Chapter 4

Basic Concepts of Probability Theory

What is Probability?

Probability allows us to measure effectively the risks in selecting one alternative over the others. In general, it
is a number that describes the chance that something will happen.

Probability: A value between zero and one, inclusive, describing the relative possibility
(chance or likelihood) an event will occur.

Probability is expressed either as a percent or as a decimal. The likelihood that any particular event will
happen may assume values between 0 and 1.0. A value close to 0 indicates the event is unlikely to occur,
whereas a value close to 1.0 indicates that the event is quite likely to occur.

In our study of probability we will make extensive use of several key words. They are: experiment, outcome,
and event.

Experiment: An experiment is an act which can be repeated under certain conditions. For example,
you roll a die and observe the number of spots that appear face up. The experiment is the act of rolling
the die. Your survey company is hired by Ford to poll consumers to determine if they plan to buy a
new American-made car this year. You contact a sample of 5,000 consumers. The act of counting the
consumers who indicated they would purchase an American-made car is the experiment.

Outcome: A particular result of an experiment.

One outcome of the die-rolling experiment is the appearance of a 6. In the experiment of counting the number
of consumers who plan to buy a new American-made car this year, one possibility is that 2,258 plan to buy a
car. Another outcome is that 142 plan to buy one.

Event: A collection of one or more outcomes of an experiment.

Thus, the event that the number appearing face up in the die-rolling experiment is an even number is the
collection of the outcomes 2, 4, or 6. Similarly the event that more than half of those surveyed plan to buy a
new American made car is the collection of the outcomes 2,501, 2,502, 2,503, and so on all the way up to
5,000.
 2
Simple Event: An event which contains a single element.
Composite Event: An event which contains more than one element
Finite Event: If the number of elements of an event is finite then it is called finite event.
Infinite Event: If the number of elements of an event is infinite then it is called infinite event.
Sure Event: If the happening of an event is certain.
Impossible Event: If the happening of an event is not possible.
Complementary Events: All other events except a particular event in the event space are called
complementary events of that event.
Mutually Exclusive Events: Events are said to be mutually exclusive if the happening of an event
prevents the happening others. For example, an employee selected at random is either a male or female
but cannot be both.
Exhaustive Event: If an experiment has a set of events that includes every possible outcome, then the set
of events is called collectively exhaustive. For example: In a die-tossing experiment every outcome will
be either an even number or an odd number. Thus the set is collectively exhaustive.
Independent events: Two events A and B are said to be independent if P(AB) = P(A) × P(B)

Dependent events: If the occurring of an event depends on the event occurred earlier is called dependent
events. In this case if the event ‘A’ occurs earlier, then the probability of the happening of the event B will be
P(AB)
P(B A) =
P(A)

Different Approaches To Probability

Two types or classifications of probability are discussed: the objective and subjective viewpoints. Objective
probability is subdivided into classical probability and empirical probability.

Classical/ A priori /Mathematical Definition of Probability:

If an experiment can result in N exhaustive, mutually exclusive, and equally likely outcomes and M of those
outcomes are favourable to the event (A, say), then the probability of that event is given by
M
P(A) = .
N
For example, suppose you take a multiple-choice examination and have no idea which one of the choices is
correct. In desperation, you decide to guess the answer to each question. The four choices for each question
are the outcomes. They are equally likely, but only one is correct. Thus the probability that you guess a
particular answer correctly is 0.25 found by 1 ÷ 4.

Chapter 4
A Survey of Probability Concepts
 3

Empirical/ Statistical/ A Posteriori definition of Probability:

r
If A is an event, and the event A occurs r times in n number of trials, then the ratio will be the
n
r
probability of the event A, if the number of trials n is large. Mathematically; P(A) = Lim .
n→∝
n
To find a probability using the relative frequency approach we divide the number of times the event has
occurred in the past by the total number of observations. Suppose the Civil Aeronautics Board maintained
records on the number of times flights arrived late at the Newark International Airport. If 54 flights in a
sample of 500 were late, then, according to the relative frequency formula, the probability a particular flight
will be late is 0.108, found by 54/500.

Some Rules of Probability

In the study of probability it is often necessary to combine the probabilities of events. This is accomplished
through both rules of addition and rules of multiplication. There are two rules for addition, the special rule
of addition and the general rule of addition.

Special Rule of Addition

To apply the special rule of addition, the events must be mutually exclusive. The special rule of addition states
that the probability of the event A or the event B occurring is equal to the probability of event A plus the
probability of event B.

