4

CONTENTS
Basic Probability

“Possibilities at M&R
Electronics World”

4.1 Basic Probability

Concepts
4.2 Conditional Probability
4.3 Ethical Issues and
Probability
4.4 Bayes’ Theorem

CONSIDER THIS: Divine

Providence and Spam

4.5 Counting Rules

USING STATISTICS:
­Possibilities at M&R
­Electronics World,
Revisited

EXCEL GUIDE
JMP GUIDE
MINITAB GUIDE

OBJECTIVES
Understand basic
USING STATISTICS
■■
▼▼
­probability concepts
■■ Understand conditional Possibilities at M&R Electronics World
probability

A
■■ Use Bayes’ theorem to s the marketing manager for M&R Electronics World, you are analyzing the results of an
intent-to-purchase study. The heads of 1,000 households were asked about their intentions
revise probabilities
to purchase a large TV (screen size of at least 60 inches, measured diagonally) sometime
■■ Apply counting rules during the next 12 months. As a follow-up, you plan to survey the same people 12 months later to
see whether they purchased a large TV. For households that did purchase a large TV, you would
like to know whether the television they purchased had a faster refresh rate (120 Hz or higher) or
a standard refresh rate (60 Hz), whether they also purchased a streaming media player in the past
12 months, and whether they were satisfied with their purchase of the large TV.
You plan to use the results of this survey to form a new marketing strategy that will
enhance sales and better target those households likely to purchase multiple or more expensive
products. What questions can you ask in this survey? How can you express the relationships
among the various intent-to-purchase responses of individual households?

168
 4.1 Basic Probability Concepts 169

T
he principles of probability help bridge the worlds of descriptive statistics and inferential
statistics. Probability principles are the foundation for the probability distribution, the
concept of mathematical expectation, and the binomial and Poisson distributions. In this
chapter, you will learn to apply probability to intent-to-purchase survey responses to answer
purchase behavior questions such as:
• What is the probability that a household is planning to purchase a large TV in the next year?
• What is the probability that a household will actually purchase a large TV?
• What is the probability that a household is planning to purchase a large TV and actually
purchases the television?
• Given that the household is planning to purchase a large TV, what is the probability that
the purchase is made?
• Does knowledge of whether a household plans to purchase a large TV change the
­likelihood of predicting whether the household will purchase a large TV?
• What is the probability that a household that purchases a large TV will purchase a
­television with a faster refresh rate?
• What is the probability that a household that purchases a large TV with a faster refresh
rate will also purchase a streaming media player?
• What is the probability that a household that purchases a large TV will be satisfied with
the purchase?
With answers to questions such as these, you can begin to form a marketing strategy. You
can consider whether to target households that have indicated an intent to purchase or to focus
on selling televisions that have faster refresh rates or both. You can also explore whether house-
holds that purchase large TVs with faster refresh rates can be easily persuaded to also purchase
streaming media players.

4.1 Basic Probability Concepts

In everyday usage, probability, according to the Oxford English Dictionary, indicates the
extent to which something is likely to occur or exist but can also mean the most likely cause
of ­something. If you observe storm clouds forming, wind shifts, and drops in the barometric
pressure, the probability of rain coming soon increases (first meaning). If you observe people
entering an office building with wet clothes or otherwise drenched, there is a strong probability
that it is currently raining outside (second meaning).
In statistics, probability is a numerical value that expresses the ratio between the value
sought and the set of all possible values that could occur. A six-sided die has faces for 1, 2, 3,
4, 5, and 6. Therefore, for one roll of a fair six-sided die, the set of all possible values are the
values 1 through 6. If the value sought is “a value greater than 4,” then the values 5 or 6 would be
sought. One would say the probability of this event is 2 outcomes divided by 6 outcomes or 1/3.
Consider tossing a fair coin heads or tails two times. What is the probability of tossing
two tails? The set of possible values for tossing two coins are HH, TT, HT, TH. Therefore, the
probability of tossing two tails is 1/4 because there is only one value (TT) that matches what is
being sought and there are 4 values in the set of all possible values.

Events and Sample Spaces

When discussing probability, one formally uses outcomes in place of values and calls the set
of all possible outcomes the sample space. Events are subsets of the sample space, the set of
all outcomes that produce a specific result. For tossing a fair coin twice, the event “toss at least
1 head” is the subset of outcomes HH, HT, and TH and the event “toss two tails” is the subset
TT. Both of these events are also examples of a joint event, an event that has two or more
characteristics. In contrast, a simple event has only one characteristic, an outcome that cannot
be further subdivided. The event “rolling a value greater 4” in the first example results in the
subset of outcomes 5 and 6 and is an example of a simple event because “5” and “6” represent
one characteristic and cannot be further divided.
170 CHAPTER 4 | Basic Probability

student TIP The complement of an event A, noted by the symbol A', is the subset of outcomes that are not
Events are represented part of the event. For tossing a fair coin twice, the complement of the event “toss at least 1 head”
by letters of the alphabet. is the subset TT, while the complement of the event “toss two tails” is HH, HT, and TH.
A set of events are mutually exclusive if they cannot occur at the same. The events “roll a
value greater than 4” and “roll a value less than 3” are mutually exclusive when rolling one fair
die. However, the events “roll a value greater than 4” and “roll a value greater than 5” are not
because both share the outcome of rolling a 6.
A set of events are collectively exhaustive if one of the events must occur. For rolling a
fair six-sided die, the events “roll a value 3 or less” and “roll a value 4 or more” are ­collectively
exhaustive because these two subsets include all possible outcomes in the sample space.
student TIP
­However, the set of events “roll a value 3 or less” and “roll a value greater than 4” is not because
By definition, an event
this set does not include the outcome of rolling a 4.
and its complement are
Not all sets of collectively exhaustive events are mutually exclusive. For rolling a fair
always both mutually
­six-sided die, the set of events “roll a value 3 or less,” “roll an even numbered value,” and “roll
exclusive and collectively
exhaustive.
a value greater than 4” is collectively exhaustive but is not mutually exclusive as, for example,
“a value 3 or less” and “an even numbered value” could both occur if a 2 is rolled.
Certain and impossible events represent special cases. A certain event is an event that is
sure to occur such as “roll a value greater than 0” for rolling one fair die. Because the subset of
student TIP outcomes for a certain event is the entire set of outcomes in the sample, a certain event has a
probability of 1. An impossible event is an event that has no chance of occurring, such as “roll
A probability cannot
a value greater than 6” for rolling one fair die. Because the subset of outcomes for an impos-
be negative or greater
sible event is empty—there are no outcomes in the sample space that represent that event—an
than 1.
impossible event has a probability of 0.

Types of Probability
The concepts and vocabulary related to events and sample spaces are helpful to understanding
how to calculate probabilities. Also affecting such calculations are the type of probability being
used: a priori, empirical, or subjective.
In a priori probability, the probability of an occurrence is based on having prior knowl-
edge of the outcomes that can occur. Consider a standard deck of cards that has 26 red cards
and 26 black cards. The probability of selecting a black card is 26>52 = 0.50 because there
are 26 black cards and 52 total cards. What does this probability mean? If each card is replaced
after it is selected, does it mean that 1 out of the next 2 cards selected will be black? No,
because you cannot say for certain what will happen on the next several selections. However,
you can say that in the long run, if this selection process is continually repeated, the proportion
of black cards selected will approach 0.50. Example 4.1 shows another example of computing
an a priori probability.

EXAMPLE 4.1 A standard six-sided die has six faces. Each face of the die contains either one, two, three, four,
Finding A Priori five, or six dots. If you roll a die, what is the probability that you will get a face with five dots?
Probabilities SOLUTION Each face is equally likely to occur. Because there are six faces, the probability of
getting a face with five dots is 1/6.

The preceding examples use the a priori probability approach because the number of ways
the event occurs and the total number of possible outcomes are known from the composition of
the deck of cards or the faces of the die.
In the empirical probability approach, the probabilities are based on observed data, not on
prior knowledge of how the outcomes can occur. Surveys are often used to generate empirical
probabilities. Examples of this type of probability are the proportion of individuals in the M&R
World Electronics scenario who actually purchase a large TV, the proportion of registered voters
who prefer a certain political candidate, and the proportion of students who have part-time jobs.
For example, if you take a survey of students, and 60% state that they have part-time jobs, then
there is a 0.60 probability that an individual student has a part-time job.
 4.1 Basic Probability Concepts 171

The third approach to probability, subjective probability, differs from the other two
approaches because subjective probability differs from person to person. For example, the devel-
opment team for a new product may assign a probability of 0.60 to the chance of success for
the product, while the president of the company may be less optimistic and assign a probability
of 0.30. The assignment of subjective probabilities to various outcomes is usually based on a
combination of an individual’s past experience, personal opinion, and analysis of a particular
situation. Subjective probability is especially useful in making decisions in situations in which
you cannot use a priori probability or empirical probability.

Summarizing Sample Spaces

Sample spaces can be presented as in tabular form using contingency tables (see Section 2.1)
or visualized using Venn diagrams. Table 4.1 in Example 4.2 summarizes a sample space as a
contingency table. When used for probability, each cell in a contingency table represents one
joint event, analogous to the one joint response when these tables are used to summarize cate-
gorical variables. For example, 200 of the respondents correspond to the joint event “planned to
purchase a large TV and subsequently did purchase the large TV”.

EXAMPLE 4.2 The M&R Electronics World scenario on page 168 concerns analyzing the results of an intent-
Events and Sample to-purchase study. Table 4.1 presents the results of the sample of 1,000 households surveyed in
Spaces terms of purchase behavior for large TVs.

TABLE 4.1
Purchase Behavior ACTUALLY PURCHASED
PLANNED TO
for Large TVs
PURCHASE Yes No Total
Yes 200 50 250
No 100 650 750
Total 300 700 1,000

What is the sample space? Give examples of simple events and joint events.

SOLUTION The sample space consists of the 1,000 respondents. Simple events are “planned to
purchase,” “did not plan to purchase,” “purchased,” and “did not purchase.” The complement of
the event “planned to purchase” is “did not plan to purchase.” The event “planned to purchase
and actually purchased” is a joint event because in this joint event, the respondent must plan to
purchase the television and actually purchase it.

Venn diagrams visualize a sample space. This diagram represents the various events
as “unions” and “intersections” of circles. Figure 4.1 presents a typical Venn diagram for a
two-variable situation, with each variable having only two events (A and A′, B and B′). The
circle on the left (the red one) represents all events that are part of A.

