Page 344 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Unit 26: Theory of Probability: Introduction and Uses

to occur. For example, suppose an event is the success of a new product launched. A probability Notes
0.90 indicates that the new product is likely to be successful whereas a probability of 0.15 indicates
that the product is unlikely to be successful in the market. A probability of 0.50 indicates that
the product is just as likely to be successful as not.
• According to Laplace, “Probability is the ratio of the favourable cases to the total number of
equally likely cases”. From this definition, it is clear that in order to calculate the probability of
an event, we have to find the number of favourable cases and it is to be divided by the total
number of cases.
• The theory of probability has its origin in the games of chance related to gambling such as
tossing a die, tossing a coin, drawing a card from a deck of 52 cards and drawing a ball of a
particular colour from a bag.
26.4 Keywords

1. Dependent variables : The variable being measured. The data or score.
2. Depth : Cumulative frequency counting in from the nearer end.
3. Design matrix : A matrix of coded or dummy variables representing group membership.
26.5 Review Questions

1. Define Probability. Discuss the importance of probability in decision-making.
2. Give the classical definition of probability and state its limitations.
3. State and prove the theorem of total probability for mutually exclusive events.
4. Describe the uses of theory of probability.
5. What are the use of Bernoulli’s theorem in theory of probability ?
Answers: Self-Assessment
1. (i)T (ii)F (iii)T
(iv)T (v)F
26.6 Further Readings

1. Elementary Statistical Methods; SP. Gupta, Sultan Chand & Sons,
New Delhi - 110002.
2. Statistical Methods — An Introductory Text; Jyoti Prasad Medhi, New Age
International Publishers, New Delhi - 110002.
3. Statistics; E. Narayanan Nadar, PHI Learning Private Limied, New Delhi - 110012.
4. Quantitative Methods—Theory and Applications; J.K. Sharma, Macmillan
Publishers India Ltd., New Delhi - 110002.

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