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Probability basics (Wahrscheinlichkeit)

Level 2 · Foundations
German termWahrscheinlichkeit (Grundlagen)

Probability is a number between 0 and 1 (or 0-100%) that expresses how likely an event is. A probability of 0 means impossible, 1 means certain, and values between describe the frequency of an event across many repetitions — a fair coin lands heads 50% of flips on average, even though any single flip is heads or tails.

Why it matters​

Insurance premiums, investment risk ratings, and loan default rates are all probabilities dressed up as products — an insurer prices a policy on the chance a claim occurs, not on certainty. Investment risk is routinely described as a probability of loss over a given horizon, and scam pitches ("guaranteed 20% monthly return") work precisely because they hide or misstate the odds behind the promise. Every money decision — taking a job, buying a policy, choosing an investment — is a bet on an uncertain outcome, whether or not anyone states the odds out loud. Reading probability correctly turns an implicit bet into an explicit, comparable one.

Worked examples​

1. A 1-in-200 chance, read correctly. A specific risk — say, a defect that triggers a €20,000 repair — has a 1-in-200 (0.5%) chance of occurring in any single year. Over one year, 0.5% is genuinely small: roughly 1 case in 200 experiences it, and 199 don't. Over 20 years, the risk compounds, because each year is a fresh independent draw: the chance of at least one occurrence across those 20 years rises to 1 - 0.995^20 ≈ 9.5% — almost 1 in 10, far from "basically never." A small per-year probability and the cumulative probability over many years are not the same number; treating a long horizon as if it carries the one-year figure understates the real exposure.

2. Independent risks don't add up. Two unrelated risks — say, an appliance failure and, separately, a data breach — each carry an independent 10% chance of occurring this year. The chance that at least one of them occurs is not 10% + 10% = 20%; that double-counts the case where both happen. The correct calculation multiplies the chances of neither occurring, then subtracts from 1: 1 - (0.9 x 0.9) = 1 - 0.81 = 0.19, or 19%. Adding independent probabilities directly always overstates the combined risk, and the gap between the naive 20% and the correct 19% grows fast once more than two risks are stacked together.

Check yourself​

Two independent risks each have a 10% chance of occurring this year. What is the probability (in %) that at least one of them occurs? Round to the nearest whole percent.

A specific risk has a 0.5% (1-in-200) chance of occurring in any single year. Over a 20-year period, is the probability of it occurring at least once still 0.5%?

Which of the following are values a probability can actually take? Select all that apply.

Convert a 1-in-200 chance into a percentage.