance
Objective -- everyone correctly
using the method assigns an
identical probability
P( E )
Where :
N total number of outcomes
number of outcomes in E
Relative Frequency Probability

Based on historical
data
Computed after
performing the
experiment
Number of times an
event occurred divided
by the number of trials
Objective -- everyone
correctly using the
method assigns an
identical probability
P( E )
Where :
N total number of trials
number of outcomes
producing E
Subjective Probability
Comes from a persons 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
Set Theory
Union of Sets
The union of two sets contains an instance
of each element of the two sets.
X 1,4,7,9
Y 2,3,4,5,6
X Y 1,2,3,4,5,6,7,9
C IBM , DEC , Apple
F Apple, Grape, Lime
C F IBM , DEC , Apple, Grape, Lime
XY
Intersection of Sets
The intersection of two sets contains only
those element common to the two sets.
X 1,4,7,9
Y
2,3,4,5,6
X Y 4
C IBM , DEC , Apple
F Apple , Grape , Lime
C F Apple
XY
Mutually Exclusive Events

Events with no
common outcomes
Occurrence of one
event precludes the
occurrence of the
other event
C IBM , DEC , Apple
F Grape, Lime
CF
P( X Y ) 0
X
X 1,7,9
Y 2,3,4,5,6
X Y
Types of Probability
Four Types of Probability
Marginal Probability
Union Probability
Joint Probability
Conditional Probability
Four Types of Probability

Marginal
Union
Joint
Conditional
P( X )
P( X Y )
P( X Y )
P( X| Y )
The probability
of X occurring
The probability
of X or Y
occurring
X Y
The probability
of X and Y
occurring
The probability
of X occurring
given that Y
has occurred
X Y
General Law of Addition

P( X Y ) P( X ) P(Y ) P( X Y )
X
Office Design Problem

Probability Matrix
Noise
Reduction
Yes
No
Total
Increase
Storage Space
Yes
No
.14
.56
.19
.11
.33
.67
Total
.70
.30
1.00
What is the probability that a randomly selected

employee wanted more space or noise reduction?
General Law of Addition -- Example

P( N S ) P( N ) P( S ) P( N S )
S
N
.70
.56
.67
P( N )
P( S )
P( N S )
P( N S )
.70
.67
.56
.70.67 .56
0.81
According to an article in Fortune, institutional

investors recently changed the proportions of
their portfolios toward public sector funds. The
article implies that 8% of investors studied invest
in public sector funds and 6% in corporate funds.
Assume that 2% invest in both kinds. If an
investor is chosen at random, what is the
probability that this investor has either public or
corporate funds?
Suppose that 25% of the population in a given area is

exposed to a television commercial for Ford automobiles,
and 34% is exposed to Fords radio advertisements. Also,
it is known that 10% of the population is exposed to both
means of advertising.
If a person is randomly chosen out of the entire population

in this area, what is the probability that he or she was
exposed to at least one of the two modes of advertising?
A firm has 550 employees; 380 of them have had at

least some college education, and 412 of the employees
underwent a vocational training program. Furthermore,
357 employees both are college-educated and have had
the vocational training.
If an employee is chosen at random, what is the

probability that he or she is college-educated or has had
the training or both?
A machine produces components for use in cellular phones. At any

given time, the machine may be in one, and only one, of three states:
operational, out of control, or down. From experience with this
machine, a quality control engineer knows that the probability that the
machine is out of control at any moment is 0.02, and the probability
that it is down is 0.015.
a. What is the relationship between the two events machine is out of
control and machine is down?
b. When the machine is either out of control or down, a repair person
must be called. What is the probability that a repair person must be
called right now?
c. Unless the machine is down, it can be used to produce a single
item. What is the probability that the machine can be used to produce
a single component right now?
According to The New York Times, 5 million

BlackBerry users found their devices nonfunctional on
April 18, 2007. If there were 18 million users of
handheld data devices of this kind on that day, what is
the probability that a randomly chosen user could not
use a device?
Assume that 3 million out of 18 million users could not
use their devices as cellphones, and that 1 million
could not use their devices as a cellphone and for data
device. What is the probability that a randomly chosen
device could not be used either for data or for voice
communication?
Law of Multiplication
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 )
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 )
Office Design Problem

Probability Matrix
Noise
Reduction
Yes
No
Total
Increase
Storage Space
Yes
No
.14
.56
.19
.11
.33
.67
Total
.70
.30
1.00
What is the probability of an employee wants space

given that he wants noise reduction?
Law of Conditional Probability
S
.56
.70
P ( N ) .70
P ( N S ) .56
P( N S )
P( S | N )
P( N )
.56
.70
.80
Probability of an employee wants space given that he

wants noise reduction
what is the probability that employee is supervisor if he is married?
Probability Matrix
of Employees
Supervisor
Yes
No
Total
Married
Yes
No
Total
.1143 .1000 .2143
.4571 .3286 .7857
.5714 .4286 1.00
what is the probability that employee is supervisor if he is married?
Probability Matrix
of Employees
Supervisor
Yes
No
Total
Married
Yes
No
Total
.1143 .1000 .2143
.4571 .3286 .7857
.5714 .4286 1.00
30
P( S )
0.2143
140
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
Twenty-one percent of the executives in a large advertising

firm are at the top salary level. It is further known that 40%
of all the executives at the firm are women. Also, 6.4% of
all executives are women and are at the top salary level.
Recently, a question arose among executives at the firm as
to whether there is any evidence of salary inequity.
Assuming that some statistical considerations (explained in
later chapters) are met, do the percentages reported above
provide any evidence of salary inequity?
If a large competitor will buy a small firm, the firms

stock will rise with probability 0.85. The purchase of
the company has a 0.40 probability.
What is the probability that the purchase will take
place and the firms stock will rise?
A bank loan officer knows that 12% of the banks

mortgage holders lose their jobs and default on the
loan in the course of 5 years. She also knows that
20% of the banks mortgage holders lose their jobs
during this period.
Given that one of her mortgage holders just lost his

job, what is the probability that he will now default
on the loan?
An investment analyst collects data on stocks and notes

whether or not dividends were paid and whether or not
the stocks increased in price over a given period. Data are
presented in the following table.
a. If a stock is selected at random out of the analysts list

of 246 stocks, what is the probability that it increased in
price?
b. If a stock is selected at random, what is the probability
that it paid dividends?