FIGURE 4.1 B FIGURE 4.2 A B A9 B9 = 650

A B
Venn diagram for events Venn diagram for the M&R
A and B Electronics World example
A B

50 200 100
A

A B
A B = 350
172 CHAPTER 4 | Basic Probability

The circle on the right (the yellow one) represents all events that are part of B. The area

A x B), because it is part of A and also part of B. The total area of the two circles is the union
contained within circle A and circle B (center area) is the intersection of A and B (written as

of A and B (written as A h B) and contains all outcomes that are just part of event A, just part
of event B, or part of both A and B. The area in the diagram outside of A h B contains outcomes
that are neither part of A nor part of B.
You must define A and B in order to develop a Venn diagram. You can define either event
as A or B, as long as you are consistent in evaluating the various events. For the Example 4.2
­large-screen HDTV example, you define the events as follows:
A = planned to purchase B = actually purchased
A′ = did not plan to purchase B′ = did not actually purchase
In drawing the Venn diagram for this problem (see Figure 4.2 on page 171), you determine

A x B consists of all 200 households who planned to purchase and actually purchased a large-
the value of the intersection of A and B so that the sample space can be divided into its parts.

screen HDTV. The remainder of event A (planned to purchase) consists of the 50 households
who planned to purchase a large-screen HDTV but did not actually purchase one. The remainder
of event B (actually purchased) consists of the 100 households who did not plan to purchase a
large-screen HDTV but actually purchased one. The remaining 650 households represent those
who neither planned to purchase nor actually purchased a large-screen HDTV.

Simple Probability
Simple probability is the probability of occurrence of a simple event A, P(A) in which each ­outcome
is equally likely to occur. Equation (4.1) defines the probability of occurrence for simple probability.

PROBABILITY OF OCCURRENCE
X
Probability of occurrence = (4.1)
T

where

X = number of outcomes in which the event occurs

T = total number of possible outcomes

Equation 4.1 represents what some people wrongly think is the probability of occurrence for
all probability problems. (Not all probability problems can be solved by Equation 4.1 as later
examples in this chapter illustrate.) In the M&R Electronics scenario, the survey data collected
represent an example of empirical probability and you can use Equation (4.1) to determine
answers to questions that can be expressed as a simple probability. For example, one question
asked respondents if they planned to purchase a large TV posed in the Using Statistics scenario.
How can you determine the probability of selecting a household that planned to purchase
a large TV? Using the Table 4.1 summary table, you determine the value of X as 250, the total
of the Planned-to-Purchase Yes row and determine the value of T as 1,000, the overall total of
respondents located in the lower right corner cell of the table. Using Equation (4.1) and Table
4.1 or Figure 4.2:
X
Probability of occurrence =
T
Number who planned to purchase
P(Planned to purchase) =
Total number of households
250
= = 0.25
1,000
Thus, there is a 0.25 (or 25%) chance that a household planned to purchase a large TV.
 4.1 Basic Probability Concepts 173

Example 4.3 illustrates another application of simple probability.

EXAMPLE 4.3 In a M&R World Electronics follow-up survey, additional questions were asked of the
Computing the 300 households that actually purchased large TVs. Table 4.2 indicates the consumers’ responses
Probability That the to whether the television purchased had a faster refresh rate and whether they also purchased a
Large TV ­Purchased streaming media player in the past 12 months.
Had a Faster Find the probability that if a household that purchased a large TV is randomly selected, the
Refresh Rate television purchased had a faster refresh rate.

TABLE 4.2
Purchase Behavior STREAMING MEDIA
About Purchasing a PLAYER
REFRESH RATE OF
Faster Refresh Rate
TELEVISION PURCHASED Yes No Total
Television and a
Streaming Media Player Faster 38 42 80
Standard 70 150 220
Total 108 192 300

SOLUTION Using the following definitions:

A = purchased a television with a faster refresh rate
A′ = purchased a television with a standard refresh rate
B = purchased a streaming media player
B′ = did not purchase a streaming media player
Number of faster refresh rate televisions purchased
P(Faster refresh rate) =
Total number of televisions
80
= = 0.267
300
There is a 26.7% chance that a randomly selected large TV purchased has a faster refresh rate.

Joint Probability
Whereas simple probability refers to the probability of occurrence of simple events, joint
­probability refers to the probability of an occurrence involving two or more events. An exam-
ple of joint probability is the probability that you will get heads on the first toss of a coin and
heads on the second toss of a coin.
In Table 4.1 on page 171, the count of the group of individuals who planned to purchase
and actually purchased a large TV corresponds to the cell that represents Planned to Purchase
Yes and Actually Purchased Yes, the upper left numerical cell. (In the Figure 4.2 Venn diagram,
the intersection of A and B represents the count of this group.) Because this group consists of
200 households, the probability of picking a household that planned to purchase and actually
purchased a large TV is
Planned to purchase and actually purchased
P(Planned to purchase and actually purchased) =
Total number of respondents
200
= = 0.20
1,000
174 CHAPTER 4 | Basic Probability

Example 4.4 also demonstrates how to determine joint probability.

EXAMPLE 4.4 In Table 4.2 on page 173, the purchases are cross-classified as having a faster refresh rate or
Determining the having a standard refresh rate and whether the household purchased a streaming media player.
Joint Probability Find the probability that a randomly selected household that purchased a large TV also ­purchased
That a Household a television that had a faster refresh rate and purchased a streaming media player.
Purchased a Large SOLUTION Using Equation (4.1) on page 172 and Table 4.2 on page 173,
TV with a Faster
Refresh Rate Number that purchased a TV with a faster refresh
and Purchased P(TV with a faster refresh rate = rate and purchased a streaming media player
a Streaming and streaming media player) Total number of large TV purchasers
Media Box
38
= = 0.127
300
Therefore, there is a 12.7% chance that a randomly selected household that purchased a large
TV purchased a television that had a faster refresh rate and purchased a streaming media player.

Marginal Probability
The marginal probability of an event consists of a set of joint probabilities. You can determine
the marginal probability of a particular event by using the concept of joint probability just dis-
cussed. For example, if B consists of two events, B1 and B2, then P(A), the probability of event
A, consists of the joint probability of event A occurring with event B1 and the joint probability
of event A occurring with event B2. You use Equation (4.2) to compute marginal probabilities.

MARGINAL PROBABILITY
P(A) = P(A and B1) + P(A and B2) + g + P(A and Bk)(4.2)

where B1, B2, c, Bk are k mutually exclusive and collectively exhaustive events, defined
as follows:

You can use Equation (4.2) to compute the marginal probability of “planned to purchase”
a large TV:
P(Planned to purchase) = P (Planned to purchase and purchased)
+ P (Planned to purchase and did not purchase)
200 50 250
= + = = 0.25
1,000 1,000 1,000

You get the same result if you add the number of outcomes that make up the simple event
“planned to purchase.”

student TIP General Addition Rule

The key word when using
How do you find the probability of event “A or B”? You need to consider the occurrence of either
the addition rule is or. event A or event B or both A and B. For example, how can you determine the probability that a
household planned to purchase or actually purchased a large TV?
The event “planned to purchase or actually purchased” includes all households that planned
to purchase and all households that actually purchased a large TV. You examine each cell of the
contingency table (Table 4.1 on page 171) to determine whether it is part of this event. From
Table 4.1, the cell “planned to purchase and did not actually purchase” is part of the event
 4.1 Basic Probability Concepts 175

because it includes respondents who planned to purchase. The cell “did not plan to purchase
and actually purchased” is included because it contains respondents who actually purchased.
Finally, the cell “planned to purchase and actually purchased” has both characteristics of interest.
Therefore, one way to calculate the probability of “planned to purchase or actually purchased” is
P(Planned to purchase or actually purchased) = P (Planned to purchase and did not actually
purchase) + P(Did not plan to
purchase and actually purchased) +
P (Planned to purchase and
actually purchased)
50 100 200
= + +
1,000 1,000 1,000
350
= = 0.35
1,000
Often, it is easier to determine P(A or B), the probability of the event A or B, by using the
­general addition rule, defined in Equation (4.3).

GENERAL ADDITION RULE

The probability of A or B is equal to the probability of A plus the probability of B minus
the probability of A and B.
P(A or B) = P(A) + P(B) - P(A and B)(4.3)

Applying Equation (4.3) to the previous example produces the following result:

P(Planned to purchase or actually purchased) = P(Planned to purchase)

+ P(Actually purchased) - P(Planned to
purchase and actually purchased)
250 300 200
= + -
1,000 1,000 1,000
350
= = 0.35
1,000
The general addition rule consists of taking the probability of A and adding it to the probability
of B and then subtracting the probability of the joint event A and B from this total because the joint
event has already been included in computing both the probability of A and the probability of B.
For example, in Table 4.1 on page 171, if the outcomes of the event “planned to purchase” are
added to those of the event “actually purchased,” the joint event “planned to purchase and actually
purchased” has been included in each of these simple events. Therefore, because this joint event
has been included twice, you must subtract it to compute the correct result. Example 4.5 illustrates
another application of the general addition rule.

EXAMPLE 4.5 In Example 4.3 on page 173, the purchases were cross-classified in Table 4.2 as televisions that
Using the General had a faster refresh rate or televisions that had a standard refresh rate and whether the household
Addition Rule for purchased a streaming media player. Find the probability that among households that purchased
the Households a large TV, they purchased a television that had a faster refresh rate or purchased a streaming
That Purchased media player.
Large TVs
(continued)
▲
176 CHAPTER 4 | Basic Probability

SOLUTION Using Equation (4.3),

P(Television had a faster refresh rate = P(Television had a faster refresh rate)
or purchased a streaming media player) + P(purchased a streaming media player)
- P(Television had a faster refresh rate and
purchased a streaming media player)
80 108 38
= + -
300 300 300
150
= = 0.50
300
Therefore, of households that purchased a large TV, there is a 50% chance that a randomly
selected household purchased a television that had a faster refresh rate or purchased a streaming
media player.

PROBLEMS FOR SECTION 4.1

LEARNING THE BASICS a. The next toss of a fair coin will land on heads.
4.1 Three coins are tossed. b. Italy will win soccer’s World Cup the next time the competition
a. Give an example of a simple event. is held.
b. Give an example of a joint event. c. The sum of the faces of two dice will be seven.
c. What is the complement of a head on the first toss? d. The train taking a commuter to work will be more than 10 minutes
d. What does the sample space consist of? late.

4.2 An urn contains 12 red balls and 8 white balls. One ball is to 4.6 For each of the following, state whether the events created are
be selected from the urn. mutually exclusive and whether they are collectively exhaustive.
a. Give an example of a simple event. a. Undergraduate business students were asked whether they were
b. What is the complement of a red ball? sophomores or juniors.
c. What does the sample space consist of? b. Each respondent was classified by the type of car he or she
drives: sedan, SUV, American, European, Asian, or none.
4.3 Consider the following contingency table: c. People were asked, “Do you currently live in (i) an apartment
or (ii) a house?”
B B′ d. A product was classified as defective or not defective.
A 10 20 4.7 Which of the following events occur with a probability of zero?
A′ 20 40 For each, state why or why not.
a. A company is listed on the New York Stock Exchange and
What is the probability of event NASDAQ.
a. A? b. A consumer owns a smartphone and a tablet.
b. A′? c. A cellphone is an Apple and a Samsung.
c. A and B? d. An automobile is a Toyota and was manufactured in the United
d. A or B? States.

