Link to Week 5    Odds    Risk

Probability

Part 1

What is Probability? 

For a basic understanding, Brenson et al (2013) define that a probability is a numerical value that represents the chance, or the likehood of an event occurring. An event that is sure to occur is called a certain event; this certain event has a probability of 1. An event that has no chance of occurring is called an impossible event; this impossible event has a probability of 0.

In a similar concept with different names, Spiegel (2011) gives a classic definition of probability in which the probability of occurrence of the event is referred to its success; and the probability of non-occurrence of the event is referred to its failure.

Further, professor Serna (2011) explains that the concept of probability is similar to the idea of percentage of chances; however, the difference is that in probability, it is said in figures between 0 and 1. Calling p as probability of an event, according to professor Serna, the followings are two important things that we need to remember:

            1-          0<= p <=1 and

            2-           sum(p) =1 

In another explanation,  (2014) defines that Probability is the chance that something will happen and/or how likely it is that some event will happen. 

In a similar view,(2015) describes simply that probability is the measure of how likely an event is.

Additionally, on its webpage,  introduces a notion that Quantifiable likelihood (chance) of the occurrence of an event expressed as odds, or a fraction of 1. It states that Probability is estimated usually through repeated random sampling, and is represented numerically as between 0 (impossibility) and 1 (certainty).

Similarly, according to the WhatIs.com (2016), Probability is a 'branch of mathematics that deals with calculating the likelihood of a given event's occurrence, which is expressed as a number between 1 and 0. The information from the WhatIs.com also indicates that an event with a probability of 1 can be considered a certainty.'

In a related view, Burglear (2010) states that the subject of probability is about finding out how likely real events or theoretical results are to happen. Probability makes the difference between facing uncertainty and coping with risk. 

Therefore, in order to understand Probability, the knowledge about uncertainty and risk is necessary. 

Uncertainty - It is believed that uncertainty is a situation where we know that it is possible that things could turn out in different ways but we simply don't know how likely each result is (Burglear, p152).

Risk - Indicating that businesses operate in conditions that are far from certain, Burglear (2010) introduces the notion of risk which it refers to a situation when we know there are different results but we also have some idea of how likely each one is to occur. This also is considered as commercial risk because there is the added peril of unforeseen risk. 

Why is probability important? How is probability used in practice?

Learning probability helps us understand how businesses and / or organisations can measure and assess the risks that they have to deal with. 

 How is probability used in practice?

References 

Berenson, Mark L.; Levine, David M.; Krehbiel, Timothy C. & Stephan, David F. (2013). Basic Business Statistics. NSW Australia: Pearson     

        Australia Group Pty Ltd

Burglear, J. (2010). Stasmeans business - Statistics with Excel for business, hospitality and tourism. Oxford UK: Butterworth-Heinemann.

        WhatIs.com (2016). Probability. Retrieved 21/4/2016 from http://whatis.techtarget.com/definition/probability

Spiegel, Murray R. (2011). Statistics - The fast way to top grades. US: Mc Graw Hill

Useful links

Useful links