TAILIEUCHUNG - Quantitative Methods for Business chapter 10

C H A P T E R 10 Is it worth the risk? – introducing probability Chapter objectives This chapter will help you to: ■ ■ ■ ■ ■ measure risk and chance using probability recognize the types of probability use Venn diagrams to represent alternatives and combinations apply the addition rule of probability: chances of alternatives apply the multiplication rule of probability: chances of combinations ■ calculate and interpret conditional probabilities and apply Bayes’ rule ■ construct and make use of probability trees. | CHAPTER 10 Is it worth the risk -introducing probability Chapter objectives This chapter will help you to measure risk and chance using probability recognize the types of probability use Venn diagrams to represent alternatives and combinations apply the addition rule of probability chances of alternatives apply the multiplication rule of probability chances of combinations calculate and interpret conditional probabilities and apply Bayes rule construct and make use of probability trees become acquainted with business uses of probability This chapter is intended to introduce you to the subject of probability the branch of mathematics that is about finding out how likely real events or theoretical results are to happen. The subject originated in gambling in particular the efforts of two seventeenth-century French mathematical pioneers Fermat and Pascal to calculate the odds of certain results in dice games. Probability may well have remained a historical curiosity within mathematics little known outside casinos and race-tracks if it were not for the fact that probability has proved to be invaluable in fields as varied as psychology economics physical science market research and medicine. In these and other fields probability offers us a way of analysing Chapter 10 s it worth the risk - introducing probability 317 chance and allowing for risk so that it can be taken into account whether we are investigating a problem or trying to make a decision. Probability makes the difference between facing uncertainty and coping with risk. 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 probable each result is. Risk on the other hand is when we know there are different outcomes but we also have some idea of how likely each one is to occur. Business organizations operate in conditions that are far from certain. Economic circumstances change customer tastes shift employees move to other jobs. New

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