4.4 Consider the following contingency table: 4.8 Do Millennials or Gen-Xers feel more tense or stressed out
at work? A survey of employed adults conducted online by Harris
Interactive on behalf of the American Psychological Association
B B′
revealed the following:
A 10 30
A′ 25 35
FELT TENSE OR
STRESSED OUT AT WORK
What is the probability of event
a. A′? AGE GROUP Yes No
b. A and B? Millennials 175 206
c. A′ and B′? Gen-Xers 183 390
d. A′ or B′?
Source: Data extracted from “The 2016 Work and Well-Being ­Survey,”
American Psychological Association and Harris ­Interactive, March 2016,
APPLYING THE CONCEPTS p. 45.

4.5 For each of the following, indicate whether the type of prob-
ability involved is an example of a priori probability, empirical a. Give an example of a simple event.
probability, or subjective probability. b. Give an example of a joint event.
 4.1 Basic Probability Concepts 177

c. What is the complement of “Felt tense or stressed out at work”? a. indicates gains in students’ learning attributable to education
d. Why is “Male and felt tense or stressed out at work” a joint event? technology have justified colleges’ spending in this area?
b. is a technology leader?
4.9 Referring to the contingency table in Problem 4.8, if an
c. indicates gains in students’ learning attributable to education
employed adult is selected at random, what is the probability that
technology have justified colleges’ spending in this area or is a
a. the employed adult felt tense or stressed out at work?
technology leader?
b. the employed adult was a millennial who felt tense or stressed
d. Explain the difference in the results in (b) and (c).
out at work?
c. the employed adult was a millennial or felt tense or stressed out 4.13 Do Generation X and Boomers differ in how they use credit
at work? cards? A sample of 1,000 Generation X and 1,000 Boomers revealed
d. Explain the difference in the results in (b) and (c). the following results:
4.10 How will marketers change their social media use in the near
GENERATION
future? A survey by Social Media Examiner reported that 76% of
B2B marketers (marketers that focus primarily on attracting busi- PAY FULL AMOUNT
nesses) plan to increase their use of LinkedIn, as compared to 52% EACH MONTH Generation X Boomers Total
of B2C marketers (marketers that primarily target consumers). The
Yes 440 630 1,070
survey was based on 1,780 B2B marketers and 3,306 B2C marketers.
No 560 370 930
The following table summarizes the results:
Total 1,000 1,000 2,000
BUSINESS FOCUS Source: Data extracted from “C. Jones, “Gen X, Boomers see Credit Cards as a
INCREASE USE Lifeline,” USA Today, July 7, 2015, p. 1A.
OF LINKEDIN? B2B B2C Total
Yes 1,353 1,719 3,072 If a respondent is selected at random, what is the probability that
No 427 1,587 2,014 he or she
Total 1,780 3,306 5,086 a. pays the full amount each month?
b. is a Generation X and pays the full amount each month?
Source: Data extracted from “2016 Social Media Marketing Industry
Report,” socialmediaexaminer.com. c. is a Generation X or pays the full amount each month?
d. Explain the difference in the results of (b) and (c).
a. Give an example of a simple event. 4.14 A survey of 1,520 Americans adults asked, “Do you feel over-
b. Give an example of a joint event. loaded with too much information?” The results indicated that of
c. What is the complement of a marketer who plans to increase 785 males, 134 answered yes. Of 735 females, 170 answered yes.
use of LinkedIn? Source: Data extracted from “Information Overload,” pewrsr.ch/2h2OSQP.
d. Why is a marketer who plans to increase use of LinkedIn and is Construct a contingency table to evaluate the probabilities. What is the
a B2C marketer a joint event? probability that a respondent chosen at random
a. indicates that he/she feels overloaded with too much information?
4.11 Referring to the contingency table in Problem 4.10, if a mar- b. is a female and indicates that he/she feels overloaded with too
keter is selected at random, what is the probability that much information?
a. he or she plans to increase use of LinkedIn? c. is a female or is a person who feels overloaded with too much
b. he or she is a B2C marketer? information?
c. he or she plans to increase use of LinkedIn or is a B2C marketer? d. is a male or a female?
d. Explain the difference in the results in (b) and (c).
4.15 Each year, ratings are compiled concerning the performance of
SELF 4.12 Have the gains in student learning attributed to new cars during the first 90 days of use. Suppose that the cars have been
TEST education technology justified colleges’ spending in this
categorized according to whether a car needs a warranty-related repair
area? As part of Inside Higher Ed’s 2016 Survey of Faculty ­Attitudes (yes or no) and the country in which the company manufacturing a car
on Technology, academic professionals, professors and technology is based (United States or not United States). Based on the data col-
leaders, were asked this question. The following table summarizes lected, the probability that the new car needs a warranty repair is 0.04,
the responses: the probability that the car was manufactured by a U.S.-based company
is 0.60, and the probability that the new car needs a warranty repair and
ACADEMIC PROFESSIONAL was manufactured by a U.S.-based company is 0.025.

JUSTIFIED? Professor Technology Leader Total Construct a contingency table to evaluate the probabilities of a
­warranty-related repair. What is the probability that a new car selected
Yes 952 58 1,010
at random
No 719 11 730 a. needs a warranty repair?
Total 1,671 69 1,740 b. needs a warranty repair and was manufactured by a U.S.-based
Source: Data extracted from “The 2016 Insider Higher Ed Survey of Faculty company?
­Attitudes on Technology,” bit.ly/2pxRc65 c. needs a warranty repair or was manufactured by a U.S.-based
company?
d. needs a warranty repair or was not manufactured by a
If an academic professional is selected at random, what is the
U.S.-based company?
­probability that he or she
178 CHAPTER 4 | Basic Probability

4.2 Conditional Probability

Each example in Section 4.1 involves finding the probability of an event when sampling from
the entire sample space. How do you determine the probability of an event if you know certain
information about the events involved?

Computing Conditional Probabilities

Conditional probability refers to the probability of event A, given information about the
­occurrence of another event, B.

CONDITIONAL PROBABILITY
The probability of A given B is equal to the probability of A and B divided by the
­probability of B.
P(A and B)
P(A B) = (4.4a)
P(B)
The probability of B given A is equal to the probability of A and B divided by the
­probability of A.
P(A and B)
P(B A) = (4.4b)
P(A)
where
P(A and B) = joint probability of A and B
P(A) = marginal probability of A
P(B) = marginal probability of B

student TIP Referring to the M&R Electronics World scenario involving the purchase of large TVs, sup-
The variable that pose you were told that a household planned to purchase a large TV. Now, what is the probability
is given goes in that the household actually purchased the television?
the denominator of In this example, the objective is to find P(Actually purchased  Planned to purchase). Here
Equation (4.4). Because you are given the information that the household planned to purchase the large TV. Therefore,
you were given planned the sample space does not consist of all 1,000 households in the survey. It consists of only those
to purchase, planned households that planned to purchase the large TV. Of 250 such households, 200 actually pur-
to purchase is in the chased the large TV. Therefore, based on Table 4.1 on page 171, the probability that a household
denominator. actually purchased the large TV given that they planned to purchase is
Planned to purchase and actually purchased
P(Actually purchased  Planned to purchase) =
Planned to purchase
200
= = 0.80
250
You can also use Equation (4.4b) to compute this result:
P(A and B)
P(B A) =
P(A)
where
A = planned to purchase
B = actually purchased
then
200>1,000 200
P(Actually purchased  Planned to purchase) = = = 0.80
250>1,000 250
Example 4.6 further illustrates conditional probability.
 4.2 Conditional Probability 179

EXAMPLE 4.6 Table 4.2 on page 173 is a contingency table for whether a household purchased a television
Finding the Condi- with a faster refresh rate and whether the household purchased a streaming media player. If a
tional ­Probability household purchased a television with a faster refresh rate, what is the probability that it also
of ­Purchasing purchased a streaming media player?
a Streaming SOLUTION Because you know that the household purchased a television with a faster refresh
Media Player rate, the sample space is reduced to 80 households. Of these 80 households, 38 also purchased a
streaming media player. Therefore, the probability that a household purchased a streaming media
player, given that the household purchased a television with a faster refresh rate, is

Number purchasing television with

P(Purchased streaming media player Purchased faster refresh rate and streaming media player
=
television with faster refresh rate) Number purchasing television
with faster refresh rate
38
= = 0.475
80

Using Equation (4.4b) on page 178 and the following definitions:

A = purchased a television with a faster refresh rate
B = purchased a streaming media player

then
P(A and B) 38>300
P(B A) = = = 0.475
P(A) 80>300

Therefore, given that the household purchased a television with a faster refresh rate, there is
a 47.5% chance that the household also purchased a streaming media player. You can compare
this conditional probability to the marginal probability of purchasing a streaming media player,
which is 108>300 = 0.36, or 36%. These results tell you that households that purchased tele-
visions with a faster refresh rate are more likely to purchase a streaming media player than are
households that purchased large TVs that have a standard refresh rate.

Decision Trees
In Table 4.1 on page 171, households are classified according to whether they planned
to ­purchase and whether they actually purchased large TVs. A decision tree is an alternative to
the contingency table. Figure 4.3 represents the decision tree for this example.

FIGURE 4.3
Decision tree for planned ased P(A and B) 5 200
250 urch 1,000
ly P
to purchase and actually P(A) 5
1,000 Actual
purchased
to
ned Did N
Plan hase ot A
Purc Purch ctually P(A and B9) 5 50
Entire ase 1,000
Set of
Households
Did
to P Not Pl hased
urc a
has n y Purc P(A9 and B) 5 100
e Actuall 1,000

750
P(A9) 5 Did
1,000 Not
Pur Actua
cha l P(A9 and B9) 5 650
se ly 1,000
180 CHAPTER 4 | Basic Probability

In Figure 4.3, beginning at the left with the entire set of households, there are two
“branches” for whether or not the household planned to purchase a large TV. Each of these
branches has two subbranches, corresponding to whether the household actually purchased
or did not actually purchase the large TV. The probabilities at the end of the initial branches
represent the marginal probabilities of A and A′. The probabilities at the end of each of the
four subbranches represent the joint probability for each combination of events A and B.
You compute the conditional p­ robability by dividing the joint probability by the appropriate
marginal probability.
For example, to compute the probability that the household actually purchased, given that
the household planned to purchase the large TV, you take P(Planned to purchase and actually
purchased) and divide by P(Planned to purchase). From Figure 4.3,
200>1,000
P(Actually purchased  Planned to purchase) =
250>1,000
200
= = 0.80
250
Example 4.7 illustrates how to construct a decision tree.

