Quick Review

➢Population (N)
➢ population is a set of units.
➢ Finite: All NYU students
➢ Infinite: Stock prices
(past, now, future)
➢Sample (n)
➢ A sample is a subset of the units of
the population which we can observe.
➢ Finite subset, random

➢Data: Numerical measurements on a sample of size n

➢ One sample  one set of { 1, 2, ⋯, }
➢Descriptive Statistics
➢ Graphic presentation; Central tendency; Variation
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 Review: Graphical Presentation

Graphical
• Presentation
On a naturally occurring
numerical scale
Discrete categories

Qualitative Quantitative
• Data • Data

Bar Pie Pareto Dot

• Graph • Chart •Diagram •Plot •Histogram •Scatter
•Histogram: discretize continuous variable
•Horizontal axis: intervals; Vertical axis: frequency
•Height of Bars: proportional to the frequency
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•the number of observations within each interval
 Central tendency
n N
➢ Mean, Median, Mode
∑x
i =1
i ∑x
i =1
i
x= µ=
n N

Variation
➢ Range, Variance, Standard deviation
n
2
∑ (xi − x )
s2 = i =1
n −1
2 2 2
( x − x ) + ( x2 − x )
= 1
+ ...+ ( xn − x )
n −1

Empirical Rule
• Applies to data sets that are mound-shaped (unimodal) and symmetric
• Approximately 68%, ¯ − to ¯ +
• Approximately 95%, ¯ − 2 to ¯ + 2
• Approximately 99.7%, ¯ − 3 to ¯ + 3 3
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Chapter: 3

Probability
 What you will learn
➢Probability

➢Assume that the population is known

➢Calculate the chances of obtaining various samples

from the population

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 Why Study Probability?
➢Probability models simplifies the real world

➢Leads to more conclusions

➢May be mis-specified

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 What you will learn

Event Probability
•Probability concepts • (Set calculation)
• (Numerical)

•• Events •• Union and

intersection
•• Conditional
probability
• Sample space
• Complementary • Addition rule
• Probability events
• Counting rules • Multiplicative rule
• Mutually exclusive
events • Bayes’ rule

• Independent events
Section 3.1 Section 3.2 – 3.4 Section 3.5 – 3.7

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 Thinking Challenge
➢What’s the probability
of getting a head on the
toss of a single fair
coin? Use a scale from
0 (no way) to 1 (sure
thing).

➢Toss a coin twice. Did

you get one head & one
tail? What’s it all
mean?
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 Many Repetitions!*
Total Heads
(How likely you get a head?)
Number of Tosses
1.00
•
0.75

0.50

0.25

0.00
0 25 50 75 100 125
Number of Tosses
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 Coin is biased?

For natural flips, the chance of

coming up as started is about .51. 10
 3.1

Events, Sample Spaces,

and Probability
 Important Concepts
➢ Random experiment − an act or process of observation
that leads to uncertain outcome (there are several
possible outcomes governed by chance)
• Flip a coin, two possible outcomes, head or tail

➢ Sample point ( )− the most basic outcome possible from

an experiment
• Get a head in one experiment, =h

➢ Sample space ( )− the collection of all possible sample

points/basic outcomes
• ={ , }

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 Example
➢ Q: Roll a 6-sided die:
• Sample point: one of 6 possible outcomes

• • • • • •

• Sample space: = {1,2, 3,4, 5,6}

• Venn Diagram

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 Example
➢ Toss 2 coins
• Sample point: one of 4 possible outcomes,
, , ,

Tree diagram
• Sample space: ={ , , , }

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 Example
•Q: Roll two 6-sided dice?
• • Sample points?

• Sample space?
= {(1,1), (1,2), …, (6,6)}
• Size of the sample space?
36
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 Probability
➢ Probability is the basic language of statistics
• Measure the chance (likelihood) that the outcome will
occur when the experiment is performed
• Always between 0 and 1 (inclusive)

➢ Experiment of tossing a coin

• ({h }) = the likelihood of getting a head

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 History of Probability
➢ Ancient philosophers: possibility, chances and
necessities

➢ Mathematical formulation: Fermat & Pascal 1650.

Originated in card/dice games and gambling.

➢ Frequentist vs Bayesian.

