Probability Flashcards
Empirical probability
An empirical probability is established by analyzing past data.
A priori probability
An a priori probability is determined using a formal reasoning and inspection process.
Subjective probability
A subjective probability is the least formal method of developing probabilities and involves the use of personal judgment.
Odds (in favor of)
odds in favor of = (# of favorable outcomes)/(# of unfavorable outcomes)
Odds (against)
Odds against = (# of unfavorable outcomes)/(# of favorable outcomes)
Unconditional probability
Unconditional probability (a.k.a. marginal probability) refers to the probability of an event regardless of the past or future occurrence of other events.
Conditional probability
A conditional probability is one where the occurrence of one event affects the probability of the occurrence of another event. For example, we might be concerned with the probability of a recession given that the monetary authority increases interest rates. This is a conditional probability. The key word to watch for here is “given.”
Multiplication rule of probability
The multiplication rule of probability is used to determine the joint probability of two events:
P(AB) = P(A | B) × P(B)
Addition rule of probability
The addition rule of probability is used to determine the probability that at least one of two events will occur:
P(A or B) = P(A) + P(B) − P(AB)
Total probability rule
The total probability rule is used to determine the unconditional probability of an event, given conditional probabilities:
P(A) = P(A | B1)P(B1) + P(A | B2)P(B2) + … + P(A | BN)*P(BN)
where B1, B2,…BN is a mutually exclusive and exhaustive set of outcomes.
Joint probability
The joint probability of two events is the probability that they will both occur.
P(AB) = P(A | B) × P(B)