EXAMPLE 4.7 Using the cross-classified data in Table 4.2 on page 173, construct the decision tree. Use the
Constructing decision tree to find the probability that a household purchased a streaming media player, given
the Decision Tree that the household purchased a television with a faster refresh rate.
for the Households SOLUTION The decision tree for purchased a streaming media player and a television with a
That Purchased faster refresh rate is displayed in Figure 4.4.
Large TVs

FIGURE 4.4 g
min
Decision tree for trea
a s ed S ayer P(A and B) 5
38
h l
­purchased a television P(A) 5
80 Purc edia P 300
300 M
with a faster refresh rate
and a streaming media r
aste
s ed F evision Did
player h a
Purc Rate Te
l Strea Not Purc
ming ha P(A and B9) 5 42
Entire r e s h Media se 300
Ref Playe
r
Set of
Households
Did
g
Fas Not P eamin
ter
Re urch sed Str
Purcha ia Player P(A9 and B) 5 70
Tele fresh ase Med 300
visi R
on ate
220
P(A9) 5 Did
300 Stre Not Pu
am r
in chas P(A9 and B9) 5 150
Pla g Med e 300
yer ia

Using Equation (4.4b) on page 178 and the following definitions:

A = purchased a television with a faster refresh rate
B = purchased a streaming media player
then
P(A and B) 38>300
P(B A) = = = 0.475
P(A) 80>300
 4.2 Conditional Probability 181

Independence
In the example concerning the purchase of large TVs, the conditional probability is
200>250 = 0.80 that the selected household actually purchased the large TV, given that
the household planned to purchase. The simple probability of selecting a household that
actually purchased is 300>1,000 = 0.30. This result shows that the prior knowledge that the
household planned to purchase affected the probability that the household actually purchased
the television. In other words, the outcome of one event is dependent on the outcome of a
second event.
When the outcome of one event does not affect the probability of occurrence of another
event, the events are said to be independent. Independence can be determined by using
Equation (4.5).

INDEPENDENCE
Two events, A and B, are independent if and only if
P(A B) = P(A)(4.5)
where
P(A B) = conditional probability of A given B
P(A) = marginal probability of A

Example 4.8 demonstrates the use of Equation (4.5).

EXAMPLE 4.8 In the follow-up survey of the 300 households that actually purchased large TVs, the house-
Determining holds were asked if they were satisfied with their purchases. Table 4.3 cross-classifies the
Independence responses to the satisfaction question with the responses to whether the television had a
faster refresh rate.

TABLE 4.3
Satisfaction with SATISFIED WITH PURCHASE?
TELEVISION
­Purchase of Large TVs
REFRESH RATE Yes No Total
Faster 64 16 80
Standard 176 44 220
Total 240 60 300

Determine whether being satisfied with the purchase and the refresh rate of the television
purchased are independent.
SOLUTION For these data,
64>300 64
P(Satisfied  Faster refresh rate) = = = 0.80
80>300 80

which is equal to
240
P(Satisfied) = = 0.80
300
Thus, being satisfied with the purchase and the refresh rate of the television purchased are
­independent. Knowledge of one event does not affect the probability of the other event.
182 CHAPTER 4 | Basic Probability

Multiplication Rules
The general multiplication rule is derived using Equation (4.4a) on page 178:

P(A and B)
P(A B) =
P(B)

and solving for the joint probability P(A and B).

GENERAL MULTIPLICATION RULE

The probability of A and B is equal to the probability of A given B times the probability
of B.
P(A and B) = P(A B)P(B) (4.6)

Example 4.9 demonstrates the use of the general multiplication rule.

EXAMPLE 4.9 Consider the 80 households that purchased televisions that had a faster refresh rate. In Table 4.3
Using the General on page 181, you see that 64 households are satisfied with their purchase, and 16 households
Multiplication Rule are dissatisfied. Suppose 2 households are randomly selected from the 80 households. Find the
probability that both households are satisfied with their purchase.
SOLUTION Here you can use the multiplication rule in the following way. If
A = second household selected is satisfied
B = first household selected is satisfied
then, using Equation (4.6),
P(A and B) = P(A B)P(B)

The probability that the first household is satisfied with the purchase is 64/80. However, the
probability that the second household is also satisfied with the purchase depends on the result
of the first selection. If the first household is not returned to the sample after the satisfaction
level is determined (i.e., sampling without replacement), the number of households remaining
is 79. If the first household is satisfied, the probability that the second is also satisfied is 63/79
because 63 satisfied households remain in the sample. Therefore,

63 64
P(A and B) = a b a b = 0.6380
79 80

There is a 63.80% chance that both of the households sampled will be satisfied with their
purchase.

The multiplication rule for independent events is derived by substituting P(A) for
P(A B) in Equation (4.6).

MULTIPLICATION RULE FOR INDEPENDENT EVENTS

If A and B are independent, the probability of A and B is equal to the probability of A
times the probability of B.

P(A and B) = P(A)P(B)(4.7)

 4.2 Conditional Probability 183

If this rule holds for two events, A and B, then A and B are independent. Therefore, there are two
ways to determine independence:
1. Events A and B are independent if, and only if, P(A B) = P(A).
2. Events A and B are independent if, and only if, P(A and B) = P(A)P(B).

Marginal Probability Using

the General Multiplication Rule
In Section 4.1, marginal probability was defined using Equation (4.2) on page 174. You can
state the equation for marginal probability by using the general multiplication rule. If

P(A) = P(A and B1) + P(A and B2) + g + P(A and Bk)

then, using the general multiplication rule, Equation (4.8) defines the marginal probability.

MARGINAL PROBABILITY USING THE GENERAL MULTIPLICATION RULE

P(A) = P(A B1)P(B1) + P(A B2)P(B2) + g + P(A Bk)P(Bk) (4.8)

where B1, B2, c, Bk are k mutually exclusive and collectively exhaustive events.

To illustrate Equation (4.8), refer to Table 4.1 on page 171. Let

P(A) = probability of planned to purchase
P(B1) = probability of actually purchased
P(B2) = probability of did not actually purchase

Then, using Equation (4.8), the probability of planned to purchase is

P(A) = P(A B1)P(B1) + P(A B2)P(B2)

200 300 50 700

= a ba b + a ba b
300 1,000 700 1,000
200 50 250
= + = = 0.25
1,000 1,000 1,000

PROBLEMS FOR SECTION 4.2

LEARNING THE BASICS 4.17 Consider the following contingency table:

4.16 Consider the following contingency table:
B B′
B B′ A 10 30
A 10 20 A′ 25 35
A′ 20 40 What is the probability of
a. A  B?
What is the probability of
b. A=  B=?
a. A  B?
c. A  B=?
b. A  B′?
d. Are events A and B independent?
c. A′ B′?
d. Are events A and B independent? 4.18 If P(A and B) = 0.4 and P(B) = 0.8, find P(A  B).
184 CHAPTER 4 | Basic Probability

4.19 If P(A) = 0.7, P(B) = 0.6, and A and B are independent, find
P(A and B). PAY FULL GENERATION
AMOUNT
4.20 If P(A) = 0.3, P(B) = 0.4, and P(A and B) = 0.2, are A and EACH MONTH Generation X Boomers Total
B independent? Yes    440    630 1,070
No    560    370    930
APPLYING THE CONCEPTS Total 1,000 1,000 2,000
4.21 Do Millennials or Gen-Xers feel more tense or stressed out Source: Data extracted from C. Jones, “Gen X, Boomers see
at work? A survey of employed adults conducted online by Harris Credit Cards as a Lifeline,” USA Today, July 7, 2015, p. 1A.
Interactive on behalf of the American Psychological Association
revealed the following:
a. If a respondent selected is a member of Generation X, what is
the probability that he or she pays the full amount each month?
FELT TENSE OR b. If a respondent selected is a Boomer, what is the probability that
STRESSED OUT AT WORK he or she pays the full amount each month?
c. Is payment each month independent of generation?
AGE GROUP Yes No
Millennials 175 206 SELF 4.24 Have the gains in student learning attributed to
TEST education technology justified colleges’ spending in this
Gen-Xers 183 390
area? As part of Inside Higher Ed’s 2016 Survey of Faculty ­Attitudes
Source: Data extracted from “The 2016 Work and Well-­Being ­Survey,”
American Psychological Association and Harris ­Interactive, March 2016, on Technology, professors, and technology leaders, were asked this
p. 45. question. The following table summarizes the responses:

a. Given that the employed adult felt tense or stressed out at ACADEMIC PROFESSIONAL
work, what is the probability that the employed adult was a
millennial? JUSTIFIED? Professor Technology Leader Total
b. Given that the employed adult is a millennial, what is the prob­ Yes 952 58 1,010
ability that the person felt tense or stressed out at work? No 719 11 730
c. Explain the difference in the results in (a) and (b). Total 1,671 69 1,740
d. Is feeling tense or stressed out at work and age group Source: Data extracted from “The 2016 Insider Higher Ed Survey of Faculty
­independent? Attitudes on Technology,” bit.ly/2pxRc65.
4.22 How will marketers change their social media use in the near
future? A survey by Social Media Examiner of B2B marketers a. Given that an academic professional is a professor, what is the
(marketers that focus primarily on attracting businesses) and B2C probability that the professional indicates gains in students’
marketers (marketers that primarily target consumers) was based learning attributable to education technology have justified col-
on 1,780 B2B marketers and 3,306 B2C marketers. The following leges’ spending in this area?
table summarizes the results: b. Given that an academic professional is a professor, what is the
probability that the professor does not indicate gains in ­students’
BUSINESS FOCUS learning attributable to education technology have j­ ustified col-
INCREASE USE leges’ spending in this area?
OF LINKEDIN? B2B B2C Total c. Given that an academic professional is a technology leader,
Yes 1,353 1,719 3,072 what is the probability that the professor indicates gains in
No    427 1,587 2,014 students’ learning attributable to education technology have
Total 1,780 3,306 5,086 ­justified colleges’ spending in this area?
d. Given that an academic professional is a technology leader,
Source: Data extracted from “2016 Social Media Marketing Industry Report,”
what is the probability that the professional does not indicate
socialmediaexaminer.com.
gains in students’ learning attributable to education technology
have justified colleges’ spending in this area?
a. Suppose you know that the marketer is a B2B marketer.
What is the probability that he or she plans to increase use of 4.25 A survey of 1,520 Americans adults asked “Do you feel
LinkedIn? overloaded with too much information?” The results indi-
b. Suppose you know that the marketer is a B2C marketer. cated that of 785 males, 134 answered yes. Of 735 females,
What is the probability that he or she plans to increase use of 170 answered yes.
LinkedIn? Source: Data extracted from “Information Overload,” pewrsr.ch/2h2OSQP.
c. Are the two events, increase use of LinkedIn and business ­focus,
independent? Explain. a. Suppose that the respondent chosen is a female. What is the
probability that she felt overloaded with too much i­ nformation?
4.23 Do Generation X and Boomers differ in how they use credit
cards? A sample of 1,000 Generation X and 1,000 Boomers revealed
the following results:
 4.3 Ethical Issues and Probability 185

