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    Probability Theory: Ankur Sinha, PH.D

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    Vibhuti Batra
    The document discusses various applications of probability theory, including: 1) Calculating the probability that a manufacturer will not be able to complete a large order on schedule if their assembly line needs to run without breakdown for 5 days and historically there is a 95% chance it runs a full day without breaking down. 2) Determining the chance that 100 borrowers will repay their loans on time if there is a 2% chance of default, 15% chance of falling behind, and 83% chance of on-time repayment for each individual borrower. 3) Finding the expected number of clients an insurance salesman will visit each day and how much he can expect to make daily if he visits up to 3 clients

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    Probability Theory: Ankur Sinha, PH.D

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    Vibhuti Batra
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    The document discusses various applications of probability theory, including: 1) Calculating the probability that a manufacturer will not be able to complete a large order on schedule if their assembly line needs to run without breakdown for 5 days and historically there is a 95% chance it runs a full day without breaking down. 2) Determining the chance that 100 borrowers will repay their loans on time if there is a 2% chance of default, 15% chance of falling behind, and 83% chance of on-time repayment for each individual borrower. 3) Finding the expected number of clients an insurance salesman will visit each day and how much he can expect to make daily if he visits up to 3 clients

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    The document discusses various applications of probability theory, including: 1) Calculating the probability that a manufacturer will not be able to complete a large order on schedule if their assembly line needs to run without breakdown for 5 days and historically there is a 95% chance it runs a full day without breaking down. 2) Determining the chance that 100 borrowers will repay their loans on time if there is a 2% chance of default, 15% chance of falling behind, and 83% chance of on-time repayment for each individual borrower. 3) Finding the expected number of clients an insurance salesman will visit each day and how much he can expect to make daily if he visits up to 3 clients

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views12 pages

    Probability Theory: Ankur Sinha, PH.D

    Uploaded by

    Vibhuti Batra
    The document discusses various applications of probability theory, including: 1) Calculating the probability that a manufacturer will not be able to complete a large order on schedule if their assembly line needs to run without breakdown for 5 days and historically there is a 95% chance it runs a full day without breaking down. 2) Determining the chance that 100 borrowers will repay their loans on time if there is a 2% chance of default, 15% chance of falling behind, and 83% chance of on-time repayment for each individual borrower. 3) Finding the expected number of clients an insurance salesman will visit each day and how much he can expect to make daily if he visits up to 3 clients

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    Probability Theory

    Ankur Sinha, Ph.D.


    [email protected]
    Production and Quantitative Methods
    Indian Institute of Management Ahmedabad
    Some applications
    A manufacturer has a large order to fulfil. To complete
    the order on schedule, the assembly line needs to run
    without a breakdown for the next 5 days. What is the
    probability that the manufacturer will not be able to
    complete the order on schedule due to breakdown in the
    assembly line? Past data indicates a 95% chance that the
    assembly line runs a full day without breaking down.

    Ankur Sinha
    Some applications
    A manufacturer has a large order to fulfil. To complete
    the order on schedule, the assembly line needs to run
    without a breakdown for the next 5 days. What is the
    probability that the manufacturer will not be able to
    complete the order on schedule due to breakdown in the
    assembly line? Past data indicates a 95% chance that the
    assembly line runs a full day without breaking down.

    In case there is a penalty for not fulfilling the orders in


    time, what penalty should the manufacturer settle with?
    Ankur Sinha
    Some applications
    For a particular type of loan, there is a 2% chance that
    the borrower will default, 15% chance that the borrower
    will fall behind (not pay in time), and 83% chance that
    the borrower will replay the debt on schedule. What is
    the chance that all the 100 borrowers will repay their
    loan on time?

    Ankur Sinha
    Some applications
    For a particular type of loan, there is a 2% chance that
    the borrower will default, 15% chance that the borrower
    will fall behind (not pay in time), and 83% chance that
    the borrower will replay the debt on schedule. What is
    the chance that all the 100 borrowers will repay their
    loan on time?

    How do you do the pricing of the loan?

    Ankur Sinha
    Some applications
    An insurance salesman visits up to three clients each day,
    hoping to sell a new policy. He stops for the day once he
    makes a sale. Each client independently decides whether
    to buy a policy; 10% of clients purchase the policy.

    Ankur Sinha
    Some applications
    An insurance salesman visits up to three clients each day,
    hoping to sell a new policy. He stops for the day once he
    makes a sale. Each client independently decides whether
    to buy a policy; 10% of clients purchase the policy.

    • Find the expected number of clients he visits in a day.


    • If the salesman earns Rs. 3,000 per policy sold, how
    much can he expect to make per day?

    Ankur Sinha
    Some applications
    Construction firm bids on a contract. It anticipates a
    profit of $50,000 if it gets the contract for the full
    project, and it estimates a profit of $20,000 on a shared
    project. The company estimates there’s a 20% chance it
    will get the larger contract and a 75 % chance it will get
    the smaller contract; otherwise, it gets nothing.

    Ankur Sinha
    Some applications
    Construction firm bids on a contract. It anticipates a
    profit of $50,000 if it gets the contract for the full
    project, and it estimates a profit of $20,000 on a shared
    project. The company estimates there’s a 20% chance it
    will get the larger contract and a 75 % chance it will get
    the smaller contract; otherwise, it gets nothing.

    Should the firm participate in the bid if the bidding price


    is $2,000?
    Ankur Sinha
    Some applications
    An insurance company observes from its past data that
    out of 1 million house insurances that it has sold, it had
    to pay an average of Rs. 100,000 per house to almost
    1000 of the clients who bought the insurance. Given
    that their annual costs have gone up significantly because
    of increase in commercial real estate prices, they are
    wondering how to price the premium.

    Ankur Sinha
    Some applications
    An insurance company observes from its past data that
    out of 1 million house insurances that it has sold, it had
    to pay an average of Rs. 100,000 per house to almost
    1000 of the clients who bought the insurance. Given
    that their annual costs have gone up significantly because
    of increase in commercial real estate prices, they are
    wondering how to price the premium.

    Can you help the insurance company?


    Ankur Sinha
    Welcome COVID-19
    • Probability of getting the disease
    • Accuracy of the test kit
    • False positives
    • False negatives
    • Sensitivity of the test
    • Specificity of the test
    • Confusion matrix
    • I tested positive, I am asymptomatic, do I have the disease?
    • Poor test accuracy is not a problem for estimation, law of large
    number works!

    Ankur Sinha

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