➢ 1933 Kolmogorov: unified these perspectives on the

foundation of measure theory

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 Probability Rule for Sample Points
➢ Sample space: ={ 1, 2, …, }
➢ Let ({ }) or represent the probability of the
sample point

➢ Rule 1: 0 ≤ ≤1
• All sample point probabilities must lie between 0 and 1

➢ Rule 2: ∑ =1 =1
• Probabilities of all sample points within the sample space must
sum to 1
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 Example
➢ Flip a fair coin
• ({ }) = ({ }) = 0.5

➢ Flip an unfair coin (more biased towards head)

• ({ }) = 0.6, ({ }) = 0.4

➢ Roll a fair six-sided die

• ({1}) = ⋯⋯ = ({6}) = 1/6

➢ Q: Flip two fair coins:

• ({ }) = ({ })= ({ }) = ({ }) = 0.25
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 Events
➢Event − a collection/set of sample points
• Simple event: contains only one sample point
• Compound event: two or more sample points
• Whole sample space: a special event that must happen

➢We use to denote an event

➢ Size of an event
• the number of sample points in A

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 Example
➢ Toss 2 Coins. Note Faces.
Sample Space S = {HH, HT, TH, TT}
Compound
• Event: At
• least one
TH Tail
Outcome HH HT

TT
S
 Event Examples
Experiment: Toss 2 Coins. Note Faces.
Sample Space: HH, HT, TH, TT
Event Outcomes in Event
• 1 Head & 1 Tail HT, TH
• Head on 1st Coin HH, HT
• At Least 1 Head HH, HT, TH
• Heads on Both HH
 Examples
➢ When rolling a six-sides die, event “the outcome is
even”

• = {2,4, 6}
• =3

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 Venn Diagrams for
Sampling Space
➢ Venn diagram -- graphical representation of a
sample space
• Each point represent one possible outcome
• Exclusive: each sample point will occur only once in
each experiment
Venn diagram

• Event A: even number; Event B: number > 2 24

 Probability of event
➢ The probability of an event = sum of the
probabilities of the sample points in

➢ Numerical measure of chance that the event will

occur

➢ Rules:
∑ =1
– ( )=1:( ( )= = 1)
– 0≤ ( )≤1
– ( ) = 0: the event is impossible.(in discrete cases)
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 Exercise
➢ When rolling a die, event “the outcome is even”.
What is the probability of the event ?

Venn diagram

1 1
( )= ×3=
6 2 26
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 Relative frequency
interpretation of probability
• When an experiment is repeated times ( is very large)
under the same condition
No . of times occured
– ( )≈ for sufficiently large
No . of times occured
– ( ) = lim
→∞

Total Heads
Number of Tosses
1.00
0.75
0.50
0.25
0.00
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0 25 50 75 100 125
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 Steps for Calculating Probability of an event
1. Define the experiment:
2. List all the sample points (define sample space S)
3. Assign probabilities to each sample point
1
• When not specified, each sample point has the same probability
| |
4. Determine the sample points in the event A of interest
5. Sum the sample points probabilities to get the event probability

When each sample point has the sample probability: Pr( ) =

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 Exercise

➢ Calculate the probability of event

A and B.

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 Exercise
➢ List all the sample points and assign probability.

➢ Determine sample points in A and B.

➢ A = {DN, ND}
➢ B = {DD, DN, ND}

➢ Sum sample points probabilities.

➢ P(A) = P(DN) + P(ND) = .045 + .045 = .09
➢ P(B) = P(DD) + P(DN) + P(ND) = .045 + .045 + .01 = .10
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 Counting Sample Points
➢ Previous examples: the number of sample points
in sample space is small
• One coin toss  2
• One die roll  6

➢ Count large number of sample points using

combinatorial mathematics
• Multiplication rule
• Combination rule

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Textbook, Appendix B , P. 803
 Multiplication Rule
➢ A man has 2 shirts and 4 pair of jeans. Ignoring the fact
that some of the combinations may look ridiculous, how
many ways can he get dressed?

➢ We have 2 t-shirt and with each t-shirt we could pick 4 pairs of

jeans.
➢ Altogether, there are 2 x 4 = 8 possible combinations

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 Multiplication Rule
➢ A man has 2 shirts, 2 pair of pants, 2 pairs of
shoes. How many ways can he get dressed?

➢2 x 2 x 2
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 Combination Rule
➢The number of sequences of 2 letters formed from
the 4 letters a, b, c, d, is: (4) (3) = 12 (ordering
matters: known as permutation)
The sequences are:
(a,b) (a,c) (a,d) (b,c) (b,d) (c,d)
(b,a) (c,a) (d,a) (c,b) (d,b) (d,c)

➢Distinct combination 12/2=6:

(a,b) (a,c) (a,d) (b,c) (b,d) (c,d)

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 Combination Rule
➢Pick 3 distinct letters from A-Z
➢Combination: ignores to the order in which they were
selected. { , , } is considered the same combination as
{ , , }.

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 Combinations Rule
➢A sample of n elements is to be drawn from a set of N elements.
(ordering does not matter) Then, the number of different samples
possible is denoted by

➢N select n:
×( − 1) × ⋅ ⋅ ⋅ × ( − + 1) !
( )= × ( − 1) × ⋯ × 1
=
!( − )!
➢Factorial symbol: ! = × ( − 1) × ( − 2) × ⋯ × 3 × 2 ×1
➢ 0!=1
➢ (0 ) = 1
➢C(N,n)
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• Permutation A(N,n): An ordered arrangement of n
elements chosen from a set of N distinct
elements. (Order matters)
• A(N,n) = N!/(N-n)!