b. Suppose that the respondent chosen does indicate that he/she c. Are the two events “first-week performance” and “annual
feels overloaded with too much information. What is the proba- ­performance” independent? Explain.
bility that the individual is a male? d. Look up the performance after the first five days of 2017 and
c. Are overload with too much information and the gender of the the 2017 annual performance of the S&P 500 at finance.yahoo
individual independent? Explain. .com. Comment on the results.
4.26 Each year, ratings are compiled concerning the performance of 4.28 A standard deck of cards is being used to play a game. There
new cars during the first 90 days of use. Suppose that the cars have are four suits (hearts, diamonds, clubs, and spades), each having
been categorized according to whether a car needs warranty-related 13 faces (ace, 2, 3, 4, 5, 6, 7, 8, 9, 10, jack, queen, and king), making
repair (yes or no) and the country in which the company manufactur- a total of 52 cards. This complete deck is thoroughly mixed, and
ing a car is based (United States or not United States). Based on the you will receive the first 2 cards from the deck, without replacement
data collected, the probability that the new car needs a warranty repair (the first card is not returned to the deck after it is selected).
is 0.04, the probability that the car is manufactured by a U.S.-based a. What is the probability that both cards are queens?
company is 0.60, and the probability that the new car needs a warranty b. What is the probability that the first card is a 10 and the second
repair and was manufactured by a U.S.-based company is 0.025. card is a 5 or 6?
a. Suppose you know that a company based in the United States c. If you were sampling with replacement (the first card is returned
manufactured a particular car. What is the probability that the to the deck after it is selected), what would be the answer in (a)?
car needs a warranty repair? d. In the game of blackjack, the face cards (jack, queen, king) count
b. Suppose you know that a company based in the United States as 10 points, and the ace counts as either 1 or 11 points. All oth-
did not manufacture a particular car. What is the probability that er cards are counted at their face value. Blackjack is achieved if
the car needs a warranty repair? 2 cards total 21 points. What is the probability of getting blackjack
c. Are need for a warranty repair and location of the company in this problem?
manufacturing the car independent?
4.29 A box of nine iPhone 7 cellphones contains two red ­cellphones
4.27 In 42 of the 66 years from 1950 through 2016 (in 2011 and seven black cellphones.
there was virtually no change), the S&P 500 finished higher after a. If two cellphones are randomly selected from the box, with-
the first five days of trading. In 37 out of 42 years, the S&P 500 out replacement (the first cellphone is not returned to the box
­finished higher for the year. Is a good first week a good omen for the ­after it is selected), what is the probability that both cellphones
upcoming year? The following table gives the first-week and annual ­selected will be red?
­performance over this 66-year period: b. If two cellphones are randomly selected from the box, without
replacement (the first cellphone is not returned to the box after
S&P 500’S ANNUAL PERFORMANCE it is selected), what is the probability that there will be one red
cellphone and one black cellphone selected?
FIRST WEEK Higher Lower c. If three cellphones are selected, with replacement (the cell-
Higher 37 5 phones are returned to the box after they are selected), what is
Lower 12 12 the probability that all three will be red?
d. If you were sampling with replacement (the first cellphone
is ­returned to the box after it is selected), what would be the
a. If a year is selected at random, what is the probability that the
­answers to (a) and (b)?
S&P 500 finished higher for the year?
b. Given that the S&P 500 finished higher after the first five days of
trading, what is the probability that it finished higher for the year?

4.3 Ethical Issues and Probability

Ethical issues can arise when any statements related to probability are presented to the public,
particularly when these statements are part of an advertising campaign for a product or service.
Unfortunately, many people are not comfortable with numerical concepts (see reference 5) and
tend to misinterpret the meaning of the probability. In some instances, the misinterpretation is not
intentional, but in other cases, advertisements may unethically try to mislead potential customers.
One example of a potentially unethical application of probability relates to advertisements
for state lotteries. When purchasing a lottery ticket, the customer selects a set of numbers (such
as 6) from a larger list of numbers (such as 54). Although virtually all participants know that
they are unlikely to win the lottery, they also have very little idea of how unlikely it is for them
to select all 6 winning numbers from the list of 54 numbers. They have even less of an idea of
the probability of not selecting any winning numbers.
Given this background, you might consider a recent commercial for a state lottery that
stated, “We won’t stop until we have made everyone a millionaire” to be deceptive and possibly
unethical. Do you think the state has any intention of ever stopping the lottery, given the fact that
the state relies on it to bring millions of dollars into its treasury? Is it possible that the lottery can
186 CHAPTER 4 | Basic Probability

make everyone a millionaire? Is it ethical to suggest that the purpose of the lottery is to make
everyone a millionaire?
Another example of a potentially unethical application of probability relates to an invest-
ment newsletter promising a 90% probability of a 20% annual return on investment. To make
the claim in the newsletter an ethical one, the investment service needs to (a) explain the basis
on which this probability estimate rests, (b) provide the probability statement in another format,
such as 9 chances in 10, and (c) explain what happens to the investment in the 10% of the cases
in which a 20% return is not achieved (e.g., is the entire investment lost?).
These are serious ethical issues. If you were going to write an advertisement for the state
lottery that ethically describes the probability of winning a certain prize, what would you say?
If you were going to write an advertisement for the investment newsletter that ethically states
the probability of a 20% return on an investment, what would you say?

4.4 Bayes’ Theorem

Developed by Thomas Bayes in the eighteenth century (see references 1, 2, 3, and 6), Bayes’
theorem is an extension of what you previously learned about conditional probability. Bayes’
theorem revises previously calculated probabilities using additional information and forms the
basis for Bayesian analysis.
In recent years, Bayesian analysis has gained new prominence for its application to and
in analyzing big data using predictive analytics that Chapter 17 discusses. However, Bayesian
analysis does not require big data and can be used in a variety of problems to better determine
the revised probability of certain events. The Consider This feature in this section explores an
application of Bayes’ theorem that many use every day.
Certain types of marketing decisions represent one type of example in which Bayes’ theorem
can be applied. Consider a scenario in which an electronics manufacturer is considering marketing
a new model of television. In the past, 40% of the new-model televisions have been successful, and
60% have been unsuccessful. Before introducing the new-model television, the marketing research
department conducts an extensive study and releases a report, either favorable or unfavorable. In the
past, 80% of the successful new-model television(s) had received favorable market research reports,
and 30% of the unsuccessful new-model television(s) had received favorable reports. For the new
model of television under consideration, the marketing research department has issued a favorable
report. What is the probability that the television will be successful?
Bayes’ theorem is developed from the definition of conditional probability. To find the
conditional probability of B given A, consider Equation (4.4b):

P(A and B) P(A B)P(B)

P(B A) = =
P(A) P(A)

Bayes’ theorem is derived by substituting Equation (4.8) on page 183 for P(A) in the ­denominator
of Equation (4.4b).

BAYES’ THEOREM

P(A Bi)P(Bi)
P(Bi  A) = (4.9)
P(A B1)P(B1) + P(A B2)P(B2) + g + P(A Bk)P(Bk)

where Bi is the ith event out of k mutually exclusive and collectively exhaustive events.

To use Equation (4.9) for the television-marketing example, let

event S = successful television event F = favorable report
event S′ = unsuccessful television event F′ = unfavorable report
 4.4 Bayes’ Theorem 187

and
P(S) = 0.40 P(F S) = 0.80
P(S′) = 0.60 P(F S′) = 0.30
Then, using Equation (4.9),
P(F S)P(S)
P(S F) =
P(F S)P(S) + P(F S′)P(S′)
(0.80)(0.40)
=
(0.80)(0.40) + (0.30)(0.60)
0.32 0.32
= =
0.32 + 0.18 0.50
= 0.64
The probability of a successful television, given that a favorable report was received, is
0.64. Thus, the probability of an unsuccessful television, given that a favorable report was
received, is 1 - 0.64 = 0.36.
Table 4.4 summarizes the computation of the probabilities, and Figure 4.5 presents the
decision tree.

TABLE 4.4
Bayes’ Theorem Prior Conditional Joint Revised
Computations for the Probability Probability Probability Probability
Television-Marketing Event Si P(Si) P(F∣ Si) P(F∣ Si)P(Si) P(Si ∣ F)
Example S = successful 0.40 0.80 0.32 P(S  F) = 0.32>0.50
television = 0.64
S′ = unsuccessful 0.60 0.30 0.18 P(S′F) = 0.18>0.50
television 0.50 = 0.36

FIGURE 4.5
Decision tree for ­marketing P(S and F) 5 P(F|S) P(S)
5 (0.80) (0.40) 5 0.32
a new television
P(S) 5 0.40

P(S and F9) 5 P(F9|S) P(S)

5 (0.20) (0.40) 5 0.08

P(S9 and F) 5 P(F|S9) P(S9)

5 (0.30) (0.60) 5 0.18

P(S9) 5 0.60

P(S9 and F9) 5 P(F 9|S9) P(S9)

5 (0.70) (0.60) 5 0.42

The short takes for Chapter 4 includes Example 4.10 that applies Bayes’ theorem to a
medical diagnosis problem.
188 CHAPTER 4 | Basic Probability

PROBLEMS FOR SECTION 4.4

LEARNING THE BASICS and issues affecting their profession and careers. In the study, women
4.30 If P(B) = 0.05, P(A  B) = 0.80, P(B′) = 0.95, and were asked about their impact on the security posture of their organi-
P(A  B′) = 0.40, find P(B  A). zation. Twenty-eight percent of women indicated that their opinions
are not valued. When comparing women who did not feel valued and
4.31 If P(B) = 0.30, P(A  B) = 0.60, P(B′) = 0.70, and women who did feel valued, the most substantial difference concerned
P(A  B′) = 0.50, find P(B  A). training and leadership programs. Forty-seven percent of women that
feel undervalued say their organization does not provide adequate train-
APPLYING THE CONCEPTS ing and leadership development resources, whereas 61% of women
4.32 In Example 4.10, suppose that the probability that a medical who do feel valued in their position indicate that their organization
diagnostic test will give a positive result if the disease is not present does provide adequate training and leadership development resources.
is reduced from 0.02 to 0.01. If a woman is selected at random and that woman indicates that
a. If the medical diagnostic test has given a positive result her organization does not provide adequate training and leadership
­(indicating that the disease is present), what is the probability development resources, what is the probability that this woman
that the disease is actually present? feels undervalued?
b. If the medical diagnostic test has given a negative result (indi-
cating that the disease is not present), what is the probability 4.36 The editor of a textbook publishing company is trying to
that the disease is not present? decide whether to publish a proposed business statistics textbook.
Information on previous textbooks published indicates that 10%
4.33 Big Commerce launched a study to analyze modern, omni-
are huge successes, 20% are modest successes, 40% break-even,
channel consumer behavior. The data uncovers the details on how,
and 30% are losers. However, before a publishing decision is
when, where, and why Americans buy, educating the entire com-
made, the book will be reviewed. In the past, 99% of the huge
merce industry on today’s consumer shopping preferences. Find-
successes received favorable reviews, 70% of the moderate suc-
ings indicate that 23% of online shoppers shop online while in the
cesses received favorable reviews, 40% of the break-even books
office. Of those who shop online while in the office, 57% are male.
received favorable reviews, and 20% of the losers received favor-
Of those who do not shop online while in the office, 48% are male.
able reviews.
a. Find the probability that if the online shopper is a male, the
a. If the proposed textbook receives a favorable review, how
online shopper shops while in the office.
should the editor revise the probabilities of the various out-
b. Find the probability that the online shopper is a male.
comes to take this information into account?
4.34 Olive Construction Company is determining whether it b. What proportion of textbooks receive favorable reviews?
should submit a bid for a new shopping center. In the past, Olive’s
4.37 A municipal bond service has three rating categories (A, B,
main competitor, Base Construction Company, has submitted bids
and C). Suppose that in the past year, of the municipal bonds issued
70% of the time. If Base Construction Company does not bid on a
throughout the United States, 70% were rated A, 20% were rated
job, the probability that Olive Construction Company will get the
B, and 10% were rated C. Of the municipal bonds rated A, 50%
job is 0.50. If Base Construction Company bids on a job, the prob-
were issued by cities, 40% by suburbs, and 10% by rural areas. Of
ability that Olive Construction Company will get the job is 0.25.
the municipal bonds rated B, 60% were issued by cities, 20% by
a. If Olive Construction Company gets the job, what is the proba-
suburbs, and 20% by rural areas. Of the municipal bonds rated C,
bility that Base Construction Company did not bid?
90% were issued by cities, 5% by suburbs, and 5% by rural areas.
b. What is the probability that Olive Construction Company will
a. If a new municipal bond is to be issued by a city, what is the
get the job?
probability that it will receive an A rating?
4.35 The 2016 Global Information Security Workforce Study b. What proportion of municipal bonds are issued by cities?
(GISWS) surveyed information security professionals regarding trends c. What proportion of municipal bonds are issued by suburbs?

