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Chapter 2  Probability and Statistics
1
Types of Probability
Fundamentals of Probability
Statistical Independence and Dependence
Expected Value
The Normal Distribution
Chapter Topics
Chapter 2  Probability and Statistics
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Classical
, or
a priori
(prior to the occurrence) probability is an
objective probability that can be stated prior to the
occurrence of the event. It is based on the logic of the
process producing the outcomes.
Objective probabilities that are stated after the outcomes of
an event have been observed are
relative frequencies
, based
on observation of past occurrences.
Relative frequency is the more widely used definition of
objective probability.
Types of Probability
Objective Probability
Chapter 2  Probability and Statistics
3
Subjective probability is an estimate based on personal
belief, experience, or knowledge of a situation.
It is often the only means available for making probabilistic
estimates.
Frequently used in making business decisions.
Different people often arrive at different subjective
probabilities.
Objective probabilities used in this text unless otherwise
indicated.
Types of Probability
Subjective Probability
Chapter 2  Probability and Statistics
4
An
experiment
is an activity that results in one of several
possible outcomes which are termed
events.
The probability of an event is always greater than or equal to
zero and less than or equal to one.
The probabilities of all the events included in an experiment
must sum to one.
The events in an experiment are
mutually exclusive
if only
one can occur at a time.
The probabilities of mutually exclusive events sum to one.
Fundamentals of Probability
Outcomes and Events
Chapter 2  Probability and Statistics
5
A
frequency distribution
is an organization of numerical data
about the events in an experiment.
A list of corresponding probabilities for each event is referred
to as a probability
distribution.
If two or more events cannot occur at the same time they are
termed
mutually exclusive.
A set of events is
collectively exhaustive
when it includes all
the events that can occur in an experiment.
Fundamentals of Probability
Distributions
Chapter 2  Probability and Statistics
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State University, 3000 students, management science
grades for past four years.
Event
Grade
Number of
Students
Relative
Frequency
Probability
A
B
C
D
F
300
600
1,500
450
150
3,000
300/3,000
600/3,000
1,500/3,000
450/3,000
150/3,000
.10
.20
.50
.15
.05
1.00
Fundamentals of Probability
A Frequency Distribution Example
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Chapter 2  Probability and Statistics
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A
marginal probability
is the probability of a single event
occurring, denoted P(A).
For mutually exclusive events, the probability that one or
the other of several events will occur is found by summing
the individual probabilities of the events:
P(A or B) = P(A) + P(B)
A
Venn diagram
is used to show mutually exclusive events.
Fundamentals of Probability
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