Probability laws

In the book The Drunkards Walk explains the basic laws of probability. I have outlined those below.
"The probability that two events will both occur can never be greater than the probability that each will occur individually.

If two possible events, A and B, are independent, then the probability that both A and B will occur is equal to the product of their individual probabilities.

If an event can have a number of different and distinct possible outcomes, A, B, C, and so on, then the probability that either A or B will occur is equal to the sum of the individual probabilities of A and B, and the sum of the probabilities of all the possible outcomes (A, B, C, and so on) is 1 (that is, 100 percent).

In other words, when you want to know the chances that two independent events, A and B, will both occur, you multiply; if you want to know the chances that either of two mutually exclusive events, A or B, will occur, you add.

Law of sample space
Suppose a random process has many equally likely outcomes, some favorable (that is, winning), unfavorable (losing). Then the probability of obtaining a favorable outcome is equal to the proportion of outcomes that are favorable. The set of all possible outcomes is called the sample space. In other words, if a die can land on any of six sides, those six outcomes form the sample space, and if you place a bet on, say, two of them, your chances of winning are 2 in 6. A word on the assumption that all the outcomes are equally likely.

The chances of an event depend on the number of ways in which it can occur.

Bayes's theory shows that the probability that A will occur if B occurs will generally differ from the probability that B will occur if A occurs."

Full Disclaimer: I am not a financial planner. The views expressed in this post are all mine and they may or may not suit your needs. Please do you own due diligence. I do not make money on any of the products suggested in this post. 


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