QUANTITATIVE METHODS FOR MANAGEMENT BAYE’S THEOREM In probability theory, Bayes' theorem shows the relation between one

conditional probability and its inverse; for example, the probability of a hypothesis given observed evidence and the probability of that evidence given the hypothesis. It is named for Rev. Thomas Bayes and often called Bayes' law or Bayes' rule. The key idea is that the probability of event A given event B depends not only on the relationship between A and B but on the absolute probability (occurrence) of A not concerning B and the absolute probability of B not concerning A .

Simple statement of theorem
Bayes gave a special case involving continuous prior and posterior probability distributions and discrete probability distributions of data, but in its simplest setting involving only discrete distributions, Bayes' theorem relates the conditional and marginal probabilities of events A and B, where B has a non-vanishing probability:

Each term in Bayes' theorem has a conventional name:
• • • •

P(A) is the prior probability or marginal probability of A. It is "prior" in the sense that it does not take into account any information about B. P(A|B) is the conditional probability of A, given B. It is also called the posterior probability because it is derived from or depends upon the specified value of B. P(B|A) is the conditional probability of B given A. It is also called the likelihood. P(B) is the prior or marginal probability of B, and acts as a normalizing constant.

Bayes' theorem in this form gives a mathematical representation of how the conditional probability of event A given B is related to the converse conditional probability of B given A.

Simple example
Suppose there is a school with 60% boys and 40% girls as students. The female students wear trousers or skirts in equal numbers; the boys all wear trousers. An observer sees a (random) student from a distance; all the observer can see is that this student is wearing trousers. What is the probability this student is a girl? The correct answer can be computed using Bayes' theorem.

The event A is that the student observed is a girl. Pearson. and the fraction of girls among the students is 40%. As they are as likely to wear skirts as trousers. Since half of the girls and all of the boys are wearing trousers.5. we first need to know: • • • P(A). the probability of the observer having spotted a girl given that the observed student is wearing trousers can be computed by substituting these values in the formula: Reference Book1. this probability equals 0. By-KASTURI SAHAY . or the probability of the student wearing trousers given that the student is a girl. this is 0..I. this is 0. and the event B is that the student observed is wearing trousers. To compute P(A|B). P(B|A). Levin. or the probability of a (randomly selected) student wearing trousers regardless of any other information. Business Statistics. Given all this information. R. P(B).6 = 0.4.K.8. Pearson 2. or the probability that the student is a girl regardless of any other information.5×0.4 + 1×0. Sharma J. Since the observers sees a random student. Statistics for Management. meaning that all students have the same probability of being observed.

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