Statistics for Business and Economics

Chapter 1: Introduction to Probability theory

Faculty of Economic Mathematics, University of Economics and Law

Outline

Introduction to the module

An introduction to Probability

Events and their probability

Conditional probability
Who am I? Who are you?

Lecturer
Dr. Hà Văn Hiếu,
Faculty of Economics Mathematics, UEL.
Email: [email protected]. Mobile number: 0972 236 365
The best way to contact me is by email!
Students
Given your very varied backgrounds, you will need to
▶ stay focused,
▶ work with your team,
▶ become practiced at communicating your own insights and challenges.
How to pass?

1. Minimum attendance: 80%.

2. No smartphone, no video game, no chattering away in class, etc.
3. Speaking: English, Vietnamese. Writing: English.

Forms of Assessments Type of Collaboration Weight

Attendance, assignment, attitude Individual, team 30%
Midterm Individual, team 20%
Final exam Individual 50%
Table: Super important table
Resources

The main recommended text is

▶ David R. Anderson. Dennis J. Sweeney. Thomas A.
Williams. Jim Freeman. Eddie Shoesmith, Statistics for
Business and Economics, 13rd edition, CENGAGE
LEARNING, 2015.
▶ lms.uel.edu.vn
▶ https://www.statistics.com/statistics-courses/
▶ Software: Excel, Stata
▶ Other resources:
1. Phạm Hoàng Uyên et. al.; Giáo trình Lý thuyết Xác suất, NXB ĐHQG TPHCM,
2021.
2. Phạm Văn Chững et. al.; Giáo trình Thống kê Ứng dụng, NXB ĐHQG TPHCM,
2019.
What is SBE?
1. Probability theory: Events and their probability,
Basic relationships of probability, conditional
probability, Bayes’ theorem [Chapter 4].
2. Discrete probability distribution: Random
variables, discrete and continuous probability
distribution, expected value and variance
[Chapter 5].
3. Continuous Probability Distributions: uniform
probability distribution, normal probability
distribution [Chapter 6].
4. Sampling and Sampling Distributions: Sample,
point estimation, sampling distributions
[Chapter 7].
5. Interval Estimation [Chapter 8].
6. Hypothesis Tests [Chapter 9]
Format of Teamwork

Requirements:
▶ Group meeting minutes,
▶ Slides (in pptx or PDF format), and TEXTS (in docx or pdf format),
▶ File name: Group1_min1, Group1_min2, Group1_slides, Group1_text.
▶ Link: https://docs.google.com/spreadsheets
▶ Where to submit your work: LMS!
A motivation to study Probability

▶ How to win a lottery in US

▶ How to win a lottery in Romania
An introduction to Probability

Main reference: Chapter 4 of the textbook.

Probability
The probability is a numerical measure of the likelihood that an event will occur. If
probabilities are available, we can determine the likelihood of each event occurring.
Probability values are always assigned on a scale from 0 to 1. A probability near zero
indicates that an event is unlikely to occur; a probability near 1 indicates an event is
almost certain to occur; other probabilities between 0 and 1 represent degrees of
likelihood that an event will occur.
Practice problems
Give examples of events with near 0 and near 1 probabilities.
Random Experiments, Counting Rules, and assigning probabilities
Random Experiment
A random experiment is a process that generates well-defined experimental outcomes.
On any single repetition or trial, the outcome that occurs is determined completely by
chance. An experimental outcome is called a sample point.
Sample space
The sample space for a random experiment is the set of all experimental outcomes.
Example
▶ Consider the random experiment of tossing a coin. If we let S denote the sample
space, we can use the following notation to describe the sample space.

S = {Head, Tail}

▶ Consider the process of rolling a die. The sample space is

S = {1, 2, 3, 4, 5, 6} .
Counting rules, combinations, and permutations

Counting rule for multiple-step experiments

If an experiment can be described as a sequence of k steps with n1 possible outcomes
on the first step, n2 possible outcomes on the second step, and so on, then the total
number of experimental outcomes is given by n1 · n2 · · · nk .

Counting rule for combinations

( N) N!
The number of combinations of N objects taken n at a time is CN
n = =
n n!(N − n)!
Counting rule for permutations
The number of permutations of N objects taken n at a time is given by
( N) N!
PN
n = n! · n =
(N − n)!
Practice Exercises

P. Consider that the traditional lottery system uses the random selection of 6
integers from 0 to 10. How many pair-wise different lottery tickets are available?
P. A teacher with a class of 30 students wants 5 of them to make a presentation.
How many ways could this happen?
P. How many different ways can the gold, silver, and bronze medals be awarded in an
Olympic event with 12 athletes competing?
P. Compare the counting rule for combinations and the counting rule for
permutations.
Assigning probabilities

▶ The probability assigned to each experimental outcome must be between 0 and 1,

inclusively. If we let Ei denote the i-th experimental outcome and P(Ei ) its
probability, then this requirement can be written as

0 ≤ P(Ei ) ≤ 1 for all i.

▶ The sum of the probabilities for all the experimental outcomes must equal exactly
to 1. That is, if the sample space is S = {E1 , E2 , . . . , En }, then

P(E1 ) + P(E2 ) + · · · + P(En ) = 1

The classical method of assigning probabilities

▶ The classical method of assigning probabilities is appropriate when all the

experimental outcomes are equally likely. If n experimental outcomes are possible,
a probability of 1/n is assigned to each experimental outcome.

