Quant - probability - odds calculation addition, someone, please, event, light

TheMBAGlover

If we know the odds for an event are 1 to 6, we compute as folllows:

1/(1+6) = 1/7 = 14.29%

Can someone please shed some light on the logic/rationale behind the addition of 1 in the denominator. Is there a way to explain it mathematically?

draz

The odds for an event are expressed as the ratio of the probability event occurring to the probability of the even not occurring. If the odds for an event are stated as 2 to 7, then the probability of the event occurring is 2/(2+7) and that of the event not occurring is 7/(2+7).

ajpheif16

Appreciated Beat The CFA....

So, mathematically it's the odd number divided by the addition of the 'odd number and the total'...this makes sense since the odd number is the fraction of the total...

Just had a hard time thinking this through conceptually ....anyway thank you!

amqata

that was a very good explanation beatthecfa, keep up the good wrok!!

pacmandefense

I think of it this way and please correct me or add to this if you feel I'm mistaken. Given the ods of 1 to 4 of something occurring, then the probability is 1/5 or 20% from the definition above. To me '1 to 4' has always meant that out of five you have 1 chance of having 'it' occur. The denominator is the sum of all possible events.

dotamasta

AndrewP

You way of thinking is absolutely correct. Make sure you guys understand odds against as well. This stuff is new to the syllabus (wasnt there in 08).