UNIT 3

BASICS OF PROBABILITY

Bachelor’s Degree in Business Administration

University of Valladolid
Outline

3.1. Random experiments. Events

3.2. Definition of probability
3.3. Properties of probabilities
3.4. Some probabilistic spaces
3.5. Conditional probability and statistical independence
3.6. Composition of experiments. Probability for the compound experiment

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3.1. Random experiments. Events

An experiment is an action that produces data.

A random experiment is an experiment that fulfills the following properties:

1. Before doing the experiment we know all possible outcomes.

2. The particular outcome of the experiment is not known in advance.
3. Statistical regularity.

The sample space (Ω) is the set of all possible outcomes of an experiment.

The sample points (ω) are the elements of the sample space.

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Examples:

Example 1. We roll a die. The sample space that describe the possible
results is Ω = {1, 2, 3, 4, 5, 6}.

Example 2. The experiment consists of measuring the waiting time for an

urban bus whose frequency is 15 minutes. Ω is the interval (0,15).

Example 3. We toss a normal coin until we obtain the first head, then the
experiment ends. In this case, the sample space is Ω = {h, th, tth, ttth, . . .}.

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An event is a subset A of Ω.
If the outcome of the experiment belongs to A, then we say that the event
A has occured.

For instance, if the die in Example 1 is thrown with the result ω = 3, the
event A = odd result = {1, 3, 5} occurs, but also the event B = result
greater than 1 = {2, 3, 4, 5, 6} occurs, given that 3 ∈ A and 3 ∈ B .

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▷ Null event: ∅. It never occurs.

▷ Sure event: Ω. It always occurs.

▷ Elementary events: events {ω} with only one outcome of Ω.

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Operations and relations between events:

▷ Complement of an event, Ā: event that occurs when A does not

occur.

Formed by all outcomes in the sample space Ω that are not in A.

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▷ Union of events, (A∪B): event that occurs when either A or B occurs.

Formed by all outcomes that belong to at least one of the two events.

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▷ Intersection of events, (A ∩ B): event that occurs when both A and
B occur simultaneously.

Formed by the set of outcomes in Ω that belong to both A and B.

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▷ Difference of events, (A − B): event that occurs when A occurs and
B does not occur.

A − B = A ∩ B̄.

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▷ Inclusion of events, (A ⊂ B): A is contained in B if the occurrence of
A implies the occurrence of B.

All the outcomes in A are also in B.

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▷ Disjoint or mutually exclusive events. A and B are disjoint if they
cannot occur at the same time, that is, if A ∩ B = ∅.

A and B have no common outcomes.

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Other relations between events.

▷ De Morgan’s Laws:
• A ∪ B = Ā ∩ B̄

• A ∩ B = Ā ∪ B̄

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Other relations between events.

▷ Distributive property of the union with respect to the intersection:

A ∪ (B ∩ C ) = (A ∪ B) ∩ (A ∪ C )

▷ Distributive property of the intersection with respect to the union:

A ∩ (B ∪ C ) = (A ∩ B) ∪ (A ∩ C )

▷ B = (B ∩ A) ∪ (B ∩ Ā):

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3.2. Definition of probability

A historical definition:
Probability: frequency of the events when a random experiment is repeated
many times.

nA
pA = lim
N→∞ N

This definition is not practical

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An axiomatic definition:
Let Ω be the sample space of a random experiment, a probability is an
assignment of numbers to the events, A → p(A) ∈ R , which verifies:

A1 p(A) ≥ 0 for any event A. The probability of any event is higher

than or equal to 0.

A2 p(Ω) = 1 ⇒ There cannot be events with probability higher than

1.
∞
S  P
A3 p Ai = ∞ i=1 p(Ai ) for any infinite numberable collection of dis-
i=1
joint events Ai , i = 1, 2, . . . , ∞. It also hold for a finite collection of
disjoint events.

A probabilistic space is a sample space whose events have been assigned

a probability.

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3.3. Properties of probabilities

P1 p(Ā) = 1 − p(A) for any event A.

P2 p(∅) = 0

P3 For any pair of events, A and B, if A ∈ B , then p(A) ≤ p(B).

P4 0 ≤ p(A) ≤ 1.

P5 p(B − A) = p(B) − p(B ∩ A) for any pair of events A and B.

P6 p(A ∪ B) = p(A) + p(B) − p(A ∩ B) for any pair of events A and B.

P7 From axiom A1 and property P6, it follows that, for any pair of events
A and B,
p(A ∪ B) ≤ p(A) + p(B),
result that can be generalised to more than two events.