Example
Consider the experiment of rolling a die. It would seem reasonable to conclude that the
six possible outcomes are equally likely and, therefore, each outcome is assigned a
probability of 1/6. If P(1) denotes the probability that one dot appears on the upward
face of the die, then P(1) = 1/6. Similarly,
P(2) = 1/6, P(3) = 1/6, P(4) = 1/6, P(5) = 1/6, and P(6) = 1/6.
The relative frequency method of assigning probabilities

▶ The relative frequency method of assigning probabilities is appropriate when data

are available to estimate the proportion of the time the experimental outcome will
occur if the experiment is repeated a large number of times.

Example
An experiment with three outcomes has been repeated 50 times and it was learned
that E1 occurred 20 times, E2 occurred 13 times, and E3 occurred 17 times. Assign
probabilities to the outcomes.
The subjective method of assigning probabilities

▶ The subjective method of assigning probabilities is appropriate when one cannot

realistically assume that the experimental outcomes are equally likely and when
little relevant data are available. After considering all available information, a
probability value is specified that expresses our degree of belief (on a scale from 0
to 1) that the experimental outcome will occur.
Exercises: p. 181.
Events and their probabilities
Events
Let S be a sample space. An event is a collection of sample points. In the other words,
an event is a subset of the sample space.
Probability of an event
The probability of an event is defined as the sum of the probabilities of the sample
points in the event.
Example
Consider the experiment of rolling a die. Then the sample space is
S = {1, 2, 3, 4, 5, 6}. A sample point is A = {1}. An event is B = {1, 2}. The event
in which odd integers occur is C = {1, 3, 5}. Moreover,

P(A) = 1/6, P(B) = 2/6, P(C) = 3/6.

Remark. Special events: ∅ and the whole sample space S.

Exercises: 14 - 16 (p. 185)
Complement of an event

Complement of an event
Given an event A, the complement of A is defined to be the event consisting of all
sample points that are not in A. We denote the complement of A as Ac .

P(A) + P(Ac ) = 1
Union of two events

Union of two events

The union of two events A and B is the event containing all sample points belonging
to A or B or both. The union is denoted by A ∪ B, or A + B.
Intersection of two events

Intersection of two events

The intersection of two events A and B is the event containing all sample points
belonging to both A and B. The intersection is denoted by A ∩ B, or AB.
Two events are said to be mutually exclusive or disjoint if the events have no sample
points in common.
Addition law

Addition law

P(A ∪ B) = P(A) + P(B) − P(A ∩ B)

Practice problems
1. Exercise 22 (p. 192)
2. Exercise 23 (p. 193)
Conditional Probability
The conditional probability is a measure of the probability of an event occurring, given
that another event is already known to have occurred. The probability of event A given
the condition that event B has occurred is denoted by P(A|B) (reads as “the
probability of A given B).
P(A ∩ B)
P(A|B) =
P(B)
Independent Events

Independent Events
Two events A and B are independent if

P(A|B) = P(A)

or
P(B|A) = P(B).
Otherwise, the events are dependent.

Multiplication Law

P(A ∩ B) = P(B)P(A|B) = P(A)P(B|A).

Remark. Two events are independent if and only if P(A ∩ B) = P(A)P(B).

Practice Problems

1. Suppose that we have two events, A and B, with P(A) = 0.5, P(B) = 0.6, and
P(A ∩ B) = 40.
a. Find P(A|B).
b. Find P(B|A). Are A and B independent?
2. Assume that we have two events, A and B, that are mutually exclusive. Assume
further that P(A) = 0.3 and P(B) = 0.4
a. Find P(A ∩ B)
b. Find P(A|B)
c. Find P(A ∪ B)
3. The following statement is correct or not: “two mutually exclusive events are
always dependent”.
Bayes’ theorem
Collectively Exhaustive Events
A set of events is said to be collectively exhaustive if at least one of the events is
certain to occur.
Bayes’ theorem
Let A1 , A2 , . . . , An be a set of n collectively exhaustive (i.e., their union is the entire
sample space), and mutually exclusive (that is, pairwise disjoint) events. Then, for any
event B, we have

P(B) = P(A1 )P(B|A1 ) + P(A2 )P(B|A2 ) + · · · + P(An )P(B|An )

Therefore,
P(Ai )P(B|Ai )
P(Ai |B) =
P(A1 )P(B|A1 ) + P(A2 )P(B|A2 ) + · · · + P(An )P(B|An )

Exercises: 39, 40 (p.206).

Teamwork for bonus point

▶ Team 1: Applications exercises 8-13 (p.182-p.183)

▶ Team 2: Applications exercises 17-21 (p.186-p.187)
▶ Team 3: Applications exercises 24-29 (p.192-p.194)
▶ Team 4: Applications exercises 32-38 (p.199-p.201)
▶ Team 5: Applications exercises 41-45 (p.206-p.207)
▶ Team 6: Supplementary exercises 46-52 (P.210-p.214)
▶ All teams: Supplementary exercises 53-60 (P.210-p.214)
▶ All teams: Case problem: p.214-p.216.
Files to submit (to LMS):
▶ A text that includes questions and answers of your team’s exercises.
▶ Group meeting minutes that include tasks with responsible people.
Thank you for your attention!