Special Rules of Addition P(A or B) = P(A) + P(B)

To apply the special rule of addition the events must be mutually exclusive. This means that when one
event occurs none of the other events can occur at the same time.

The Complement Rule

The complement rule is used to determine the probability of an event occurring by subtracting the probability
of the event not occurring from one (1).

Complement rule: A way to determine the probability of an event occurring by subtracting

the probability of an event not occurring from 1.

Complement Rule, P(A ) = 1 − P( A )

Chapter 4
A Survey of Probability Concepts
 4

General Rule of Addition

When we want to find the probability that two events will both happen, we use the concept known as joint
probability.

Joint probability: A probability that measures the likelihood two or more events will happen concurrently.

When the events are not mutually exclusive, then the general rule of addition is used.

General Rule of Addition, P(A or B) = P(A) + P(B) – P(A and B)

Where:
P(A) is the probability of the event A.
P(B) is the probability of the event B.
P(A and B) is the probability that both events A and B occur.

For example, a study showed 15 percent of the work force to be unemployed, 20 percent of the work force to
be minorities, and 5 percent to be both unemployed and minorities. What percent of the work force are either
minorities or unemployed? Note that if P (unemployed) and P (minority) are totaled, the 5 percent who are
both minorities and unemployed are counted in both groups that is, they are double-counted. They must be
subtracted to avoid this double counting. Hence,

P (unemployed or minority) = P (unemployed) + P (minority) − P (unemployed and minority)

= 0.15 + 0.20 − 0.05
= 0.30
These two events are not mutually exclusive and would appear as follows in a Venn diagram:

In the above example the likelihood of being both a minority and unemployed is a joint probability.

Chapter 4
A Survey of Probability Concepts
 5

Rules of Multiplication

There were two rules of addition, the general rule and the special rule. We used the general rule when the
events were not mutually exclusive and the special rule when the events were mutually exclusive. We have an
analogous situation with the rules of multiplication.

Special Rule of Multiplication

We use the general rule of multiplication when the two events are not independent and the special rule of
multiplication when the events are independent.

Independent: The occurrence of one event has no affect on the probability of the occurrence
of any other event.

The special rule of multiplication is used to combine events where the probability of the second event does
not depend on the outcome of the first event.

The probability of two independent events, A and B, occurring is found by multiplying the two probabilities.
It is written as

Special Rule of Multiplication, P(A and B) = P(A) × P(B)

As an example, a nuclear power plant has two independent safety systems. The probability the first will not
operate properly in an emergency P (A) is 0.01, and the probability the second will not operate P (B) in an
emergency is 0.02. What is the probability that in an emergency both of the safety systems will not operate?
The probability both will not operate is:

P( A and B) = P( A) × P(B)
= 001
. × 002
.
= 00002
.
The probability 0.0002 is called a joint probability, which is the simultaneous occurrence of two events. It
measures the likelihood that two (or more) events will happen together (jointly).

Another probability concept is conditional probability.

Conditional probability: The probability of a particular event occurring, given that another event occurred.

Chapter 4
A Survey of Probability Concepts
 6
Probability measures uncertainty, but the degree of uncertainty changes as new information becomes
available. Symbolically, it is written P (BA). The vertical line () does not mean divide; it is read “given” as in
the probability of B “given that” A happened.

General Rule of Multiplication

The general rule of multiplication is used to combine events that are not independent that is, they are
dependent on each other. For two events, the probability of the second event is affected by the outcome of the
first event. Under these conditions, the probability of both A and B occurring is given by;

General Rule of Multiplication, P(A and B) = P(A ) × P(B A )

Where, P(B A ) is the probability of occurring B given that A has already occurred. Note that P(B A ) is a

conditional probability.

For example, among a group of twelve prisoners, four had been convicted of murder. If two of the twelve are
selected for a special rehabilitation program, what is the probability that both of those selected are convicted
murderers?

Let A1 be the first selection (a convicted murderer) and A2 the second selection (also a convicted murderer).
Then P(A1) = 4/12. After the first selection, there are 11 prisoners, 3 of whom are convicted of murder, hence
P(A2|A1) = 3/11. The probability of both A1 and A2 happening is:

4 3
P(A1 and A 2 ) = P(A1 ) × P(A 2 A1 ) = × = 0.0909
12 11

Principles of Counting

In previous examples it was not difficult to count the possible outcomes. However, sometimes the number of
possible outcomes is quite large, and listing all the possibilities would be time consuming, tedious, and error
prone. Three formulas are very useful for determining the number of possible outcomes in an experiment.
They are: the multiplication formula, the permutation formula, and the combination formula.