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 Example
• Suppose you plan to invest equal amounts of
money in each of five business ventures. If you
have 20 ventures from which to make the
selection, how many different samples of five
ventures can be selected from the 20?
• For this example, N = 20 and n = 5. Then the
number of different samples of 5 that can be
selected from the 20 ventures is
⎛ 20 ⎞ 20! 20!
⎜ 5 ⎟ = 5!(20 − 5)! = 5!15!
⎝ ⎠
20 ⋅ 19 ⋅ 18...3 ⋅ 2 ⋅ 1 20 ⋅ 19 ⋅ 18 ⋅ 17 ⋅ 16
= = = 15,504
(5 ⋅ 4 ⋅ 3 ⋅ 2 ⋅ 1)(15 ⋅ 14 ⋅ 13...3 ⋅ 2 ⋅ 1) 5 ⋅ 4 ⋅ 3 ⋅ 2 ⋅1
 Exercise
➢Pick 3 distinct letters from −

• (3 )
26 26 × 25 × 24
= = 2600
3×2×1

➢ A club has 23 members. How many ways can they

pick 4 people to be on a committee to plan a party?

➢ A restaurant offers 15 possible toppings for its

pizza. How many different pizzas with 4 toppings
can be ordered?

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 Exercise
➢ You pick six distinct numbers from 1 through 54,
and then in a televised drawing six of the numbers
are selected. If all six of your numbers are selected,
then you win a share of the first place prize.

➢ How many ways are there to select 6 numbers for

the lotto ticket?

➢ What is the probability of selecting a first prize

number?
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 Exercise
➢ Quality assurance: Suppose we have 100 light bulbs,
which contain 5 defective bulbs. If we pick 10 for testing,
what is the probability that no bulbs in the sample are
defective? We can answer this question in three steps.

➢ How many ways are there of picking 10 bulbs for testing out
of 100?

➢ How many ways are there of picking 10 non-defective bulbs?

➢ What is the probability that there are no defective bulbs in

your sample of 10?

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 Summary (Chapter 3.1)
➢ Experiment
➢ Sample point
➢ Sample space
➢ Event

➢ Probability:
• Rule 1: 0 ≤ ( ) ≤ 1
• Rule 2: ( ) = ∑ =1 =1
• Rule 3: The probability of an event = sum of the
probabilities of the sample points in
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 Steps for Calculating Probability of an event
1. Experiment
2. Sample space S
• List all the sample points and calculate
• If too many, use Multiplication Rule and Combination Rule
1
3. Find ( ) . If equally likely, ( ) =
| |
4. Event A of interest, all sample point and calculate
5. ( ) = Sum of ( ) for all in A

If equally likely : ( )=
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“A Practical Guide To Quantitative Finance Interview”
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 Basic Operations on Events

➢ Complement of event
➢ Intersection
➢ Union
➢ Difference

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Section 3.2 – 3.3
 Complementary Events
➢Complement of event
• The event that does not occur
• Contains all sample points not in
• Denoted by

Venn Diagram

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 Rule of Complements
The sum of probabilities of the event and its complement
equals to 1

➢ ( )+ ( )=1
➢ ( )=1− ( )

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 Experiment: Toss 2 fair coins: ={ , , , }

Event: two outcomes are the same

• TH • Event:
Complement HH
HT ={ , }
Event:
={ , } TT
S
( )=? ( )=?

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 Experiment: Roll a die = {1,2, 3,4, 5,6}
= “a die rolls 5 or higher”, =? ( )=? ( )=?

➢ = {5, 6}
➢ = {1, 2,3, 4}
1 1
➢ ( )= 6 ×2= 3
1 2
➢ ( )=1− ( )=1− =
3 3
➢ or,
1 2
➢ ( )= ×4=
6 3
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 Example
➢ Suppose 60% of NYU undergraduates own
iPhones. If you pick a random NYU
undergraduate, what is the probability that he or
she will NOT own an iPhone? (What is the
sample space ?)

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 Example
➢ Suppose you flip five coins. What is the probability of getting
at least one head?

➢ Sample space ={ , …, }: = 32
➢ : all sample points with at least one

1
➢ ={ }⇒ ( )=
32
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➢ By rule of complement: ( ) = 1 − ( )=
32
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 Compound Events

Compound events:
Composition of two or more other events.
Can be formed in two different ways.
 Unions & Intersections
1. Union
• Outcomes in either events A or B or both
• ‘OR’ statement
• Denoted by ∪ symbol (i.e., A ∪ B)
2. Intersection
• Outcomes in both events A and B
• ‘AND’ statement
• Denoted by ∩ symbol (i.e., A ∩ B)
 Intersection
➢Intersection of two events and
• Both and occur
• Sample points that belong to both and
• Denoted by ∩ symbol (i.e., ∩ )
• Commutative : ∩ = ∩

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 Events
➢Mutually Exclusive Events:
• If A occurs, then B cannot occur
• A and B have no sample points in common ( ∩ = ∅)

• A card cannot be Jack and

• Jack • Ace Ace at the same time.

