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Chapter 5- Statistics for Business and Economics

Chapter 5- Statistics for Business and Economics -...

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5-1 Probability…
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5-2 LEARNING OBJECTIVES LO1. Define probability . LO2. Describe the classical, empirical , and subjective approaches to probability. LO3. Explain the terms experiment, event, outcome, permutations , and combinations . LO4. Define the terms conditional probability and joint probability . LO5. Calculate probabilities using the rules of addition and rules of multiplication . LO6. Apply a tree diagram to organize and compute probabilities.
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5-3 Probability PROBABILITY A value between zero and one, inclusive, describing the relative possibility (chance or likelihood) an event will occur.
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5-4 3 Ways of Assigning Probability 1. CLASSICAL PROBABILITY Based on the assumption that the outcomes of an experiment are equally likely. 2. EMPIRICAL PROBABILITY The probability of an event happening is the fraction of the time similar events happened in the past. 3. SUBJECTIVE CONCEPT OF PROBABILITY The likelihood (probability) of a particular event happening that is assigned by an individual based on whatever information is available.
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5-5 Classical Probability
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5-6 Classical Probability Consider an experiment of rolling a six-sided die. What is the probability of the event “an even number of spots appear face up”? The possible outcomes are: There are three “favorable” outcomes (a two, a four, and a six) in the collection of six equally likely possible outcomes.
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5-7 Empirical Probability The empirical approach to probability is based on what is called the law of large numbers. The key to establishing probabilities empirically is that more observations will provide a more accurate estimate of the probability.
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5-8 Empirical Probability - Example On February 1, 2003, the Space Shuttle Columbia exploded. This was the second disaster in 123 space missions for NASA. On the basis of this information, what is the probability that a future mission is successfully completed? 98 . 0 123 121 flights of number Total flights successful of Number flight successful a of y Probabilit = = =
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5-9 Subjective Probability - Example If there is little or no past experience or information on which to base a probability, it may be arrived at subjectively. LO2
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5-10 Summary of Types of Probability LO2
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5-11 Experiment, Outcome and Event An experiment is a process that leads to the occurrence of one and only one of several possible observations.
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