The Multiplication Formula

The general rule of multiplication is used to combine events that are dependent on each other.

Chapter 4
A Survey of Probability Concepts
 7

Multiplication formula: If there are m ways of doing one thing, and n ways of doing another
thing, there are m × n ways of doing both.

In terms of a formula: Multiplication Formula; Total number of arrangements = (m)(n)

The Permutation Formula

The permutation is an arrangement of objects or things wherein order is important. That is, each time the
objects or things are placed in a different order, a new permutation results.

Permutation: Any arrangements of r objects selected from a single group of n possible objects.

The formula for the number of permutations is:

n!
Permutation Formula n Pr =
(n − r )!
Where:
P is the number of permutations, or ways the objects can be arranged.
n is the total number of objects.
r is the number of objects selected.

The Combination Formula

One particular arrangement of the objects without regard to order is called a combination.

Combination: The number of ways to choose r objects from a group of n possible objects
without regard to order.

The formula for the number of combinations is:

n!
Combination Formula n Cr =
r!(n − r )!
Where:

C is the number of different combinations.

n is the total number of objects.

r is the number of objects to be used at one time.

Chapter 4
A Survey of Probability Concepts
 8

Examples
Example # 1:
Throughout his teaching career A Professor has awarded 186 A’s out of 1,200 students. What is
the probability that a student in his section this semester will receive an A?
• This is an example of the empirical definition of probability.
• To find the probability a selected student earned the letter grade A:
186
P(A) = = 0.155
1200
Example # 2:
New England Commuter Airways recently supplied the following information on their
commuter flights from Boston to New York:
Arrival Frequency
Early 100
On time 800
Late 75
Cancled 25
Total 1000

¾ If A is the event that a flight arrives early, then P(A) = 100/1000 = .10.
¾ If B is the event that a flight arrives late, then:
P(B) = 75/1000 = .075.
¾ The probability that a flight is either early or late is:
P(A or B) = P(A) + P(B) = .10 + .075 =.175.
¾ If C is the event that a flight arrives on time, then P(C) = 800/1000 = .8.
¾ If D is the event that a flight is canceled, then P(D) = 25/1000 = .025.

Example # 3:
In a sample of 500 students, 320 said they had a stereo, 175 said they had a TV, and 100 said
they had both. If a student is selected at random,
i) What is the probability that the student has only a stereo, only a TV, and both a stereo and
TV?
ii) What is the probability that the student has either a stereo or a TV in his or her room?

Chapter 4
A Survey of Probability Concepts
 9
Solution:
i) P(S) = 220/500 = 0.44
P(T) = 75/500 = 0.15
P(S and T) = 100/500 = 0.20
ii) P(S or T) = P(S) + P(T) - P(S and T)
= 0.44 + 0.15 - 0.20 = 0.39

Example # 4:
Chris owns two stocks, IBM and General Electric (GE). The probability that IBM stock will
increase in value next year is .5 and the probability that GE stock will increase in value next year
is .7. Assume the two stocks are independent.
i) What is the probability that both stocks will increase in value next year?
ii) What is the probability that at least one of these stocks increase in value during the
next year?
Solution:
i) P(IBM and GE) = (.5)(.7) = .35.
ii) This means that either one can increase or both.
P(at least one) = (.5)(.3) + (.5)(.7) +(.7)(.5) = .85.

Example # 5:
The Dean of the School of Business at Owens University collected the following information about
undergraduate students in her college:
Major Male Female Total
Accounting 170 110 280
Finance 120 100 220
Marketing 160 70 230
Management 150 120 270
Total 600 400 1000
If a student is selected at random,
i) What is the probability that the student is a female (F) accounting major (A).
ii) Given that the student is a female, what is the probability that she is an accounting major?
Solution:
i) P(A and F) = 110/1000.
ii) P(A|F) = P(A and F)| P(F)
= [110/1000] / [400/1000] = .275

Chapter 4
A Survey of Probability Concepts
 10

Chapter Problems

Problem 1
Dunn Pontiac has compiled the following sales data regarding Dunn Pontiac Sales Data
the number of cars sold over the past 60 selling days. Answer Number of Cars Sold Number of Days
the following questions for the sales data shown. 0 5
1 5
a. What is the probability that two cars are sold 2 10
during a particular day? 3 20
4 15
b. What is the probability of selling 3 or more cars 5 or more 5
during a particular day?
Total 60
c. What is the probability of selling at least one car during a particular day?

