Important of Probability
The various practical applications of the theory of probability are:
a.The fundamental laws of statistic viz the law of statistical regularity and the law of inertia of large numbers are based on the theory of probability.
b.The very inception of the theory of probability has been to unlock the intricacies of betting and games. It is now possible to decide whether it is worthwhile betting at a game. This is done by calculating the expected value of an action with likely return on each of the outcome given the chances of success attached to each outcome.
c.Decision theories are based on fundamental laws of probability and expected value. the empirical probability concept based on experimental tests provides scope for the application of probability to real life situations.
d.The use of probability theory is increasing in economic decision making. The theory of probability is very helpful in situation of risk and uncertainty. For example a sales manager may want to know the probability of doubling the sales of a particular product, management may like to know the probability of the success of a new product or of a plant at its new location etc. In order to make proper decisions in the face of uncertainty we use the fundamental laws of probability.
e.The use of subjective probabilities is made when actual measurement is not possible . it has added a new dimension to the theory of probability. Such subjective probabilities can however be revised in the light of experience by the Bayesian rule of revisions of prior probability estimates.