c. If a stock is randomly selected, what is the probability

that it both increased in price and paid dividends?
d. What is the probability that a randomly selected stock
neither paid dividends nor increased in price?

e. Given that a stock increased in price, what is the

probability that it also paid dividends?
f. If a stock is known not to have paid dividends, what is
the probability that it increased in price?

whether or not dividends were paid and whether or not the
stocks increased in price over a given period. Data are
g. What is the probability that a randomly selected stock

was worth holding during the period in question; that is,
what is the probability that it increased in price or paid
dividends or did both?
As the marketing manager for the Consumer Electronics Company, you

are analyzing the survey results of an intent-to-purchase study. This study
asked the heads of 1,000 households about their intentions to purchase a
big-screen television (defined as 36 inches or larger) sometime during the
next 12 months. Investigations of this type are known as intent-topurchase studies. As a follow-up, you plan to survey the same people 12
months later to see whether such a television was purchased. In addition,
for households purchasing big-screen televisions, you would like to know
whether the television they purchased was a plasma screen, whether they
also purchased a digital video recorder (DVR) in the past 12 months, and
whether they were satisfied with their purchase of the big-screen
television.
You are expected to use the results of this survey to plan a new marketing
strategy that will enhance sales and better target those households likely to
purchase multiple or more expensive products. What questions can you
ask in this survey?
How can you express the relationships among the various intent-topurchase responses of individual households?
In the survey, additional questions were asked of the 300 households

that actually purchased big-screen televisions. Table below indicates
the consumers responses to whether the television purchased was a
plasma screen and whether they also purchased a DVR in the past 12
months.
Find the probability that if a household that purchased a big-screen
television is randomly selected, the television purchased is a plasma
screen.
Find the probability that a randomly selected household

that purchased a big-screen television also purchased a
plasma screen television and a DVR.
Table below presents the results of the sample of 1,000

households in terms of purchase behavior for big-screen
televisions. Find the probability of planned to purchase a
big-screen television:

televisions. Find the probability of planned to purchase or
actually purchased is:-

televisions. Find the probability of planned to purchase or
actually purchased:-

televisions. Find the probability the probability that a
household actually purchased the big-screen television
given that he or she planned to purchase:-
Table below is a contingency table for whether the

household purchased a plasma screen television and
whether the household purchased a DVR. Of the
households that purchased plasma-screen televisions, what
is the probability that they also purchased DVRs?
* What is the probability that a household is planning to purchase a

big-screen television in the next year?
* What is the probability that a household will actually purchase a
big-screen television?
* What is the probability that a household is planning to purchase a
big-screen television and actually purchases the television?
* Given that the household is planning to purchase a big-screen
television, what is the probability that the purchase is made?
* Does knowledge of whether a household plans to purchase the
television change the likelihood of predicting whether the household
will purchase the television?
* What is the probability that a household that purchases a big-screen
television will purchase a plasma-screen television?
television will also purchase a DVR?
television will be satisfied with the purchase?
Thank You

3 Probability

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3 Probability

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Mathematics and Statistics

Mathematics and Statistics

In this section, we summarize some basics on combinations. In

Mathematics and Statistics

In order to determine the number of permutations, we

Mathematics and Statistics

Mathematics and Statistics

In a school, a teacher wishes to put 13 textbooks of three

Mathematics and Statistics

In the arrangements of a,b,c,d,e taken all at

Mathematics and Statistics

How many ways can you arrange the letters

Mathematics and Statistics

Mathematics and Statistics

Mathematics and Statistics

Mathematics and Statistics

How many ways 4 fruits can be selected

Mathematics and Statistics

Mathematics and Statistics

Methods of Assigning Probabilities

Mathematics and Statistics

Mathematics and Statistics

Relative Frequency Probability

Mathematics and Statistics

New product introduction

Mathematics and Statistics

Mathematics and Statistics

F Apple, Grape, Lime

C F IBM , DEC , Apple, Grape, Lime

Mathematics and Statistics

C IBM , DEC , Apple

F Apple , Grape , Lime

Mathematics and Statistics

Mutually Exclusive Events

Mathematics and Statistics

Mathematics and Statistics

Four Types of Probability

Mathematics and Statistics

Four Types of Probability

Mathematics and Statistics

General Law of Addition

Mathematics and Statistics

Office Design Problem

What is the probability that a randomly selected

Mathematics and Statistics

General Law of Addition -- Example

Mathematics and Statistics

According to an article in Fortune, institutional

Mathematics and Statistics

Suppose that 25% of the population in a given area is

If a person is randomly chosen out of the entire population

Mathematics and Statistics

A firm has 550 employees; 380 of them have had at

If an employee is chosen at random, what is the

Mathematics and Statistics

A machine produces components for use in cellular phones. At any

Mathematics and Statistics

According to The New York Times, 5 million

Mathematics and Statistics

Mathematics and Statistics

Law of Conditional Probability

Mathematics and Statistics

Office Design Problem