Probability & Probability Distributions Flashcards
Purpose of probabilities in business?
Business statistics apply formulas & models to business information to determine the probability of uccess relating to an opportunity
Define probability
Probability is a numerical measure of how likely an event will occur
What do probabilities range between?
0 and 1
0 = Outcome is imposible
1 = It is a certainty
What are the 3 sources of probabilities?
- Subjective probability
- Clasical (Theoretical) Probability
- Empirical (Statistical) Probability
What is subjective probability?
-The likelihood of a particular event happening that is assigned by an individual based on whatever information is available.
-Solely based on intuition of a person
What is Classical (Theoretical) Probability?
-All outcomes are equallty likely
-Probability is a “logical” thing
Probability = Number of favourable outcomes / Number of total polssible outcomes
What is Empirical (Statistical) Probability?
-Based on experiment
-Relative frequency - the proportion of times the outcome has occured over many repetitions
-Probability comes from historical records?
Define Experiment
An action/process with a well defined et of outcomes
Define Sample space
Set of all possible outcomes
Define Element
A specific outcome (sample point)
Define Event
Subset of the sample space. May be a specific outcome or combination of outcomes
Define Probability of an event
Sum of the probabilities of all the elements that make up the event
What is the Multiplication Rule?
-P(A AND B)
-Are the events independant?
-Independant (Specific rule) P(A and B) = P(A) x P(B)
-Dependant (General rule) P(A and B) = P(A) xP(B/A)
What is the Addition Rule?
-P(A OR B)
-Are the events mutually exclusive?
-Mutually exclusive (specific rule) P(A or B) = P(A) + P(B)
-Not mutually exlusive (general rule) P(A or B) = P(A) + P(B) -P(A&B)
Define Probability Distribution
-A probability distribution is a statistical model that shows the possible outcomes of a particular event as well as the statistical liklihood of each event
Which values are more and less likely to occur in a distribution curve?
-Values on the “tails” or the left and right end of the distribution are much less likely to occur than those in the middle of the curve.
What are the Two main types of probability distribution?
-Discrete and Continous
What is discrete probability distribution?
-Deals with countable outcomes (finite or infinite)
-Probability is assigned with individual values
What is continous probability distribution
-Deals with uncountable outcomes (measures, not counted)
-Probability is assigned over an interval using a probability density function
What is Normal Distribution
-Most important example of continuous probability distribution
-Equation is called a normla cive or Gaussian distribution
What is Standard normal distribution?
Process of changing X value to Z value