CONSIDER THIS
Divine Providence and Spam
Would you ever guess that the essays Divine Benevolence: about two different things. An implicit rule you used was that
Or, An Attempt to Prove That the Principal End of the word frequencies vary by subject matter. A statistics essay
Divine Providence and Government Is the Happiness of would very likely contain the word statistics as well as words
His Creatures and An Essay Towards Solving a Problem in such as chance, problem, and solving. An eighteenth-century
the Doctrine of Chances were written by the same ­person? essay about theology and religion would be more likely to con-
Probably not, and in doing so, you illustrate a modern-day tain the uppercase forms of Divine and Providence.
application of Bayesian statistics: spam, or junk mail filters. Likewise, there are words you would guess to be very
In not guessing correctly, you probably looked at the words unlikely to appear in either book, such as technical terms
in the titles of the essays and concluded that they were talking from finance, and words that are most likely to appear in
 4.5 Counting Rules 189

both—common words such as a, and, and the. That words misspelled variants made the job of spotting spam easier
would be either likely or unlikely suggests an application of for the Bayesian filters.
probability theory. Of course, likely and unlikely are fuzzy Other spammers tried to fool the filters by adding “good”
concepts, and we might occasionally misclassify an essay words, words that would have a low probability of being
if we kept things too simple, such as relying solely on the found in a spam message, or “rare” words, words not fre-
occurrence of the words Divine and Providence. quently encountered in any message. But these spammers
For example, a profile of the late Harris Milstead, b
­ etter overlooked the fact that the conditional probabilities are
known as Divine, the star of Hairspray and other films, constantly updated and that words once considered “good”
­visiting Providence (Rhode Island), would most certainly not would be soon discarded from the good list by the filter
be an essay about theology. But if we widened the number as their P(A B), value increased. Likewise, as “rare” words
of words we examined and found such words as movie or grew more common in spam and yet stayed rare in ham,
the name John Waters (Divine’s director in many films), we such words acted like the misspelled variants that others
probably would quickly realize the essay had something to had tried earlier.
do with twentieth-century cinema and little to do with theol- Even then, and perhaps after reading about Bayes-
ogy and religion. ian statistics, spammers thought that they could “break”
We can use a similar process to try to classify a new Bayesian filters by inserting random words in their mes-
email message in your in-box as either spam or a legitimate sages. Those random words would affect the filter by
message (called “ham,” in this context). We would first need causing it to see many words whose P(A B), value would
to add to your email program a “spam filter” that has the be low. The Bayesian filter would begin to label many spam
ability to track word frequencies associated with spam and messages as ham and end up being of no practical use.
ham messages as you identify them on a day-to-day basis. Spammers again overlooked that conditional probabilities
This would allow the filter to constantly update the prior are constantly updated.
probabilities necessary to use Bayes’ theorem. With these Other spammers decided to eliminate all or most of the
probabilities, the filter can ask, “What is the probability that words in their messages and replace them with graphics so
an email is spam, given the presence of a certain word?” that Bayesian filters would have very few words with which
Applying the terms of Equation (4.9), such a Bayesian to form conditional probabilities. But this approach failed,
spam filter would multiply the probability of finding the word too, as Bayesian filters were rewritten to consider things
in a spam email, P(A B), by the probability that the email is other than words in a message. After all, Bayes’ theorem
spam, P(B), and then divide by the probability of finding the concerns events, and “graphics present with no text” is as
word in an email, the denominator in Equation (4.9). Bayesian valid an event as “some word, X, present in a message.”
spam filters also use shortcuts by focusing on a small set of Other future tricks will ultimately fail for the same reason.
words that have a high probability of being found in a spam (By the way, spam filters use non-Bayesian techniques as
message as well as on a small set of other words that have a well, which makes spammers’ lives even more difficult.)
low probability of being found in a spam message. Bayesian spam filters are an example of the unex-
As spammers (people who send junk email) learned of pected way that applications of statistics can show up
such new filters, they tried to outfox them. Having learned in your daily life. You will discover more examples as you
that Bayesian filters might be assigning a high P(A B) read the rest of this book. By the way, the author of the
value to words commonly found in spam, such as Viagra, two essays mentioned earlier was Thomas Bayes, who
spammers thought they could fool the filter by misspelling is a lot more famous for the second essay than the first
the word as Vi@gr@ or V1agra. What they overlooked was essay, a failed attempt to use mathematics and logic to
that the misspelled variants were even more likely to be prove the existence of God.
found in a spam message than the original word. Thus, the

4.5 Counting Rules

In many cases, there are a large number of possible outcomes and determining the exact number
of outcomes can be difficult. In these situations, rules have been developed for counting the exact
number of possible outcomes. This section presents five such counting rules.

Counting Rule 1 Counting rule 1 determines the number of possible outcomes for a set
of mutually exclusive and collectively exhaustive events.
190 CHAPTER 4 | Basic Probability

COUNTING RULE 1
If any one of k different mutually exclusive and collectively exhaustive events can occur
on each of n trials, the number of possible outcomes is equal to
kn (4.10)

For example, using Equation (4.10), the number of different possible outcomes from tossing
a two-sided coin five times is 25 = 2 * 2 * 2 * 2 * 2 = 32.

EXAMPLE 4.11 Suppose you roll a die twice. How many different possible outcomes can occur?
Rolling a Die Twice SOLUTION If a six-sided die is rolled twice, using Equation (4.10), the number of different
outcomes is 62 = 36.

Counting Rule 2 The second counting rule is a more general version of the first counting
rule and allows the number of possible events to differ from trial to trial.

COUNTING RULE 2
If there are k1 events on the first trial, k2 events on the second trial, . . . , and kn events on
the nth trial, then the number of possible outcomes is
(k1)(k2) c(kn) (4.11)

For example, a state motor vehicle department would like to know how many license plate
numbers are available if a license plate number consists of three letters followed by three numbers
(0 through 9). Using Equation (4.11), if a license plate number consists of three letters followed by
three numbers, the total number of possible outcomes is (26)(26)(26)(10)(10)(10) = 17,576,000.

EXAMPLE 4.12 A restaurant menu has a price-fixed complete dinner that consists of an appetizer, an entrée, a
Determining the beverage, and a dessert. You have a choice of 5 appetizers, 10 entrées, 3 beverages, and 6 desserts.
Number of Different Determine the total number of possible dinners.
Dinners SOLUTION Using Equation (4.11), the total number of possible dinners is (5)(10)(3)(6) = 900.

Counting Rule 3 The third counting rule involves computing the number of ways that a
set of items can be arranged in order.

COUNTING RULE 3
The number of ways that all n items can be arranged in order is
n! = (n)(n - 1) c(1) (4.12)
where n! is called n factorial, and 0! is defined as 1.

EXAMPLE 4.13 If a set of six books is to be placed on a shelf, in how many ways can the six books be arranged?
Using Counting SOLUTION To begin, you must realize that any of the six books could occupy the first position
Rule 3 on the shelf. Once the first position is filled, there are five books to choose from in filling the
second position. You continue this assignment procedure until all the positions are occupied.
The number of ways that you can arrange six books is
n! = 6! = (6)(5)(4)(3)(2)(1) = 720
 4.5 Counting Rules 191

Counting Rule 4 In many instances you need to know the number of ways in which a
subset of an entire group of items can be arranged in order. Each possible arrangement is called
a permutation.

student TIP COUNTING RULE 4: PERMUTATIONS

Both permutations and
combinations assume The number of ways of arranging x objects selected from n objects in order is
that you are sampling n!
nPx = (4.13)
without replacement. (n - x)!
where
n = total number of objects
x = number of objects to be arranged
1
On many scientific calculators, there
n! = n factorial = n(n) - 1) c(1)
is a button labeled nPr that allows
you to compute permutations. The P = symbol for permutations1
­symbol r is used instead of x.

EXAMPLE 4.14 Modifying Example 4.13, if you have six books, but there is room for only four books on the
Using Counting shelf, in how many ways can you arrange these books on the shelf?
Rule 4 SOLUTION Using Equation (4.13), the number of ordered arrangements of four books selected
from six books is equal to
n! 6! (6)(5)(4)(3)(2)(1)
nPx = = = = 360
(n - x)! (6 - 4)! (2)(1)

Counting Rule 5 In many situations, you are not interested in the order of the outcomes
but only in the number of ways that x items can be selected from n items, irrespective of order.
Each possible selection is called a combination.

COUNTING RULE 5: COMBINATIONS

The number of ways of selecting x objects from n objects, irrespective of order, is equal to
n!
nCx = (4.14)
x!(n - x)!
where
n = total number of objects
x = number of objects to be arranged
n factorial = n(n - 1) c(1)
2
On many scientific calculators, there n! =
is a button labeled nCr that allows
you to compute combinations. The C = symbol for combinations2
symbol r is used instead of x.

If you compare this rule to counting rule 4, you see that it differs only in the inclusion of a term
x! in the denominator. When permutations were used, all of the arrangements of the x objects are
distinguishable. With combinations, the x! possible arrangements of objects are irrelevant.