• ( ∩ )=0
• Complement events?

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 Intersection Exercise
➢The card is a heart and a jack

➢What is the probability of the event:

1
(card is a heart and a jack) =
52

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 Mutually Exclusive Events Exercise
➢ Mutually exclusive events:

➢What is the probability of the event 3 ∩ 5?

( 3 ∩ 5) = 0

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 Union

➢Union of two events and

• If either or or both occur
• Sample points that belong to or or both
• Denoted by ∪ symbol (i.e., ∪ )
• Commutative : ∪ = ∪

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 Example: Die-Toss Experiment
Consider the die-toss experiment. Define the events:
A: {Toss an even number.}
B: {Toss a number less than or equal to 3.}

• Venn diagram for die-toss

 Example

a. The union of A and B is the event that occurs if we observe

either an even number, a number ≤ 3, or both on a single
throw of the die
∪ = {1,2, 3,4, 6}

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 Example

b. The intersection of A and B is the event that occurs if we

observe both an even number and ≤ 3, or both on a single
throw of the die
∩ = {2}

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 Example

5
c. P( ∪ ) = ({1,2, 3,4, 6}) =
6
1
P( ∩ ) = P({2}) =
6

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 Additive Rules
➢ Numerical rules to calculate probabilities
of union and intersection.

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Section 3.4
 Additive Rule:
Get probabilities for union or intersection of events

➢ ( ∪ )= ( )+ ( )− ( ∩ )
➢ ( ∩ )= ( )+ ( )− ( ∪ )

➢For mutually exclusive events:

( ∩ )=0⇒ ( ∪ )= ( )+ ( )

Wrong in general! 63
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 Additive Rule Exercise
➢ Suppose you roll two dice, describe the event “you
get 1 on at least one of the dice”

➢ = {you get one on the first die}

➢ = {you get one on the second die}
➢ = ∪

➢ ∩ : 1 on the first and 1 on the second

1 1 1 11
➢ ( ∪ ) = ( ) + ( ) − ( ∩ ) = 6 + 6 − 36 = 36
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 Additive Rule Exercise
➢ Probability that “The card is a heart or a jack”

➢ Method 1: add up the probabilities of all sample points

➢ Method 2: use the Additive Rule

( )= ( )+ ( )− ( ∩ )
13 4 1 16
= + − =
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 Additive Rule Exercise
➢ Probability that “The sum of the two dice is either
3 or 5”:

➢ 3 and
are mutually exclusive
5
2 4 1
➢ ( ) = ( 3) + ( 5) = 36 + 36 = 6

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 More relationships between
union and intersection
• ( ∪ ) = ∩ (white area)
• Rule of complement: ( ∪ )+ ( ∩ )=1
• ( ∩ ) = ∪
• Rule of complement: ( ∩ )+ ( ∪ )=1

( ⋃ )

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𝑐
𝑐
𝑐
𝑐
𝑐
𝑐
𝑐
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𝑐
 Event Difference
➢ A minus ( \B):
Event happens, but does not

•
\ • •
A∩ \A

• ( \B) = ( ) − ( ∩ )
• ( \A) = ( ) − ( ∩ )
68
𝐵
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𝐴
𝐴
𝐵
𝐵
𝐵
𝑃
𝑃
𝐴
𝐵
𝑃
𝑃
𝐴
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𝑃
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 Event Probability Using
Two–Way Table

Event
Event B1 B2 Total
• A1 • A1 ∩ B1 • A 1 ∩ B2 • A 1
A2 • A2 ∩ B1 • A 2 ∩ B2 • A 2
Total
Total • B1 • B2 # of sample points

➢ 1∩ 2=Φ
➢ 1∩ 2=Φ 69
𝐴
𝐵
𝐵
𝐴
 Two–Way Table Example
Construct Table from Experiment
Experiment: Draw 1 Card. Note Kind & Color.
➢ 1 = {Ace}, 2={Non-Ace}
➢ 1 = {Black}, 2 = {Red}

Color
Type Red Black Total
•Ace 2 2 4
Non-Ace 24 24 48 Ace

Total 26 26 52

70
Red Ace ∩ Red
𝐵
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𝐴
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 Two–Way Table Example
Calculate Probability from Table

What’s the Probability?

