Bayesian Analysis

The concept of conditional probability given statistical dependence forms the necessary
foundation for an area of probability known as Bayesian analysis. The technique is named
after Thomas Bayes, an eighteenth-century clergyman who pioneered this area of analysis.

The basic principle of Bayesian analysis is that additional information (if available) can
sometimes enable one to alter (improve) the marginal probabilities of the occurrence of an
event. The altered probabilities are referred to as revised, or posterior probabilities.

A posterior probability is the altered marginal probability of an event, based on additional

information.

In Bayesian analysis, once we are given the initial marginal and conditional probabilities,
we can compute the posterior probability by using Bayes’ rule, as follows:

𝑷(𝑩𝒊 ∩ 𝑨)
𝑷 (𝑩𝒓 /𝑨) =
∑𝒌𝒊=𝟏 𝑷(𝑩𝒊 ∩ 𝑨)

𝑷(𝑩𝒓 ) ∗ 𝑷(𝑨/𝑩𝒓 )
𝑷 (𝑩𝒓 /𝑨) =
∑𝒌𝒊=𝟏 𝑷(𝑩𝒊 ) ∗ 𝑷(𝑨/𝑩𝒊 )

Where: r = 1, 2, 3, …k

When r = 2;

𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 )
𝑷 (𝑩𝟐 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 )

𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 )
𝑷 (𝑩𝟏 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 )

When r = 3;

𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )
𝑷 (𝑩𝟑 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 ) + 𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )
Problem #1

A production manager for a manufacturing firm is supervising the machine setup for the
production of a product. The machine operator sets up the machine. If the machine is set
up correctly, there is a 10% chance that an item produced on the machine will be defective;
if the machine is set up incorrectly, there is a 40% chance that an item will be defective.
The production manager knows from past experience that there is a 0.50 probability that
a machine will be set up correctly or incorrectly by an operator. In order to reduce the
chance that an item produced on the machine will be defective, the manager has decided
that the operator should produce a sample item. The manager wants to know the
probability that the machine has been set up incorrectly if the sample item turns out to be
defective.

The probabilities given in this problem statement can be summarized as follows:

P(C) = 0.50 P(IC) = 0.50

P(D / C) = 0.10 P (D / IC) = 0.40

Where:

C = correct
IC = incorrect
D = defective

The posterior probability for our example is the conditional probability that the machine
has been set up incorrectly, given that the sample item proves to be defective, or P(IC / D).

𝑃(𝐷/𝐼𝐶)𝑃(𝐼𝐶)
𝑃 (𝐼𝐶/𝐷) =
𝑃(𝐷/𝐼𝐶)𝑃(𝐼𝐶) + 𝑃(𝐷/𝐶)𝑃(𝐶)

(0.40)(0.50)
= = 0.80
(0.40)(0.50) + (0.10)(0.50)

Previously, the manager knew that there was a 50% chance that the machine was set up
incorrectly. Now, after producing and testing a sample item, the manager knows that if it
is defective, there is an 0.80 probability that the machine was set up incorrectly.

Thus, by gathering some additional information, the manager can revise the estimate of the
probability that the machine was set up correctly. This will obviously improve decision
making by allowing the manager to make a more informed decision about whether to have
the machine set up again.
 In general, given two events, A and B, and a third event, C, that is conditionally dependent
on A and B, Bayes’ rule can be written as

𝑃(𝐶/𝐴)𝑃(𝐴)
𝑃 (𝐴/𝐶) =
𝑃(𝐶/𝐴)𝑃(𝐴) + 𝑃(𝐶/𝐵)𝑃(𝐵)

Problem #2

In a certain plant, three machines, B1, B2, and B3, make 30%, 45%, and 25%, respectively,
of the products. It is known from past experience that 2%, 3% and 2% of the products made by
each machine, respectively are defective. Now suppose that a finished product is randomly
selected, and found that it is defective, what is the probability that it is made by machine B3?

A – the product is defective

B1 – the product is made by machine B1
B2 – the product is made by machine B2
B3 – the product is made by machine B3

P(B1 ) = 0.30
P(B2 ) = 0.45
P(B3 ) = 0.25

P(A/B1) = 0.02
P(A/B2) = 0.03
P(A/B3) = 0.02

𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )
𝑷 (𝑩𝟑 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 ) + 𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )

𝟎. 𝟐𝟓 ∗ 𝟎. 𝟎𝟐
𝑷 (𝑩𝟑 /𝑨) =
𝟎. 𝟑𝟎 ∗ 𝟎. 𝟎𝟐 + 𝟎. 𝟒𝟓 ∗ 𝟎. 𝟎𝟑 + 𝟎. 𝟐𝟓 ∗ 𝟎. 𝟎𝟐

𝟎. 𝟎𝟎𝟓 𝟎. 𝟎𝟎𝟓 𝟏𝟎
𝑷 (𝑩𝟑 /𝑨) = = = = 𝟎. 𝟐𝟎𝟒𝟏
𝟎. 𝟎𝟎𝟔 + 𝟎. 𝟎𝟏𝟑𝟓 + 𝟎. 𝟎𝟎𝟓 𝟎. 𝟎𝟐𝟒𝟓 𝟒𝟗

(b) Now suppose that a finished product is randomly selected, and found that it is defective,
what is the probability that it is made by machine B2?
 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 )
𝑷 (𝑩𝟐 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 ) + 𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )

𝟎. 𝟒𝟓 ∗ 𝟎. 𝟎𝟑 𝟐𝟕
𝑷 (𝑩𝟐 /𝑨) = = = 𝟎. 𝟓𝟓𝟏𝟎
𝟎. 𝟎𝟎𝟔 + 𝟎. 𝟎𝟏𝟑𝟓 + 𝟎. 𝟎𝟎𝟓 𝟒𝟗

(c) Now suppose that a finished product is randomly selected, and found that it is defective,
what is the probability that it is made by machine B1?

𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 )
𝑷 (𝑩𝟏 /𝑨) =
𝑷(𝑩𝟏 ) ∗ 𝑷(𝑨/𝑩𝟏 ) + 𝑷(𝑩𝟐 ) ∗ 𝑷(𝑨/𝑩𝟐 ) + 𝑷(𝑩𝟑 ) ∗ 𝑷(𝑨/𝑩𝟑 )