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Bayes' formula

 
 
Judyhop
 
Reply Sat 14 May, 2016 03:04 am
Suppose that there is a 60% probability the economy will underperform, and if it does, there is a 70% chance a stock will go up and 30% down. There is a 40% probability the economy will underperform, and if it does, there is a 20% chance this same stock will go up and 80% chance down. What is the updated probability of an outperforming economy, if we know that the stock goes up?
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Type: Question • Score: 0 • Views: 1,087 • Replies: 3
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bobsal u1553115
 
  1  
Reply Sat 14 May, 2016 07:06 am
@Judyhop,
Only the Illuminati know and they ain't talking.

Call any young just out of school broker. You'll get fresh out of the book education and meet a possible future colleague: education and networking in one phone call.
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markr
 
  1  
Reply Sat 14 May, 2016 10:58 pm
@Judyhop,
Here's a good explanation with an example that you can modify:
http colon slash slash betterexplained dot com slash articles slash an-intuitive-and-short-explanation-of-bayes-theorem slash

Change "cancer" to "economy outperforms."
Change "no cancer" to "economy underperforms."
Change "test positive" to "stock goes up."
Change "test negative" to "stock goes down."
maxdancona
 
  1  
Reply Mon 16 May, 2016 08:15 pm
@markr,
Yes, markr is correct.

For anyone reading... Bayes' theorem is pretty interesting and has some real world consequences. We use it in computer science quite a bit for things like spam filtering and predicting what articles make it to your Facebook feed.

It also has some important consequences when it comes social issues... such as drug testing.
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