1. P(A) = Event
2. P(D) = Event C D Total
3. P(C ∩ B) = • A 4 2 6
4. P(A ∪ D) = B 1 3 4
Total 5 5 10
5. P(B ∩ D) =

71
 Solution*

The Probabilities Are:

1. P(A) = 6/10 Event
2. P(D) = 5/10 Event C D Total
3. P(C ∩ B) = 1/10 • A 4 2 6
B 1 3 4
4. P(A ∪ D) = 9/10
Total 5 5 10
5. P(B ∩ D) = 3/10

72
 Read probability from the table

• If we pick a random survey respondent, what is

the chance that their major will be Undecided?
17 73
•
 Conditional Probability and
Independent Events

74
Section 3.5-3.6
 Conditional Probability
Experiment: Roll a fair 6-faced die.

• • •3
1 3 5 1 5

2 4 6 ❌2 ❌4 ❌6

Observe the up face: what is the probability of getting a 3?

1
({3}) =
6
More information: it is odd. What is the probability of a 3?
1
({3} | )=
3
75
conditioned on
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 Conditional Probability
Experiment: Draw 1 Card from a deck.
Color
Type Red Black Total
•Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
Randomly chosen a card: what is the probability of ace?
4 1
( )= =
52 13
More information: it is black. What is the probability of ace?
( | )=?
76
𝑃
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 Conditional Probability
Color
Type Red Black Total ( )

•Ace 2 • 2 4 Revised
Sample Space
Non-Ace 24 • 24 48
Total 26 • 26 52

➢ In all 26 black cards, 2 out of 26 is Ace:

2 1
( )= =
26 13
➢ A Formula to calculate conditional probability:
P(Ace ∩ Black) 2 / 52 2
P(Ace | Black) = = =
P(Black) 26 / 52 26
77
𝑃
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𝑎
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𝑘
𝑃
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𝑐
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 Conditional Probability
➢Conditional probability: Event probability given that
another event occurred

➢ ( | ) = the conditional probability of , given that

occurred

( ∩ )
➢ ( )=
( )

➢Key: revise the original sample to the space that

occurred.
𝑃
𝐵
78
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 Conditional Probability Using Venn
Diagram

Black ‘Happens’:
Eliminates All
• Ace Black Other Outcomes
• • ••

Black
S •• (S)
•

Event (Ace ∩ Black)

( ∩ )
( )=
𝑃
𝐵
( ) 79
𝑃
𝐴
𝐵
𝑃
𝐴
𝐵
 Event Probability Using
Two–Way Table

Event
Event B1 B2 Total
• A1 • A1 ∩ B1 • A 1 ∩ B2 • A 1
A2 • A2 ∩ B1 • A 2 ∩ B2 • A 2
Total
Total • B1 • B2 # of sample points

➢ 1∩ 2=Φ
➢ 1∩ 2=Φ 80
𝐴
𝐵
𝐵
𝐴
 Exercise
Using the table then the formula, what’s the
probability?

1. P(A|D) = Event
2. P(C|B) = Event C D Total
• A 4 2 6
• B •1 •3 • 4
Total 5 5 10

81
 Event
Event C D Total
• A 4 2 6
B 1 3 4
Total 5 5 10

P ( A ∩ D ) 2 10 2
P (A D ) = = =
P (D ) 5 5
10

P (C ∩ B ) 1 1
P (C B ) = = 10 =
P (B ) 4 4
10 82
 Exercise

➢ What is the probability that the selected respondent has an

International birth country given that he studies finance

➢ 7/29

83
 Exercise
➢ Suppose we roll two dice and A = “The sum is 8,”
B = “The first die is 3.” What is the probability that
the first die is 3 given that the sum is 8, i.e. what
is P(B | A)?

•
= {(2,6), (3,5), (4,4), (5,3), (6,2)}
• ∩ ==36{(3,5)}
•
5 1
( )= = , ( ∩ )=
•
( 36 36
𝑆
∩ ) 1
( | )=
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𝐴
=
𝑃
𝐴
84
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• ( ) 5
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Lecture 4

85
 Calculating Probability of an event
1. Basic five-step method
2. Using event operator and numerical rules
• Complement event; Complement rule
• Union and intersection; Additive rule
• Mutually exclusive event
• Event difference
3. Conditional probability
• Updated sample space
• Calculate using basic five-step method
• Calculate by definition
86
 Exercise
➢ Suppose we draw two cards out of a deck of 52.
Let A = “The first card is a heart,” B =“The second
card is a heart.” Find the probability that the
second card is a heart given that the first card is
a heart.