Solution 1
This problem is an example of the relative frequency type of probability, because the probability of an event
happening is based on the number of times the particular event happened in the past relative to the total
number of observations.

a. The probability that exactly two cars are sold is:

Number of days two cars were sold 10

P(2cars) = = = 0.17
Total number of days 60

b. The probability of selling three or more cars is found by using a special rule of addition. Let X
represent the number of cars sold. Then:

20 15 5 40
P( X ≥ 3) = P(3) + P( 4) + P(5 or more ) = + + = = 0.67
60 60 60 60

Interpreting, three cars or more are sold 67 percent of the days.

c. The probability of selling at least one car is determined by adding the probabilities of selling one,
two, three, four, and five or more cars. Again let X be the number of cars sold, then

P( X ≥ 1) = P(1) + P( 2) + P(3) + P( 4) + P(5 or more )

5 10 20 15 5 55
= + + + + = = 0.9166 = 0.92
60 60 60 60 60 60

[The same result can also be found by using the complement rule. Obtain the probability of the occurrence of
a particular event by computing the probability it did not occur and then subtracting that value from 1.0. In
this example, the probability of not selling any cars is 5 ÷ 60 = 0.08, then (1 − 0.08) = 0.92.

P( X ≥ 1) = 10
. − P( 0)
5 ]
= 10
. − = (1 − 0.08) = 0.92
60

Chapter 4
A Survey of Probability Concepts
 11
Problem 2.

A local community has two newspapers. The Morning Times is read by 45 percent of the households. The
Evening Dispatch is read by 60 percent of the households. Twenty percent of the households read both
papers. What is the probability that a particular household in the city reads at least one paper?

Solution 2:

If we combine the probabilities (0.45, 0.60, and 0.20), they exceed 1.00. The group that reads both papers, of
course, is being counted twice and must be subtracted to arrive at the answer. Letting T represent the Morning
Times, and D the Evening Dispatch, and using the general rule of addition, we get;

P(T or D ) = P(T ) + P( D ) − P(T and D )

= 0.45 + 0.60 − 0.20
= 0.85

Thus, 85 percent of the households in the community read at least one paper.

Problem 3
A large department store is analyzing the per-customer amount of purchase and the method of payment. For a
sample of 140 customers, the following cross-classified table presents the findings.

Amount of Purchase
Payment B1: Less than B2:$20 up B3: $50 or
Method $20 to $50 more Total
A1: Cash 15 10 5 30
A2: Check 10 30 20 60
A3:Charge 10 20 20 50
Total 35 60 45 140

a. What is the probability of selecting someone who paid by cash or made a purchase of less than $20?

b. What is the probability of selecting someone who paid by check and made a purchase of more than $50?

Solution 3
a. If we combine the events “Less than $20” (B1) and “Cash payment” (A1), then those who paid cash for a
purchase of less than $20 are counted twice. That is, these two events are not mutually exclusive.
Therefore,

P( A1 or B1 ) = P( A1 ) + P( B1 ) − P( A1 and B1 )
30 35 15 50
= + − = = 0.36
140 140 140 140

The probability of selecting a customer who made a cash payment or purchased an item for less than $20
is 0.36.

Chapter 4
A Survey of Probability Concepts
 12
b. Conditional probability is used to find the probability of selecting someone who paid by check (A2) and
who made a purchase of over $50 (B3)

There are two qualifications: “paid by check” and “made a purchase of over $50.” Referring to the table,
20 out of 140 customers meet both qualifications, therefore, 20 ÷ 140 = 0.14.

[This probability could also be computed in a three-step process.

1. The probability of selecting those who paid by check (A2) is 60 ÷ 140 = 0.43.
2. Of the 60 persons who paid by check, 20 made a purchase of over $50. Therefore P(B3|A2) = 20 ÷ 60 =
0.33
3. These two events are then combined using the general rule of multiplication, formula [5-6].
P( A2 and B3 ) = P( A2 ) P( B3 A2 )
[ ]
= ( 0.43)( 0.33) = 014
.

Chapter Exercises:
1. Union shop stepward B. Lou Khollar has drafted a set of wage and benefit demands to be
presented to management. To get an idea of worker support for the package, he randomly
pools the two largest groups of workers at his plant, the machinist (M) and the inspectors
(I). He pools 30 of each group with the following results:
Opinion of package M I
Strongly support 9 10
Mildly support 11 3
Undecided 2 2
Mildly oppose 4 8
Strongly oppose 4 7
30 30

a) What is the probability that a machinist randomly selected from the polled group mildly
supports the package? [Ans. 11/30]
b) What is the probability that an inspector randomly selected from the polled group is
undecided about the package? [Ans. 1/15]
c) What is the probability that a worker (Machinist or inspector) randomly selected from the
polled group strongly or mildly supports the package? [Ans. 11/20]
d) What type of estimates are these?

