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How to Assign Probabilities?
Probability is an instrument to measure the likelihood of the occurrence of an
event. There are five major approaches of assigning probability: Classical
Approach, Relative Frequency Approach, Subjective Approach, Anchoring, and
the Delphi Technique:
1.
Classical Approach: Classical probability is predicated on the condition that the outcomes
of an experiment are equally likely to happen. The classical probability utilizes the idea
that the lack of knowledge implies that all possibilities are equally likely. The classical
probability is applied when the events have the same chance of occurring (called equally
likely events), and the sets of events are mutually exclusive and collectively exhaustive.
The classical probability is defined as:
P(X) = Number of favorable outcomes / Total number of possible outcomes
2.
Relative Frequency Approach: Relative probability is based on accumulated historical or
experimental data. Frequencybased probability is defined as:
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This note was uploaded on 10/03/2011 for the course ECO 6416 taught by Professor Staff during the Spring '08 term at University of Central Florida.
 Spring '08
 Staff

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