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Lesson 8 I. Definition of Probability a. A value between 0 and 1, inclusive, describing the relative possibility (chance or likelihood) an even will occur b. There are two cases of certainty for an event A i. P(A) = 0 ii. P(A) = 1 c. There are infinite cases of uncertainty for event A i. 0 < P(A) < 1 II. Two broad categories of Probability a. Subjective i. Relies on opinion and belief b. Objective i. Based on theory or observation ii. Types 1. Classical probability a. Derives prob. Of outcomes using theory or math i. Examples: flipping a coin, rolling dice, etc. b. You don’t actually have to perform the experiment just think things through i. # of Favorable outcomes/ Total number of possible outcomes 2. Empirical probability a. Depends on observations, experience, or data b. Actually the result of an experiment, not just theory c. Often defined as long run relative frequencies

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d. # of occurrences of interest/ total number of obs iii. Three characteristics 1. The assumption that all simple outcomes of an experiment are equally
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