Chapter 5- Statistics for Business and Economics

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

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Unformatted text preview: 5-1Probability5-2LEARNING OBJECTIVESLO1. Define probability.LO2. Describe the classical, empirical, and subjectiveapproaches 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.5-3ProbabilityPROBABILITY A value between zero and one, inclusive, describing the relative possibility (chance or likelihood) an event will occur.5-43 Ways of Assigning Probability1.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.5-5Classical Probability5-6Classical ProbabilityConsider an experiment of rolling a six-sided die. What is the probability of the event an even numberof 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. 5-7Empirical ProbabilityThe 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.5-8Empirical Probability - ExampleOn 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?98.123121flightsofnumber TotalflightssuccessfulofNumber flightsuccessfulaofy Probabilit===5-9Subjective Probability - ExampleIf there is little or no past experience or information on which to base a probability, it may be arrived at subjectively.LO25-10Summary of Types of ProbabilityLO25-11Experiment, Outcome and EventAn experimentis a process that leads to the occurrence of one and only one of several possible observations.An outcomeis the particular result of an experiment....
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This note was uploaded on 04/14/2011 for the course ISOM 241 taught by Professor Jukic during the Spring '11 term at Loyola Chicago.

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

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