Question

Discuss the various approaches to probability in Chapter 5 of Goodman. From your own organization, discuss the types of decisions that have utilized classical methods of assigning probability versus decisions that required a subjective approach

Answer 1

1. Classic Probability-It is calculated by listing all of the possible outcomes of the activity and recording the actual occurrences. For example, if you are tossing a coin, the possible outcomes are either heads or tails.

2. Experimental Probability- Experimental probability is based on the number of possible outcomes by the total number of trials. When tossing a coin, the total possible outcomes are two, heads and tails.

3. Theoretical Probability- Theoretical probability is an approach that bases the possible probability on the possible chances of something happen.On a die, there are six numbers, offering six possibilities. To land on a three, you have a one-in-six, or 1:6, chance of it landing on a “3”.

4. Subjective Probability- Subjective probability is based on a person’s own personal reasoning and judgment. It is the probability that the outcome a person is expecting will actually occur. For example, during a sport’s game, a fan of one team may state that the team they are rooting for will win.

• Subjective probability is based on your beliefs. For example, you might “feel” a lucky streak coming on.
• Empirical probability is based on experiments. You physically perform experiments and calculate the odds from your results.

So in organisations, to decide the projects for the growth of company, proper analysis and classical approach is required. To convert a random client for doing business may come under subjective probability.