13 × 51
( )= =
• 52 × 51
∩ 13 × 12
( ∩ )= =
• 52 × 51
𝑆
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𝐴
( ∩ )
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𝐵
12 87
𝑃
𝐵
𝐴
| = =
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Example: Executives Who Cheat at Golf
➢ A study of executives who play golf revealed that
55% of the executives admitted they had cheated
at golf. Also, 20% of the executives admitted they
had cheated at golf and had lied in business.
➢ Given an executive who had cheated at golf,
what is the probability that the executive also had
lied in business?
• Define the events A and B:
• A = {Executive who had cheated at golf}
• B = {Executive who had lied in business}
Example: Executives Who Cheat at Golf (cont)

• From the study, we have

• P(A) = 0.55, cheated at golf
• P(A ∩ B) = 0.20, cheated at gold AND lied in business
• We want to know the probability that an executive lied in
business (event B), given that he or she cheated at golf
(event A):
• P(B | A) = P(A ∩ B) = 0.20 = 0.364
P(A) 0.55
• Thus, given an executive who had cheated at golf, the
probability that the executive also had lied in business
is 0.364.
Example: Executives Who Cheat at Golf (cont)

• One of the keys to correctly applying the formula is

to write the information in the application in the
form of probability statements involving the events
of interest!
 Multiplicative Rule

➢Used to get compound probabilities for

intersection of events from conditional probability

( ∩ ) ( ∩ )
➢ ( )=
( )
, ( )=
( )

➢P(A∩B) = P(A) × P(B|A)

= P(B) × P(A|B)
𝑃
𝐵
𝑃
𝐴
91
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 Multiplicative Rule Example
Experiment: Draw 1 Card. Note Kind & Color.
Color
Type Red Black Total
••Ace • 2 •• 2 •4
Non-Ace 24 24 48
Total 26 26 52

P(Ace ∩ Black) = P(Ace)·P(Black | Ace)

⎛ 4 ⎞⎛ 2 ⎞ 2
= ⎜ ⎟⎜ ⎟ =
⎝ 52 ⎠ ⎝ 4 ⎠ 52
92
 Multiplicative Rule Example

➢ Define the following two events:

A = {First worker selected gives illegal deductions.}
B = {Second worker selected gives illegal deductions.}
➢ ( ∩ )= ( ) ( | )
➢ Find ( )
➢ Find ( | ) 93
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 Multiplicative Rule Example

➢ A = {First worker selected gives

illegal deductions.}

➢ To find ( )

➢ Consider the experiment as selecting 1 worker from 10

3
➢ ( ) = 10

94
𝑃
𝐴
𝑃
𝐴
 Multiplicative Rule Example

➢ A = {First worker selected gives

illegal deductions.}
➢ B = {Second worker selected
gives illegal deductions.}

➢ To find ( | )
➢ We need to alter the sample space. A has occurs (i.e. the
first worker selected is giving illegal deductions) say 3
➢ Only 2 of the 9 remaining workers in the sample space
are giving illegal deductions
2
➢ ( | )= 9 95
𝑃
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 Multiplicative Rule Example

➢ Tree diagram 96
 ➢ Suppose we pick 2 random NYU students. What is the
probability that both have iPhones?

1900
➢ (1st has iphone) = 4100
1899
➢ (2nd has iphone 1st has iphone) = 4099
1900 1899
➢ (1st has iphone & 2nd has iphone) = ×
4100 4099 97
𝑃
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𝑃
 ➢ What is the probability that, of 2 randomly picked
students, only one has an i-phone?

➢ (1st has iphone & 2nd has NO iphone)+ (1st has NO

iphone & 2nd has iphone)

1900 2200 2200 1900

➢ 4100 ⋅ 4099 + 4100 ⋅ 4099
98
𝑃
𝑃
 Complement Rule for
Condition Probability
➢ ( )+ ( )=1

➢ ( )=1− ( | )

➢ But ( )+ ( ) can be anything !

99
𝑃
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Movie 21

100
Monty Hall problem

101
 Monty Hall problem
➢ Suppose you‘re on a game show, and you're
given the choice of three doors: Behind one door
is a car; behind the others, goats.
➢ You pick a door, say No. 1, and the host, who
knows what's behind the doors, opens another
door, which has a goat

➢ The host cannot open the door NO.1 and cannot

open the door with a car.
➢ He then says to you, "Do you want to change to
the other door?"
102
Winning probability 2/3

103
 Summary
➢ Complement (not ): ( )=1− ( )
➢Union ( ∪ = or )
• Additive rule: ( ∪ ) = ( ) + ( ) − ( ∩ )
• Mutually exclusive: ( ∪ ) = ( ) + ( )
➢Intersection ( ∩ = and )
Additive rule: ( ∩ ) = ( ) + ( ) − ( ∪ )
➢Conditioning ( | = given )
( ∩ ) ( ∩ )
• ( )=
( )
, ( )=
( )
• Multiplicative rule: ( ∩ ) = ( ) ( )= ( ) ( )
• Complement rule: ( )+ ( )=1
𝑃
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104
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 Independence
➢Event occurrence does not affect probability of the
occurrence of another event
• Toss a coin twice
➢Tests for independence
• P(A | B) = P(A)
• P(B | A) = P(B)
• P(A∩ B) = P(A) × P(B)
➢Different from mutually exclusive events (not
independent):
( ∩ )
( )= =0≠ ( )
( )
105
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 Exercise
➢ Suppose you flip two fair coins. Let
A =“the first coin shows Heads,”
B = “The second coin shows Heads.”
➢ Find the probability of getting heads on both
coins, i.e. find P(A ∩ B). (Using independence)

106
Example: Checking Independence
Consider the experiment of tossing a fair die and let
• A: {Observe an even number.}
• B: {Observe a number less than or equal to 4.}
➢ Are events A and B independent?

