2.1. Probability concepts

Here, we will discuss the concepts to get us started in quantitatively treating uncertainties and stochastic processes (non-deterministic processes that are governed by the laws of probability). As a starting point it is sufficient to see probabilities simply as numbers between 0 and 1 to express different degrees of uncertainty. If we refer to an uncertain situation as a situation which may or may not happen, a situation with a probability of 0.7 is more certain to occur than a situation with a probability of 0.3. A situation which is certain to occur is assumed to have a probability of 1 while an impossible situation will have a probability of 0. Now, in order to introduce some fundamental concepts we are going to look at situations which are easy to understand but nevertheless reveal a lot. Let´s play some games.

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.............. 2.1. Probability concepts

.............. 2.1.1. Probability and relative frequencies: Rolling a dice

.............. 2.1.2. Probability and fair price

.............. 2.1.3. Subjective probability

.............. 2.1.4. What is probability?

.............. 2.1.5. Axiomatic approach to probability

.............. 2.1.6. Kolmogorov´s axioms and subjective probability

.............. 2.1.7. Graphical interpretations of probabilities