Probability is one of the
most important mathematical concepts that we use/come across in our day-to-day
life. Particularly important in business and economic situations, probability
is also used by us in our personal lives.
Probability means the
chance of the occurrence of an event. In layman terms, we can say that it is
the likelihood that something that is defined as the event-will or will not
occur. Thus probabilities can be estimated for each of the following events in
our personal lives:
a) The chance that a
candidate chosen at random will clear an interview.
b) The chance that you
will win a game of flush in cards if you have a trio of twos in a game where
four people are playing.
The knowledge of these
estimations helps individuals decide on the course of action they will take in
their day-to-day life. For instance, your estimation/ judgment of the
probability of your chances of winning the card game in Event C above will influence your decision
about the amount of money you will be ready to invest in the stakes for the
particular game. The application of probability to personal life helps in
improving our decision making.
However, the use of
probability is much more varied and has far reaching influence on the world of
economics and business. Some instances of these are:
a) The estimation of the
probability of the success of a business project,
b) The estimation of the
probability of the death of a 25-year old man in the next 10 years and that of
the death of a 55-year old man in the
next 10 years leading to the calculation
to the premiums for life insurance.
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