•Venn diagram for die-toss experiment

 Example: Checking Independence (cont)

➢ Using the Venn diagram, calculate

P( A) = P(2) + P(4) + P(6) = 1 / 2
P( B) = P(1) + P(2) + P(3) + P(4) = 2 / 3
P( A ∩ B) = P(2) + P(4) = 1 / 3

➢ Assuming B has occurred, the conditional probability

of A given B is
1
P( A ∩ B) 3 1
P( A | B) = = = = P( A).
P( B) 2 2
3
Example: Checking Independence (cont)

Thus, assuming that event B occurring does not alter the

probability of observing an even number, P(A) remains
1/2. Therefore, the events A and B are independent.

Note that if we calculate the conditional probability of B

given A, our conclusion is the same as
1
P( A ∩ B) 3 2
P( B | A) = = = = P( B).
P( A) 1 3
2
 Example
• Suppose you roll two dice, one red and one green. Let event =
“The sum is 7," B = “The red die is a 6." Are events A and B
independent?

• Let ( , ) denote a sample point where the red die takes the value
and green die takes the value .

• Sample space = 36
6
• = {(1,6), (2,5), (3,4), (4,3), (5,2), (6,1)} ⇒ ( ) =
36
6
• = {(6,1), (6,2), (6,3), (6,4), (6,5), (6,6)} ⇒ ( ) =
36
1
• ∩ = {(6,1)} ⇒ ( ∩ ) =
36
1
• Independent: ( ∩ ) = ( ) × ( ) = 110
36
𝐴
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 Example
➢ Suppose you roll two dice, one red and one green. Let event
= “The sum is 8," B = “The red die is a 6." Are events A and
B independent?

➢ Sample space = 36
5
➢ = {(2,6), (3,5), (4,4), (5,3), (6,2)} ⇒ ( ) =
36
6
➢ = {(6,1), (6,2), (6,3), (6,4), (6,5), (6,6)} ⇒ ( ) = 36
1
➢ ∩ = {(6,2)} ⇒ ( ∩ ) = 36
1 5
➢ Dependent: ( ∩ ) = 36 ≠ ( ) × ( ) = 216

111
𝐴
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 Bayes’ Rule

➢ Relate ( ) to ( )
➢ Multiplicative Rule:
P(A∩B) = P(A) × P(B|A) = P(B) × P(A|B)

➢ Bayes’ rule:
P( B | A) P( A)
P( A | B) =
P( B)
112
𝑃
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𝐴
𝐵
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𝐵
 Amazon Promotion Example
➢ Amazon.com maintains a list of all registered
customers, along with their email addresses.

➢ During July, they sent coupons to 20% of their

customers. They recorded that 5% of their
customers made purchases in July, and 40% of
all purchases were made with coupons.

➢ What proportion of customers who were sent a

coupon in July made a purchase in that month?
(assume that each customer either makes no
purchase or one purchase in July)
113
 Amazon Promotion Example
➢ Solution:

114
 Pharmacist Exam Example
➢ Every year in March there is a standardized exam for
people who want to be licensed pharmacist.

➢ It happens that, with probability 45%, a person will pass

this exam. In the process of screening people, it turns out
that among those who passed the exam, 60% had taken
college courses in biology. It happens also that 30% of all
those who take the exam had college courses in biology.

➢ Find the probability that a person with college courses in

biology will pass the exam.

115
 Pharmacist Exam Example
➢ Solution:

116
 Bayes’ Rule
Bayes’ Rule

P( B | A) P( A)
P( A | B) =
P( B)
What if ( ) is unknown？

Partition into ∩ and ∩

( )= ( ∩ )+ ( ∩ )= ( ) ( )+ ( ) ( | )

