Session 9

Revising Probabilities

Book Chapter 4

Dr. Preeti Sharma

IMT-Hyderabad
Objectives
The objectives for this chapter are:

◼ To understand basic probability concepts.

◼ To understand conditional probability.
◼ Use Bayes’ theorem to revise probabilities.
 Bayes’ Theorem
◼ Often we begin probability analysis with initial or
prior probabilities.

◼ Then, from a sample, special report, or a product

test we obtain some additional information.
◼ Given this information, we calculate revised or
posterior probabilities.

◼ Bayes’ theorem provides the means for revising the

prior probabilities.

Application
Prior New Posterior
of Bayes’
Probabilities Information Probabilities
Theorem

Slide 3
Bayes’ Theorem
◼ Bayes’ Theorem is used to revise previously
calculated probabilities based on new
information.

◼ Developed by Thomas Bayes in the 18th

Century.

◼ It is an extension of conditional probability.

Slide 4
 Bayes’ Theorem

P(A | B i )P(B i )
P(B i | A) =
P(A | B 1 )P(B 1 ) + P(A | B 2 )P(B 2 ) +    + P(A | B k )P(B k )

◼ where:
Bi = ith event of k mutually exclusive and collectively
exhaustive events
A = new event that might impact P(Bi)

Slide 5
Bayes’ Theorem Example
◼ A drilling company has estimated a 40%
chance of striking oil for their new well.
◼ A detailed test has been scheduled for more
information. Historically, 60% of successful
wells have had detailed tests, and 20% of
unsuccessful wells have had detailed tests.
◼ Given that this well has been scheduled for a
detailed test, what is the probability
that the well will be successful?

Slide 6
 Bayes’ Theorem Example
(continued)

◼ Let S = successful well

U = unsuccessful well
◼ P(S) = 0.4 , P(U) = 0.6 (prior probabilities)
◼ Define the detailed test event as D
◼ Conditional probabilities:
P(D|S) = 0.6 P(D|U) = 0.2
◼ Goal is to find P(S|D)

Slide 7
 Bayes’ Theorem Example
(continued)

Apply Bayes’ Theorem:

P(D | S)P(S)
P(S | D) =
P(D | S)P(S) + P(D | U)P(U)
(0.6)(0.4)
=
(0.6)(0.4) + (0.2)(0.6)
0.24
= = 0.667
0.24 + 0.12

So the revised probability of success, given that this well

has been scheduled for a detailed test, is 0.667
Slide 8
 Bayes’ Theorem Example
(continued)

◼ Given the detailed test, the revised probability

of a successful well has risen to 0.667 from
the original estimate of 0.4

Prior Conditional Joint Revised

Event
Prob. Prob. Prob. Prob.
S (successful) 0.4 0.6 (0.4)(0.6) = 0.24 0.24/0.36 = 0.667
U (unsuccessful) 0.6 0.2 (0.6)(0.2) = 0.12 0.12/0.36 = 0.333

Sum = 0.36

Slide 9
Tabular Approach

(1) (2) (3) (4) (5)

Prior Conditional Joint Posterior
Events Probabilities Probabilities Probabilities Probabilities
Ai P(Ai) P(B|Ai) P(Ai I B) P(Ai |B)

A1
A2

Slide 10
Slide 11
Given: The probabilities of three events, A, B, and C, occurring are P(A) = 0.35,
P(B) = 0.45, and P(C) = 0.2. Assuming that A, B, or C has occurred, the
probabilities of another event, X, occurring are P(X | A) = 0.8, P(X | B) = 0.65, and
P(X | C) = 0.3. Find P(A | X), P(B | X), and P(C | X).

Slide 12
A doctor has decided to prescribe two new drugs to 200 heart patients as
follows: 50 get drug A, 50 get drug B, and 100 get both. The 200 patients
were chosen so that each had an 80 percent chance of having a heart
attack if given neither drug. Drug A reduces the probability of a heart
attack by 35 percent, drug B reduces the probability by 20 percent, and the
two drugs, when taken together, work independently. If a randomly
selected patient in the program has a heart attack, what is the probability
that the patient was given both drugs?

Slide 13
Slide 14
Martin Coleman, credit manager for Beck’s, knows that the company uses
three methods to encourage collection of delinquent accounts. From past
collection records, he learns that 70 percent of the accounts are called on
personally, 20 percent are phoned, and 10 percent are sent a letter. The
probabilities of collecting an overdue amount from an account with the
three methods are 0.75, 0.60, and 0.65 respectively. Mr. Coleman has
just received payment from a past-due account. What is the probability
that this account
(a) Was called on personally?
(b) Received a phone call?
(c) Received a letter?

