Quantitative Analysis for Management, 13/e

2.1 Fundamental Concepts

There are several rules, definitions, and concepts associated with probability that are very important in understanding the use of probability in decision making. These will be briefly presented with some examples to help clarify them.

Two Basic Rules of Probability

There are two basic rules regarding the mathematics of probability:

People often misuse the two basic rules of probabilities when they use statements such as “I’m 110% sure we’re going to win the big game.”

1. The probability, P, of any event or state of nature occurring is greater than or equal to 0 and less than or equal to 1. That is,

   $$0\le P\left(\text{event}\right)\le 1$$ (2-1)

   A probability of 0 indicates that an event is never expected to occur. A probability of 1 means that ...