The future is always uncertain.
Decisions are not about the past, but about the future. However, the future is always uncertain, more or less so. To describe our understanding of future uncertainty, we use probability and probability theory.
The first way to understand probability is to think about the “WHERE“, the source of our understanding. As such, there are three different types: 1) Classical, in which we know all possible outcome, ex: choose a card from a deck. 2) Empirical, observations from historical data, and 3) Subjective, expert opinion.
Another way to think about probability is to approach from the “WHAT“, the event that is being described. Again, there are three different types: 1) marginal, 2) joint, and 3) conditional. First, let’s look at these probabilities.
Special care should be given to joint and conditional probability. Joint describes two events occur at the same time, but conditional focuses on a sequential understanding. For example, evaluate the following two probabilities in the context of presidential election.
A. What’s chance that President Trump wins both Iowa and New Hampshire vs
B. If Trump wins New Hampshire, what’s his chance winning Iowa?
Next, we will work on some calculations.