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National College of Business Administration & Economics: Probability & Statistics

This document is a term paper on probability submitted by Aleena Hassan to her professor Sir Shahid Latif. [1] It provides an overview of probability and its formulas. [2] It discusses how probability is used in various areas of everyday life like risk assessment, commodity markets, and sports. [3] Probability allows assessment of long-term chances and outcomes based on past data and is useful for decision making.

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Aleena Hassan
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65 views

National College of Business Administration & Economics: Probability & Statistics

This document is a term paper on probability submitted by Aleena Hassan to her professor Sir Shahid Latif. [1] It provides an overview of probability and its formulas. [2] It discusses how probability is used in various areas of everyday life like risk assessment, commodity markets, and sports. [3] Probability allows assessment of long-term chances and outcomes based on past data and is useful for decision making.

Uploaded by

Aleena Hassan
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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National College of Business Administration & Economics

Probability & Statistics

Term Paper on Probability

Submitted to: Sir. Shahid Latif

Submitted by: Aleena Hassan 2091051


Introduction
Statistics is an important field and many scientists and researchers depend on it for results
related to experiments and studies. Mostly Statistics taught at college level is based on
theoretical concepts which make it difficult for students to understand and realize its
importance. Therefore the objective of this paper will be to show how statistical concepts can
be implemented practically. For this purpose it will be shown how probability is used in the
practically in various areas of life.

Probability is a vast topic with many different variations and formulas. For this paper a
general overview will be given to the use of probability. It could be defined as “A probability
is the extent to which a person believes a proposition (i.e. a statement that can be true or
false), based on the evidence they have. The proposition could be something about the past or
present of which the thinker is unsure (e.g. "The Loch Ness monster exists.") or something
about the future (e.g. "England will win the World Cup next time.”)”(Leitch, 2003). Within a
more objective approach the concept of probability is related to repetition of experiments and
measurement of relative frequencies to determine results. With this more realistic results are
achieved.

Formulas used in probability


A probability of an event A is represented by a real number in the range from 0 to 1 and
written as P (A), p (A) or Pr (A). An impossible event has a probability of 0, and a certain
event has a probability of 1.

The opposite or complement of an event A is the event [not A] (that is, the event of A not
occurring); its probability is given by P (not A) = 1 - P (A). As an example, the chance of not
rolling a six on a six-sided die is 1 – (chance of rolling a six) .

If both the events A and B occur on a single performance of an experiment this is called the
intersection or joint probability of A and B, denoted as . If two events, A and B
are independent then the joint probability is

[8]
For example, if two coins are flipped the chance of both being heads is

If either event A or event B or both events occur on a single performance of an experiment


this is called the union of the events A and B denoted as . If two events are
mutually exclusive then the probability of either occurring is
For example, the chance of rolling a 1 or 2 on a six-sided die is

If the events are not mutually exclusive then

For example, when drawing a single card at random from a regular deck of cards, the chance

of getting a heart or a face card (J, Q, K) (or one that is both) is ,


because of the 52 cards of a deck 13 are hearts, 12 are face cards, and 3 are both: here the
possibilities included in the "3 that are both" are included in each of the "13 hearts" and the
"12 picture cards" but should only be counted once.

Understanding the concept of chance


The term chance can take on many meanings. It can apply to an individual (“What are my
chances of winning the lottery?”), or it can apply to a group (“The overall percentage of adults
who get cancer is . . .”). You can signify a chance with a percent (80 percent), a proportion
(0.80), or a word (such as “likely”). The bottom line of all probability terms is that they
revolve around the idea of a long-term chance. When you’re looking at a random process (and
most occurrences in the world are the results of random processes for which the outcomes are
never certain), you know that certain outcomes can happen, and you often weigh those
outcomes in your mind. It all comes down to long-term chance; what’s the chance that this or
that outcome is going to occur in the long term (or over many individuals)?
If the chance of rain tomorrow is 30 percent, does that mean it won’t rain because the chance
is less than 50 percent? No. If the chance of rain is 30 percent, a meteorologist has looked at
many days with similar conditions as tomorrow, and it rained on 30 percent of those days
(and didn’t rain the other 70 percent). So, a 30-percent chance for rain means only that it’s
unlikely to rain.

Applications
Two major applications of probability theory in everyday life are in risk assessment and in
trade on commodity markets. Governments typically apply probabilistic methods in
environmental regulation where it is called "pathway analysis", often measuring well-being
using methods that are stochastic in nature, and choosing projects to undertake based on
statistical analyses of their probable effect on the population as a whole.

A good example is the effect of the perceived probability of any widespread Middle East
conflict on oil prices - which have ripple effects in the economy as a whole. An assessment by
a commodity trader that a war is more likely vs. less likely sends prices up or down, and
signals other traders of that opinion. Accordingly, the probabilities are not assessed
independently nor necessarily very rationally. The theory of behavioral finance emerged to
describe the effect of such groupthink on pricing, on policy, and on peace and conflict.

Seeing probability in everyday life


Probabilities affect the biggest and smallest decisions of people’s lives. Before you sign the
papers to have surgery, doctors and nurses tell you about the chances that you’ll have
complications. And before you buy a vehicle, you can find out probabilities for almost every
topic regarding that vehicle, including the chance of repairs becoming necessary, of the
vehicle lasting a certain number of miles, or of you surviving a front-end crash or rollover
(the latter depends on whether you wear a seatbelt — another fact based on probability).

Use of probability in Sports


As a layman and normal fan of sports most people just like watching and praying for their
favorite team. On the other hand avid followers and those whose earning depends on the
outcome of games utilize the concept of probability to judge what the results might be. It is in
the interest of managers, gamblers etc. to determine beforehand which team will take away
the season title. To show this specifically let’s take a look at how this is used in baseball.
Suppose Team A loses the first game, but still has 160 games left to play. What should be
done to calculate whether they would be able to win any more games and take away the
season’s trophy or not. It might come as a surprise but the use of simple probability theory
can show results.

The three concepts used in this are the win expectancy, win probability and leverage index.
For example if a particular inning, score or base-out situation is known the probability of an
average team winning can be calculated. This is termed as the win expectancy.

Leverage Index is used to determine which players will play key roles in coming games. LI
aims to quantify such players to showcase their importance.
References:

Google

Wikipedia

Leitch, M.(2003). Practical Probability. Retrieved May 2, 2010 from

http://www.dynamicmanagement.me.uk/probability/index.html

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