EXAMPLE 4.15 Modifying Example 4.14, if the order of the books on the shelf is irrelevant, in how many ways
Using Counting can you arrange these books on the shelf?
Rule 5 SOLUTION Using Equation (4.14), the number of combinations of four books selected from
six books is equal to
n! 6! (6)(5)(4)(3)(2)(1)
nCx = = = = 15
x!(n - x)! 4!(6 - 4)! (4)(3)(2)(1)(2)(1)
192 CHAPTER 4 | Basic Probability

PROBLEMS FOR SECTION 4.5

APPLYING THE CONCEPTS 4.44 In the National Basketball League there are five teams in the
Pacific Division: Golden State, Los Angeles Clippers, Los Angeles
4.38 If there are 10 multiple-choice questions on an exam, each Lakers, Phoenix, and Sacramento. How many different orders of
having three possible answers, how many different sequences of finish are there for these five teams? (Assume that there are no ties
answers are there? in the standings.) Do you believe that all these orders are equally
4.39 A lock on a bank vault consists of three dials, each with likely? Discuss.
30 positions. In order for the vault to open, each of the three dials 4.45 Referring to Problem 4.44 how many different orders of finish
must be in the correct position. are possible for the first four positions?
a. How many different possible dial combinations are there for
this lock? 4.46 A gardener has six rows available in his vegetable garden to
b. What is the probability that if you randomly select a position on place tomatoes, eggplant, peppers, cucumbers, beans, and lettuce.
each dial, you will be able to open the bank vault? Each vegetable will be allowed one and only one row. How many
c. Explain why “dial combinations” are not mathematical ways are there to position these vegetables in this garden?
­combinations expressed by Equation (4.14). 4.47 How many different ways can a senior project manager and
4.40 a. If a coin is tossed seven times, how many different an associate project manager be selected for an analytics project if
­outcomes are possible? there are eight data scientists available?
b. If a die is tossed seven times, how many different outcomes are 4.48 Four members of a group of 10 people are to be selected to
possible? a team. How many ways are there to select these four members?
c. Discuss the differences in your answers to (a) and (b).
4.49 A student has seven books that she would like to place in her
4.41 A particular brand of women’s jeans is available in seven backpack. However, there is room for only four books. Regardless
different sizes, three different colors, and three different styles. How of the arrangement, how many ways are there of placing four books
many different women’s jeans does the store manager need to order into the backpack?
to have one pair of each type?
4.50 A daily lottery is conducted in which 2 winning numbers are
4.42 You would like to ”build-your-own-burger” at a fast-food selected out of 100 numbers. How many different combinations of
restaurant. There are five different breads, seven different cheeses, winning numbers are possible?
four different cold toppings, and five different sauces on the menu.
If you want to include one choice from each of these ingredient 4.51 There are 15 exercise bikes in a fitness store showroom. The
categories, how many different burgers can you build? fitness store owner wishes to select three of them to display at a
fitness expo. How many ways can a group of three be selected?
4.43 A team is being formed that includes four different people.
There are four different positions on the teams. How many different
ways are there to assign the four people to the four positions?

▼▼
USING STATISTICS
Possibilities at M&R Electronics World, Revisited

A s the marketing manager for M&R Electronics World,

you analyzed the survey results of an intent-to-purchase
study. This study asked the heads of 1,000 households about
it planned to purchase
a large TV in the next
12 months, there was
their intentions to purchase a large TV sometime during the an 80% chance that the
next 12 months, and as a follow-up, M&R surveyed the same household actually made the purchase. Thus the marketing
people 12 months later to see whether such a television was strategy should target those households that have indicated an
purchased. In addition, for households purchasing large TVs, intention to purchase.
the survey asked whether the television they purchased had a You determined that for households that purchased a
faster refresh rate, whether they also purchased a streaming television that had a faster refresh rate, there was a 47.5%
media player in the past 12 months, and whether they were chance that the household also purchased a streaming
satisfied with their purchase of the large TV. media player. You then compared this conditional proba-
By analyzing the results of these surveys, you were able bility to the marginal probability of purchasing a stream-
to uncover many pieces of valuable information that will help ing media player, which was 36%. Thus, households that
you plan a marketing strategy to enhance sales and better purchased televisions that had a faster refresh rate are
target those households likely to purchase multiple or more more likely to purchase a streaming media player than are
expensive products. Whereas only 30% of the households ­households that purchased large TVs that have a standard
actually purchased a large TV, if a household indicated that refresh rate.
 Key Equations 193

SUMMARY
This chapter began by developing the basic concepts of prob- events. Throughout the chapter, you gained experience using
ability. You learned that probability is a numeric value from 0 contingency tables and decision trees to summarize and present
to 1 that represents the chance, likelihood, or possibility that a probability information. You also learned about several count-
particular event will occur. In addition to simple probability, ing rules helpful to determine the total number of possible out-
you learned about conditional probabilities and independent comes for problems with many outcomes.

REFERENCES
1. Anderson-Cook, C. M. “Unraveling Bayes’ Theorem.” Quality 4. Lowd, D., and C. Meek. “Good Word Attacks on Statistical
Progress, March 2014, p. 52–54. Spam Filters.” Presented at the Second Conference on Email
2. Bellhouse, D. R. “The Reverend Thomas Bayes, FRS: A and Anti-Spam, 2005.
­Biography to Celebrate the Tercentenary of His Birth.” 5. Paulos, J. A. Innumeracy. New York: Hill and Wang, 1988.
­Statistical Science, 19 (2004), 3–43. 6. Silberman, S. “The Quest for Meaning,” Wired 8.02, February
3. Hooper, W. “Probing Probabilities.” Quality Progress, March 2000.
2014, pp. 18–22. 7. Zeller, T. “The Fight Against V1@gra (and Other Spam).” The
New York Times, May 21, 2006, pp. B1, B6.

KEY EQUATIONS
Probability of Occurrence Marginal Probability Using the General
X Multiplication Rule
Probability of occurrence = (4.1)
T P(A) = P(A B1)P(B1) + P(A B2)P(B2)
+ g + P(A Bk)P(Bk)(4.8)
Marginal Probability
P(A) = P(A and B1) + P(A and B2) Bayes’ Theorem
+ g + P(A and Bk)(4.2) P(Bi  A) =
P(A Bi)P(Bi)
General Addition Rule
P(A B1)P(B1) + P(A B2)P(B2) + g + P(A Bk)P(Bk)
P(A or B) = P(A) + P(B) - P(A and B)(4.3)
(4.9)
Conditional Probability Counting Rule 1
P(A and B) k n(4.10)
P(A B) = (4.4a)
P(B)
Counting Rule 2
P(A and B) (k1)(k2) c(kn)(4.11)
P(B A) = (4.4b)
P(A)
Counting Rule 3
Independence n! = (n)(n - 1) c(1)(4.12)
P(A B) = P(A)(4.5)
Counting Rule 4: Permutations
General Multiplication Rule n!
nPx = (4.13)
P(A and B) = P(A B)P(B)(4.6) (n - x)!

Counting Rule 5: Combinations

Multiplication Rule for Independent Events n!
nCx = (4.14)
P(A and B) = P(A)P(B)(4.7) x!(n - x)!
194 CHAPTER 4 | Basic Probability

KEY TERMS
a priori probability 170 event 169 mutually exclusive 170
Bayes’ theorem 186 general addition rule 175 outcomes 169
certain event 170 general multiplication rule 182 permutation 191
collectively exhaustive 170 impossible event 170 probability 169
combination 191 independence 181 sample space 169
complement 170 joint event 169 simple event 169
conditional probability 171 joint probability 173 simple probability 172
counting rules 189 marginal probability 174 subjective probability 171
decision tree 179 multiplication rule for independent Venn diagram 171
empirical probability 170 events 182

CHECKING YOUR UNDERSTANDING

4.52 What are the differences between a priori probability, 4.57 How does the multiplication rule differ for events that are and
­empirical probability, and subjective probability? are not independent?
4.53 What is the difference between a simple event and a joint 4.58 How can you use Bayes’ theorem in light of new information?
event?
4.59 In Bayes’ theorem, how does the prior probability differ from
4.54 How can you use the general addition rule to find the proba- the revised probability?
bility of occurrence of event A or B?
4.60 What is the difference between Counting Rule 1 and ­Counting
4.55 What is the difference between mutually exclusive events and Rule 2?
collectively exhaustive events?
4.61 What is the difference between a permutation and a
4.56 How does conditional probability relate to the concept of combination?
independence?

CHAPTER REVIEW PROBLEMS

4.62 A survey by Accenture indicated that 64% of millennials the United Kingdom who are employed by an organization. CIPD
as compared to 28% of baby boomers prefer “hybrid” investment was interested in examining differences between respondents in the
advice—a combination of traditional advisory services and low-cost private sector and those in the public sector. One area of focus was
digital tools—over either a dedicated human advisor or conventional on HR professionals’ response to future organization priorities. The
robo-advisory services (computer-generated advice and services with- findings are summarized here.
out human advisors) alone. Source: Data extracted from “HR Outlook Report,” CIPD, Winter 2016–17, p. 8.
Source: Data extracted from Business Wire, “Majority of Wealthy Investors
­
Prefer a Mix of Human and Robo-­Advice, According to Accenture Research,”
COST MANAGEMENT
/bit.ly/2qZY9Ou.
IS A PRIORITY
Suppose that the survey was based on 500 respondents from each
of the two generation groups. SECTOR Yes No Total
a. Construct a contingency table. Private 128 219 347
b. Give an example of a simple event and a joint event. Public 117 72 189
c. What is the probability that a randomly selected respondent Total 245 291 536
­prefers hybrid investment advice?
d. What is the probability that a randomly selected respondent
­prefers hybrid investment advice and is a baby boomer? TALENT MANAGEMENT
e. Are the events “generation group” and “prefers hybrid ­investment IS A PRIORITY
advice” independent? Explain.
SECTOR Yes No Total
4.63 Chartered Institute of Personnel and Development (CIPD)
Private 156 191 347
provides commentary and insight about the trends and challenges
facing the HR profession in its HR Outlook Report. The report Public 66 123 189
represents the results of an online survey conducted in 2016 with Total 222 314 536
HR professionals at all levels of seniority, with responsibilities in
 Chapter Review Problems 195