Slide 15
A public-interest group was planning to make a court
challenge to auto insurance rates in one of three cities:
Atlanta, Baltimore, or Cleveland. The probability that it
would choose Atlanta was 0.40; Baltimore, 0.35; and
Cleveland, 0.25. The group also knew that it had a 60
percent chance of a favorable ruling if it chose Baltimore,
45 percent if it chose Atlanta, and 35 percent if it chose
Cleveland. If the group did receive a favorable ruling,
which city did it most likely choose

Slide 16
A physical therapist at Enormous State University knows
that the football team will play 40 percent of its games on
artificial turf this season. He also knows that a football
player’s chances of incurring a knee injury are 50 percent
higher if he is playing on artificial turf instead of grass. If a
player’s probability of knee injury on artificial turf is 0.42,
what is the probability that
(a) A randomly selected football player incurs a knee injury?
(b) A randomly selected football player with a knee injury
incurred the injury playing on grass?

Slide 17
The physical therapist from previous numerical is also interested in
studying the relationship between foot injuries and position played. His
data, gathered over a 3-year period, are summarized in the following
table:
Offensive Defensive Offensive Defensive
Line Line Backfield Backfield
Number of 45 56 24 20
players
Number 32 38 11 9
injured

Given that a randomly selected player incurred a foot injury, what is the
probability that he plays in the (a) offensive line, (b) defensive line, (c)
offensive backfield, and (d) defensive backfield?

Slide 18
EconOcon is planning its company picnic. The only thing
that will cancel the picnic is a thunderstorm. The
Weather Service has predicted dry conditions with
probability 0.2, moist conditions with probability 0.45, and
wet conditions with probability 0.35. If the probability of a
thunderstorm given dry conditions is 0.3, given moist
conditions is 0.6, and given wet conditions is 0.8, what is
the probability of a thunderstorm? If we know the picnic
was indeed canceled, what is the probability moist
conditions were in effect?

Slide 19
Slide 20
Bayes’ Theorem

◼ Example: L. S. Clothiers

A proposed shopping center will provide strong competition

for downtown businesses like L. S. Clothiers. If the shopping
center is built, the owner of L. S. Clothiers feels it would be
best to relocate to the shopping center.

The shopping center cannot be built unless a zoning change is

approved by the town council. The planning board must first
make a recommendation, for or against the zoning change, to
the council.

Slide 21
Prior Probabilities

◼ Example: L. S. Clothiers
Let:
A1 = town council approves the zoning change
A2 = town council disapproves the change

Using subjective judgment:

P(A1) = .7, P(A2) = .3

Slide 22
New Information

◼ Example: L. S. Clothiers

The planning board has recommended against the zoning

change. Let B denote the event of a negative
recommendation by the planning board.

Given that B has occurred, should L. S. Clothiers revise the

probabilities that the town council will approve or
disapprove the zoning change?

Slide 23
Conditional Probabilities

◼ Example: L. S. Clothiers
Past record with the planning board and the town
council indicates the following:

P(B|A1) = .2 P(B|A2) = .9

Hence: P(BC|A1) = .8 P(BC|A2) = .1

Slide 24
Tree Diagram
◼ Example: L. S. Clothiers

Town Council Planning Board Experimental

Outcomes

P(B|A1) = .2 P(A1 Ո B) = .14

P(A1) = .7
c
P(B |A1) = .8 P(A1 Ո Bc) = .56

P(B|A2) = .9
P(A2 Ո B) = .27
P(A2) = .3
c P(A2 Ո Bc) = .03
P(B |A2) = .1

Slide 25
Bayes’ Theorem
To find the posterior probability that event Ai will occur given that
event B has occurred, we apply Bayes’ theorem.

P( Ai )P( B| Ai )
P( Ai |B) =
P( A1 )P( B| A1 ) + P( A2 )P( B| A2 ) + ... + P( An )P( B| An )

◼ Bayes’ theorem is applicable when the events for

which we want to compute posterior probabilities
are mutually exclusive and their union is the entire
sample space.

Slide 26
Posterior Probabilities
◼ Example: L. S. Clothiers
Given the planning board’s recommendation not to approve the zoning
change, we revise the prior probabilities as follows:

P( A1 )P( B| A1 )
P( A1 |B) =
P( A1 )P( B| A1 ) + P( A2 )P( B| A2 )
(. 7 )(. 2 )
=
(. 7 )(. 2 ) + (. 3)(. 9)
= .34

Slide 27