Business

e probability of an event refers to the likelihood that the event will occur.

How to Interpret Probability

Mathematically, the probability that an event will occur is expressed as a number between 0 and 1. Notationally, the probability of event A is represented by P(A).

* If P(A) equals zero, there is no chance that the event A will occur.

* If P(A) is close to zero, there is little likelihood that event A will occur.

* If P(A) is close to one, there is a strong chance that event A will occur

* If P(A) equals one, event A will definitely occur.

The sum of all possible outcomes in a statistical experiment is equal to one. This means, for example, that if an experiment can have three possible outcomes (A, B, and C), then P(A) + P(B) + P(C) = 1.

How to Compute Probability: Equally Likely Outcomes

Sometimes, a statistical experiment can have n possible outcomes, each of which is equally likely. Suppose a subset of r outcomes are classified as "successful" outcomes.

The probability that the experiment results in a successful outcome (S) is:

P(S) = ( Number of successful outcomes ) / ( Total number of equally likely outcomes ) = r / n

Consider the following experiment. An urn has 10 marbles. Two marbles are red, three are green, and five are blue. If an experimenter randomly selects 1 marble from the urn, what is the probability that it will be green?

In this experiment, there are 10 equally likely outcomes, three of which are green marbles. Therefore, the probability of choosing a green marble is 3/10 or 0.30.

How to Compute Probability: Law of Large Numbers

One can also think about the probability of an event in terms of its long-run relative frequency. The relative frequency of an event is the number of times an event occurs, divided by the total number of trials.

P(A) = ( Frequency of Event A ) / ( Number of Trials )

For example, a merchant notices one day that 5 out of 50 visitors to her store make a purchase. The next day, 20 out of...