Solved Examples on Bayes Theorem and Extended

Bayes Theorem
1) When administered to an ill person, the test indicated so with probability
of 0.92. When administered to a person who is not ill the test erroneously
gives positive result with probability of 0.04.
Suppose the illness is rare and is known to affect only 0.1% of entire
population. If a person is selected from entire population and is given a
test and the result is positive, what is the posterior probability that the
person is ill?

Solution: Let Z be the event that the test result is positive and I the event
that the person is tested ill.
Given,P(I) = 0.001 then

P ( I )

= 0.999

P(Z|I) = 0.92

P(Z| I

= 0.04

P(I|Z) = ?
Applying Bayes theorem,
P(I|Z) =

P(I) * P(Z|I)

0.92*0.001

---------------------------------- -------------------------------------------P(I) * P(Z|I) +

P ( I )

* P(Z| I 092*0.001 + 0.04*0.999

P(I|Z) = 0.025

2) During period of high economic growth, the US dollar appreciates with

probability of 0.7; in the period of moderate economic growth, the dollar
appreciates with probability of 0.4; during low economic growth the dollar
appreciates with probability of 0.2. During any period of time, the
probability of high economic growth is 0.3, moderate economic growth is
0.5 and low economic growth is 0.2. Suppose the dollar is appreciating
during the present period, what is the probability that we are experiencing
high economic growth?
Solution: P(H) = 0.3;
P(M) = 0.5; P(L) = 0.2
Let A denote that the dollar appreciates.
P(A|H) = 0.7
P(A|M) = 0.4
P(A|L) = 0.2
P(H|A) = ?

Applying extended Bayes theorem,

P(H|A) =
P(A|H) * P(H)
----------------------------------------------------------P(A|H) * P(H) + P(A|M) * P(M) + P(A|L) * P(L)
=
0.7*0.3
-------------------------------------0.7*0.3 + 0.4*0.5 + 0.2*0.2
= 0.467
P(H|A) = 0.467