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3.4. Some types of probabilistic spaces: finite
sample spaces

In a finite sample space the set of possible results is finite: Ω = {ω1 , . . . , ωn }.

It is sufficient to assign probabilities to each and every one of the elementary
events, fulfilling:

1. p(ωi ) ≥ 0 for i = 1, . . . , n;

2. p(ω1 ) + · · · + p(ωn ) = 1.

In this way, if A = {ω1 , . . . , ωk } ⇒ p(A) = p(ω1 ) + · · · + p(ωk ).

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Special case: finite sample space with equally likely outcomes

All the elementary events have the same probability:

1
p(ω1 ) = · · · = p(ωn ) = n

If A is any event with k elements:

P 1 k
p(A) = ωi ∈A n = n

Laplace’s Rule:

number of outcomes in A
p(A) = number of outcomes in Ω

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3.5. Conditional probability and statistical
independence

Would our bets change for {Swords, Cups, Clubs, Golds} if we knew that
the chosen card is “Not a Gold”?
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3.5.1. Conditional probability

It consists of calculating the probability of other events, knowing that

a certain event has occurred.

Conditional probability that A occurs given that B has occurred:

p(A∩B)
p(A|B) = p(B)

Conditional probability that B occurs given that A has occurred:

p(B∩A)
p(B|A) = p(A)

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IMPORTANT: the conditional probability is a probability (it fulfills all prop-
erties in slide 19).

For instance:

P1 p(Ā|B) = 1 − p(A|B)

P4 0 ≤ p(A|B) ≤ 1

P6 p((A ∪ C )|B) = p(A|B) + p(C |B) − p((A ∩ C )|B)

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Given that

p(A∩B)
p(A|B) = p(B) ⇒ p(A ∩ B) = p(B) · p(A|B)

Analogously:

p(B∩A)
p(B|A) = p(A) ⇒ p(A ∩ B) = p(A) · p(B|A)

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Generalisation ⇒ Multiplication Rule:

For two events A1 ,A2 :

p(A1 ∩ A2 ) = p(A1 ) · p(A2 |A1 )

For three events:

p(A1 ∩ A2 ∩ A3 ) = p(A1 ) · p(A2 |A1 ) · p(A3 |A1 ∩ A2 )

In general, if we have n events:

p(A1 ∩ · · · ∩ An ) = p(A1 ) · p(A2 |A1 ) · · · · · p(An |A1 ∩ · · · ∩ An−1 )

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Law of Total Probability:

∞
P
p(B) = p(Ai ) · p(B|Ai )
i=1

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Bayes’s Theorem:

p(Aj )·p(B|Aj )
p(Aj |B) = ∞
P j = 1, . . . , n, . . .
p(Ai )·p(B|Ai )
i=1

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3.5.2. Statistical independence

Definition 1. A and B are statistically independent if

p(A ∩ B) = p(A) · p(B).

Definition 2. A and B, with p(A) > 0, are independent if

p(B|A) = p(B)

Definition 3. A, B and C are mutually independent if

p(A ∩ B) = p(A) · p(B); p(A ∩ C ) = p(A) · p(C ); p(B ∩ C ) = p(B) · p(C );

p(A ∩ B ∩ C ) = p(A) · p(B) · p(C )

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Would our bets change for {Swords, Cups, Clubs, Golds} if we knew that
the chosen card is “King”?
1
No, because p(specific suit) = 4 = p(specific suit|king)

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One should not confuse independent events and disjoint events.

Two disjoint events cannot be independent unless one of them has

zero probability.

If A and B are disjoint (A ∩ B = ∅) and p(A) > 0 and p(B) > 0,

p(A ∩ B) = 0 but p(A) · p(B) > 0

Hence, p(A ∩ B) ̸= p(A) · p(B) and thus A and B nare not independent.

They will only be independent if p(A) = 0 or p(B) = 0.

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3.6. Composition of experiments. Probability of the
compound experiment
Calculation of probabilities of events related to two or more experiments:
joint experiment as a composition of simpler experiments
Examples:

• Tossing a coin multiple times.

• Consecutive extraction of balls from an urn.

Two types:

• Physically independent experiments: the mechanisms generating

the outcomes of each phase do not depend on the outcome of the
other.

• Physically dependent experiments.

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References

▷ NEWBOLD, P., CARLSON, W., and THORNE, B. (2022): Statistics

for Business and Economics, 10th Global Edition. Ed. Pearson. Chap-
ter 3

▷ ROSS, S. (2023): A First Course in Probability, 10th Global Edition.

Ed. Pearson. Chapters 2 and 3

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