Chapter 4
A Survey of Probability Concepts
 13
2. A bag contains 10 red, 8 yellow, 5 green and 4 white balls. Two balls drawn are at random.
What is the probability of getting,
a) Two white balls b) Two red balls
c) Two yellow balls d) Two green balls
e) Same coloured balls f) One white and one red
g) Different coloured balls

3
3. A problem given to two students A and B. The probability that A solves the problem is ,
10
5
and that B is . What is the probability that if both of them try, the problem will be solved?
9

4. Bill Borde, top advertising executive for Grapevine concepts, has just launched a publicity
campaign for a new restaurant in town, The Black Angus. Bill has just installed four
billboards on a highway outside of town, and he knows from experience the probability
that each will be noticed by a randomly chosen motorist. The probability of the first
billboard’s being noticed by a motorist is 0.75. The probability of the second’s being noticed
is 0.82, the third has a probability of 0.87 of being noticed, and the probability of the fourth
sign’s being noticed is 0.90. Assuming that the event that a motorist noticed any particular
billboard is independent of whether or not he notices the others, what is the probability that
a) All four billboards will be noticed by a randomly selected motorist?
b) The first and fourth, but not the second and the third billboards will be noticed?
c) Exactly one of the billboards will be noticed?
d) None of the billboards will be noticed?
e) The third and fourth billboards won’t be noticed?
[Hints:
a ) P(ABCD), b) P(AB C D), c) P(AB C D ) + P( ABC D) + P( ABCD ) + P(AB C D),
d) P( A) × P( B) × P( C ) × P( D ), e) P( C ) × P( D ) ]

5. At a soup kitchen, a social worker gathers the following data. Of those visiting the kitchen,
59% are men, 32% are alcoholics, and 21% are male alcoholics. What is the probability that a
random male visitor to the kitchen is an alcoholic? [Ans. 0.356]

Chapter 4
A Survey of Probability Concepts
 14
6. An MBA applies for a job in two firms X and Y. The probability of his being selected in firm
X is 0.70 and being rejected at Y is 0.50. The probability of at least one of his applications
being rejected is 0.60. What is the probability that he will be selected in one of the firms?

7. Two Ovens A and B are marketed. A sales man who is assigned the job of finding
customers for them has 60% and 40% chances respectively of succeeding in case of Ovens A
and B. The Ovens can be sold independently. Given that he has able to sell at least one

Oven, what is the probability that Oven A has been sold? [P(A A U B)]

8. A personnel department of a company has records which show the following analysis of its
200 engineers:
Age (in year) Bachelor’s Degree Master’s Degree Total
Under 30 90 10 100
30 – 40 20 30 50
Over 40 40 10 50
150 50 200
If one engineer is selected at random from the company find
a) The probability that he has only a Bachelor’s Degree? [ P ( A ) ]

b) The probability that he has a Master’s Degree given that he is over 40? [P(B D)]

c) The probability that he is under 30 given that he has only Bachelor’s Degree? [ P(C D) ]

9. The data for the promotion status and academic qualification regarding 100 employees of a
company is as follows;
Academic Qualifications
Promotional Status MBA Non- MBA Total
Promoted 12 48 60
Not promoted 18 22 40
Total 30 70 100
At random one employee is pick-up. What is the probability that
a) He is an MBA? [P(M)]
b) He is promoted? [P(P)]

Chapter 4
A Survey of Probability Concepts
 15

c) He is promoted given that he is an MBA? [P(P M)]

d) He is an MBA given that he is not promoted? [P(M NP)]

10. A market survey conducted in 4 cities pertained to preferences for brand-X soap. The
responses are shown below:
City
Opinion A B C D
Yes 45 55 60 50
No 35 45 35 45
No opinion 5 5 5 5
a) What is the probability that a consumer selected randomly preferred brand-X?
b) What is the probability that a consumer selected randomly preferred brand-X and was
from C?
c) What is the probability that a consumer selected randomly preferred brand-X given
that he was from A?
d) Given that a consumer preferred brand-X, What is the probability that he was from D?

11. Explain whether or not the following claim could be correct:

A businessman claims that the probability that he will get a contract A is 0.15 and that he
will get contract B is 0.20. Furthermore, he claims that the probability of getting A or B is
0.50.

12. Two dice (one red (R) & one white (W)) are tossed. What is the probability of getting
i) R + W = 5, ii) R × W = 8, iii) total of two dice will be divisible by 3.

Chapter 4
A Survey of Probability Concepts