#EMBA27 Applications of Probability Theory

Babajide Bola Written by Bola Babajide · 2 min read >

There is a common question frequently asked by most mathematics students, and I also asked a similar question back in secondary school, and the question is “How do all these calculations apply to real-life situations?” Mathematical theories and concepts like calculus, geometry, algebra, and probability have relevant applications in our day-to-day activities but except you work in engineering, manufacturing, technology, or business, the real-life applications of these concepts will easily elude you. The probability theory is one mathematical concept that has quite several applications including in business, sports, meteorology, politics, governance, and in many more disciplines.

In life, there are chances that an event will occur and there are possibilities that it would not occur. There are mutually exclusive events in real-life and one must understand the potential impact of making a choice over another. What probability theory does is assess the likelihood of an event and the potential risks associated with such events. When we understand our risks, we make smarter and more informed choices but without analysing all possibilities we tend to make inaccurate decisions.

If you support a football club in any league for example and you want to determine the probability of your team winning an opponent, you might have to evaluate the track record of your team against this particular opponent and also analyse how well you have performed when you last met and the factors that were responsible for your victory or defeat as the case may be. On completing the evaluation of all available data and statistics you can estimate the possibility of winning or losing.

Aside from using their various tools and devices, meteorologists around the world use probability to predict the weather conditions after considering all available data. They collect weather forecast data from databases from various parts of the world to determine temperature changes and possible weather conditions for different days, weeks, and months of the year.

In business management, probability theory is applied in weighing the possibilities of events and outcomes and this will guide managers in charting alternative courses for their business operations. Knowing the possibilities surrounding a line of action will create a level of preparation for outcomes. Whether you are a business manager, a consultant, an academic, a researcher, or a political leader, you must always be able to weigh your chances, evaluate events, review potential risks, and make adequate effort to avert unwanted outcomes.

I find insurance companies particularly fascinating; they make a profit and generate revenue by taking responsibility for potential risks on behalf of their clients. They put their money in the line and hope that the odds are not against them. If you look at them from the outside, you might think their business is a huge gamble but if you critically analyse their operations, you will realize they use probability to their business advantage. Insurance companies leverage theoretical probability to design insurance policies for their clients. Every intelligent underwriter knows that issuing health insurance to an alcoholic is a substantial risk and will be an expensive business choice, a comprehensive statistical analysis will show that an alcoholic will more likely develop health complications and might be frequent at the hospital than a healthy individual.

The applications of the probability theory cannot be exhausted quite easily as it is an integral part of our daily decision-making processes and everyone at one time or the other have had reasons to consider possibilities, alternatives, risks, opportunities, and strategy, and those are fragments of the direct application of the probability theory.

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