What is the probability that a randomly chosen HR professional who did not rate their organization as effective in terms of use of
a. is in the private sector? content marketing, 19% reported having a documented content
b. is in the private sector or indicates that talent management is a marketing strategy.
future priority in his/her organization? Source: Data extracted from “2016 Nonprofit Content Marketing,” bit.ly/2qQdLXy.
c. does not indicate that cost management is a future priority in his/ If a nonprofit marketer is known to have a documented content
her organization” and is in the public sector? strategy in their organization, what is the probability that the non-
d. does not indicate that cost management is a future priority in his/ profit marketer rates his/her organization as effective in terms of use
her organization” or is in the public sector? of content marketing?
e. Suppose the randomly chosen HR professional does indicate
that cost management is a future priority in his/her organization. 4.66 The CMO Survey collects and disseminates the opinions of
What is the probability that the HR professional is in the public top marketers in order to predict the future of markets, track mar-
sector? keting excellence, and improve the value of marketing in firms and
f. Are “cost management is a priority” and “sector” independent? in society. Part of the survey is devoted to the topic of marketing
g. Is “talent management is a priority” independent of “sector”? analytics and the understanding of what factors prevent companies
from using more marketing analytics. The following findings are
4.64 To better understand the website builder market, Clutch based on responses from 272 senior marketers within B2B firms
surveyed individuals who created a website using a do-it-yourself and 114 senior marketers within B2C firms.
(DIY) website builder. Respondents, categorized by the type of Source: Data extracted from “Results by Firm & Industry Characteristics,”
website they built—business or personal, were asked to indicate The CMO Survey, February 2017, p. 148. bit.ly/2qY3Qvk.
the primary purpose for building their website. The following table
summarizes the findings: LACK OF PROCESS/TOOLS
TO MEASURE SUCCESS
TYPE OF WEBSITE
FIRM Yes No Total
PRIMARY PURPOSE Business Personal Total B2B 90 182 272
Online Business 52   4 56 B2C 35 79 114
Presence Total 125 261 386
Online Sales 32 13 45
Creative Display 28 54 82
Informational   9 24 33 LACK OF PEOPLE WHO
Resources CAN LINK TO PRACTICE
Blog   8 52 60 FIRM Yes No Total
Total 129 147 276
B2B 75 197 272
Source: Data extracted from “How Business Use DIY Web Builders: Clutch B2C 36 78 114
2017 Survey,” bit.ly/2qQjXiq.
Total 111 275 386
If a website builder is selected at random, what is the probability
that he or she a. What is the probability that a randomly selected senior marketer
a. indicated creative display as the primary purpose for building indicates that lack of process/tools to measure success through
his/her website? analytics is a factor that prevents his/her company from using
b. indicated creative display or informational resources as the more marketing analytics?
­primary purpose for building his/her website? b. Given that a randomly selected senior marketer is within a B2B
c. is a business website builder or indicated online sales as the firm, what is the probability that the senior marketer indicates
primary purpose for building his/her website? that lack of process/tools to measure success through analytics
d. is a business website builder and indicated online sales as the is a factor that prevents his/her company from using more mar-
primary purpose for building his/her website? keting analytics?
e. Given that the website builder selected is a personal website c. Given that a randomly selected senior marketer is within a B2C
builder, what is the probability that he/she indicated online firm, what is the probability that the senior marketer indicates
business presence as the primary purpose for building his/her that lack of process/tools to measure success through analytics
website? is a factor that prevents his/her company from using more mar-
keting analytics?
4.65 Content Marketing Institute provides insights on the content d. What is the probability that a randomly selected senior marketer
marketing habits of nonprofit professionals representing a broad indicates that lack of people who can link to marketing practice
range of nonprofit agencies and organizations. A survey of nonprofit is a factor that prevents his/her company from using more mar-
marketers conducted by the Content Marketing Institute indicated keting analytics?
that 26% of nonprofit marketers rated their organization as effective e. Given that a randomly selected senior marketer is within a B2B
in terms of use of content marketing. Furthermore, of the nonprofit firm, what is the probability that the senior marketer indicates
marketers who rated their organization as effective in terms of use that lack of people who can link to marketing practice is a fac-
of content marketing, 42% reported having a documented content tor that prevents his/her company from using more marketing
marketing strategy in their organization. Of the nonprofit marketers analytics?
196 CHAPTER 4 | Basic Probability

f. Given that a randomly selected senior marketer is within a B2C factor that prevents his/her company from using more market-
firm, what is the probability that the senior marketer indicates ing analytics?
that lack of people who can link to marketing practice is a g. Comment on the results in (a) through (f).

CHAPTER

CASES
Digital Case
Apply your knowledge about contingency tables and the proper
The Choice Is Yours Follow-Up
4
1. Follow up the “Using Statistics: The Choice Is Yours,
application of simple and joint probabilities in this continuing Revisited” on page 81 by constructing contingency tables
Digital Case from Chapter 3. of market cap and type, market cap and risk, market­
cap and rating, type and risk, type and rating, and risk and
Open EndRunGuide.pdf, the EndRun Financial Services
rating for the sample of 479 retirement funds stored in
“Guide to Investing,” and read the information about the Guar-
Retirement Funds .
anteed Investment Package (GIP). Read the claims and examine
the supporting data. Then answer the following questions: 2. For each table you construct, compute all conditional and
How accurate is the claim of the probability of success for marginal probabilities.
EndRun’s GIP? In what ways is the claim misleading? How 3. Write a report summarizing your conclusions.
would you calculate and state the probability of having an
annual rate of return not less than 15%? Clear Mountain State Student Survey
1. Using the table found under the “Show Me the Winning Prob- The Student News Service at Clear Mountain State University
abilities” subhead, compute the proper probabilities for the (CMSU) has decided to gather data about the undergraduate stu-
group of investors. What mistake was made in reporting the dents that attend CMSU. CMSU creates and distributes a survey
7% probability claim? of 14 questions and receive responses from 111 undergraduates
2. Are there any probability calculations that would be appropri- (stored in StudentSurvey ).
ate for rating an investment service? Why or why not? For these data, construct contingency tables of gender and major,
gender and graduate school intention, gender and employment
CardioGood Fitness status, gender and computer preference, class and graduate
1. For each CardioGood Fitness treadmill product line (see school intention, class and employment status, major and grad-
CardioGood Fitness ), construct two-way contingency tables uate school intention, major and e­ mployment status, and major
of gender, education in years, relationship status, and self- and computer preference.
rated fitness. (There will be a total of six tables for each tread-
mill product.) 1. For each of these contingency tables, compute all the
2. For each table you construct, compute all conditional and ­conditional and marginal probabilities.
marginal probabilities. 2. Write a report summarizing your conclusions.
3. Write a report detailing your findings to be presented to the
management of CardioGood Fitness.
 CHAPTER

EXCEL GUIDE
EG4.1 BASIC PROBABILITY CONCEPTS
4
Workbook Use the COMPUTE worksheet of the Bayes
workbook as a template.
Simple Probability, Joint Probability, The worksheet (shown below) already contains the proba-
and the ­General Addition Rule bilities for the online section example. For other problems,
Key Technique Use Excel arithmetic formulas. change those probabilities in the cell range B5:C6.
Example Compute simple and joint probabilities for the
Table 4.1 on page 171 purchase behavior data.

PHStat Use Simple & Joint Probabilities.

For the example, select PHStat ➔ Probability & Prob.
­Distributions ➔ Simple & Joint Probabilities. In the new
template, similar to the worksheet shown below, fill in the
Sample Space area with the data.
Open to the COMPUTE_FORMULAS worksheet to
Workbook Use the COMPUTE worksheet of the ­Prob- examine the arithmetic formulas that compute the probabili-
abilities workbook as a template. ties, which are also shown as an inset to the worksheet.
The worksheet (shown below) already contains the Table 4.1
purchase behavior data. For other problems, change the sam- EG4.5 COUNTING RULES
ple space table entries in the cell ranges C3:D4 and A5:D6.
As you change the event names in cells, B5, B6, C5, and Counting Rule 1
C5, the column A row labels for simple and joint probabilities Workbook Use the POWER(k, n) worksheet function in
and the addition rule change as well. These column A labels are a cell formula to compute the number of outcomes given k
formulas that use the concatenation operator (&) to form row events and n trials.
labels from the event names you enter. For example, the cell For example, the formula = POWER(6, 2) computes the
A10 formula 5"P ("& B5 & ")" combines the two characters answer for Example 4.11.
P(with the Yes B5 cell value and the character) to form the label
P(Yes). To examine all of the C­ OMPUTE worksheet formulas Counting Rule 2
below, open to the ­COMPUTE_FORMULAS worksheet.
Workbook Use a formula that takes the product of succes-
sive POWER(k, n) functions to solve problems related to
counting rule 2.
For example, = POWER(26, 3) * POWER(10, 3) compu-
tes the answer for the state motor vehicle department example.

Counting Rule 3
Workbook Use the FACT(n) worksheet function in a cell
­formula to compute how many ways n items can be arranged.
For example, the formula = FACT(6) computes 6!.

Counting Rule 4
Workbook Use the PERMUT(n, x) worksheet function in
a cell formula to compute the number of ways of arranging x
objects selected from n objects in order.
For example, the formula = PERMUT(6, 4) computes the
answer for Example 4.14.
EG4.4 BAYES’ THEOREM
Key Technique Use Excel arithmetic formulas.
Example Apply Bayes’ theorem to the television marketing
example on page 187. 197
198 CHAPTER 4 | Basic Probability

Counting Rule 5 objects selected from n objects, irrespective of order. For

Workbook Use the COMBIN(n, x) worksheet function in example, the formula = COMBIN(6, 4) computes the answer
a cell formula to compute the number of ways of arranging x for Example 4.15.

CHAPTER

JMP GUIDE
JG4.4 BAYES’ THEOREM
4
data table, similar to the Section EG4.4 Bayes Excel t­ emplate,
Use arithmetic formulas. already contains the probabilities for the online section exam-
For example, to apply Bayes’ theorem to the television ple. For other problems, change the probabilities in the Prior
­marketing on page 187, open to the Bayes data table. The and Conditional columns.

CHAPTER

MINITAB GUIDE
MG4.5 COUNTING RULES Counting Rule 1
4
Enter an expression that uses the exponential operator **.
Use Calculator to apply the counting rules. Select Calc ➔ ­▼
Calculator. In the Calculator dialog box (shown below): For example, the expression 6 ** 2 computes the answer for
Example 4.11 on page 190.
1. Enter the column name of an empty column in the Store
result in variable box and then press Tab. Counting Rule 2
2. Build the appropriate expression (as discussed later in Enter an expression that uses the exponential operator **.
this section) in the Expression box. To apply counting For example, the expression 26 ** 3 * 10 ** 3 computes the
rules 3 through 5, select Arithmetic from the Functions answer for the state motor vehicle department example on
drop-down list to facilitate the function selection. page 190.
3. Click OK.
Counting Rule 3
Enter an expression that uses the FACTORIAL(n) function
to compute how many ways n items can be arranged. For
example, the expression FACTORIAL(6) computes 6!

Counting Rule 4
Enter an expression that uses the PERMUTATIONS(n, x)
function to compute the number of ways of arranging
x ­objects selected from n objects in order. For example, the
expression PERMUTATIONS(6, 4) computes the answer
for Example 4.14 on page 191.

Counting Rule 5
Enter an expression that uses the COMBINATIONS(n, x)
function to compute the number of ways of arranging x ob-
jects selected from n objects, irrespective of order. For ex-
If you have previously used the Calculator during your ample, the expression COMBINATIONS(6, 4) computes
Minitab session, you may have to clear the contents of the the answer for Example 4.15 on page 191.
Expression box by selecting the contents and pressing Del
before you begin step 2.