( ∩ ) ( ) ( | )
( )= =
( ) ( ) ( )+ ( ) ( | )
𝑃
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117
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 Example: Bayes’s Rule
➢ Electric wheelchairs are difficult to maneuver
and researchers applied Bayes’s Rule to
evaluate an “intelligent” robotic controller.
Consider the following scenario. a wheelchair
user will either (1) turn sharply to the left and
navigate through a door, (2) proceed straight to
the other side of the room, or (3) turn slightly
right and stop at a table.
➢ Denote these three events as
• D (for door) with P(D) = 0.5,
• S (for straight) with P(S) = 0.2, and
• T (for table) with P(T) = 0.3.
 Example: Bayes’s Rule (cont)
➢ The wheelchair is installed with a robot-
controlled joystick. When the user intends to go
through the door, he points the joystick straight
30% of the time; when the user intends to go
straight, he points the joystick straight 40% of
the time; and when the user intends to go to the
table, he points the joystick straight 5% of the
time.
➢ If the wheelchair user points the joystick
straight, where is his most likely destination?
 Example: Bayes’s Rule (cont)
•Solution Let J = {joystick is pointed straight}. The
user intention percentages can be restated as the
following conditional probabilities:
–P(J|D) = 0.3, P(J|S) = 0.4, and P(J|T) = 0.05.
•Since the user has pointed the joystick straight, we
want to find the following probabilities: P(D|J), P(S|
J), and P(T|J ).
•Now, the three events, D, S, and T, represent
mutually exclusive and exhaustive events, where
P(D) = 0.5, P(S) = 0.2, and P(T) = 0.3.
•Consequently, we can apply Bayes’s Rule as
follows:
 Example: Bayes’s Rule (cont)
P( J | D) P( D)
P( D | J ) =
P( J | D) P( D) + P( J | S ) P( S ) + P( J | T ) P(T )
(0.3)(0.5) 0.15
= = = 0.612
(0.3)(0.5) + (0.4)(0.2) + (0.05)(0.3) 0.245
P( J | S ) P( S )
P( S | J ) =
P( J | D) P( D) + P( J | S ) P( S ) + P( J | T ) P(T )
(0.4)(0.2) 0.08
= = = 0.327
(0.3)(0.5) + (0.4)(0.2) + (0.05)(0.3) 0.245
P( J | T ) P(T )
P(T | J ) =
P( J | D) P( D) + P( J | S ) P( S ) + P( J | T ) P(T )
(0.05)(0.3) 0.015
= = = 0.061
(0.3)(0.5) + (0.4)(0.2) + (0.05)(0.3) 0.245

•The largest conditional probability is P(D|J) = 0.612. Thus, if

the joystick is pointed straight, the wheelchair user is most
likely headed through the door.
 ➢ Diagnostic Testing: Suppose there is a rare disease, with 0.1% of
patients afflicted. We have a diagnostic test for the disease. If a
patient has the disease, then there is a 99% chance that the test will
show positive. If a patient does not have the disease, then there is a
2% chance that the test will show positive. Given that a test shows
positive, what is the probability that the patient has the disease?
: patient has the disease
: test shows positive

• Q1: From the description, what is ( ) , ( ), ( ), ( )?

• A1:
( ) = 0.001, ( ) = 1 − 0.001 = 0.999, ( ) = 0.99, ( ) = 0.0
•

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 ➢ Diagnostic Testing: Suppose there is a rare disease, with 0.1% of patients
afflicted. We have a diagnostic test for the disease. If a patient has the
disease, then there is a 99% chance that the test will show positive. If a
patient does not have the disease, then there is a 2% chance that the test
will show positive. Given that a test shows positive, what is the probability
that the patient has the disease?
: patient has the disease
: test shows positive

• Q3: ( | ) ?
• ( ) = 0.001, ( ) = 1 − 0.001 = 0.999, ( ) = 0.99, ( ) = 0.02, ( ) = 0.02
• A3: Bayes rule:
( ∩ ) ( ) ( ) 0.99 × 0.001
( )= = = = 0.0472
( ) ( ) ( )+ ( ) ( ) 0.02097

• Conclusion: useless test for a doctor !

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123
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 ➢ Diagnostic Testing: Suppose there is a rare disease, with 0.1% of patients
afflicted. We have a diagnostic test for the disease. If a patient has the disease,
then there is a 99% chance that the test will show positive. If a patient does not
have the disease, then there is a 2% chance that the test will show positive. Given
that a test shows positive, what is the probability that the patient has the disease?
: patient has the disease
: test shows positive
( ) ( )
( )= = 0.0472
( ) ( )+ ( ) ( )

• Conclusion: useless test for a doctor !

• Example: 100,000 patients, 100 disease and 99900 healthy. Among 100,000
patients, then 99 of the disease show positive, and 1,998 of the healthy show
positive.
• Vast majority of positive test from healthy patients. The percentage of positive
results from the sick patients is 99/(1998 + 99) ≈ 4.72%.
• How to make a useful test ? (hint from Bayes rule)
• Make ( ) ≈ 0 NOT ( ) = 0.02
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 Summary (Chapter 3.2-3.7)
• Complement (not ): ( )=1− ( )
• Union ( ∪ = or )
– Mutually exclusive: ( ∪ ) = ( ) + ( )
– General: ( ∪ ) = ( ) + ( ) − ( ∩ )
• Intersection ( ∩ = and )
– Independent: ( ∩ ) = ( )× ( )
– General: ( ∩ ) = ( ) ( )= ( ) ( )
• Conditioning ( | = given )
– Independent: ( ) = ( ), ( )= ( )
( ∩ ) ( ∩ )
– General: ( )= , ( )=
( ) ( )
• Bayes’ rule
( ) ( ) ( ) ( )
( )= =
( ) ( ) ( )+ ( ) ( )

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