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Baye's Theorem

The document introduces Bayes' theorem and conditional probability. It provides an example to calculate the probability of selecting a blue ball from the second bag among three bags with different colored balls. The document also discusses independent events formula and real-life applications of Bayes' theorem in business, finance, and medical testing.

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ASHISH JOSE 20BCE10286
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35 views15 pages

Baye's Theorem

The document introduces Bayes' theorem and conditional probability. It provides an example to calculate the probability of selecting a blue ball from the second bag among three bags with different colored balls. The document also discusses independent events formula and real-life applications of Bayes' theorem in business, finance, and medical testing.

Uploaded by

ASHISH JOSE 20BCE10286
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Welcome To Our Presentation

Baye's Theorem
GROUP 4
Group Members:
20BCE10264 CHINMAY AGRAWAL
HARPREET SINGH SALUJA Contribution:
20BCE10267
20BCE10272 KUNAL YADAV
PPT and
20BCE10286 ASHISH JOSE
Content
20BCE10314 ABHAY SINGH RANA
What is the Bayes’Theorem?

Bayes’ theorem describes the probability of occurrence of an event related to any


condition.
It is also considered for the case of conditional probability. Bayes theorem is also
known as the formula for the probability of “causes".
FOR EXAMPLE: IF WE HAVE TO CALCULATE THE
PROBABILITY OF TAKING A BLUE BALL FROM THE
SECOND BAG OUT OF THREE DIFFERENT BAGS OF
BALLS, WHERE EACH BAG CONTAINS THREE
DIFFERENT COLOUR BALLS VIZ. RED, BLUE,
BLACK.

Blue Ball > Second Bag > Three Different


Bag > Each Bag Three
Balls(Red,Blue,Black)
Formul
a
Independent
Events
If the probability of occurrence of an
event A is not affected by the occurrence
of another event B, then A and B are said
to be independent events.
INDEPENDENT EVENTS
FORMULA
If two Events A and B are
independent then the probabi:lity
of happening the both A and B is:
When we use Baye's Theorem in Everyday life?

Bayes’ rule is used in various


occasions including a medical
testing for a rare disease. With
Bayes’ rule, we can estimate the
probability of actually having the
condition given the test coming
out positive.
Real Life
Application !
Buisness And Finance
• In Evaluating intrest rates
Companies rely on interest rates for multiple reasons - borrowing money, investing in the fixed
income market, and trading in currencies overseas.

Any unexpected shifts in interest rate values can hit a company hard in the pocketbook, and can
negatively impact profits and revenues.

With Bayes Theorem and estimated probabilities, companies can better evaluate systematic
changes in interest rates, and steer their financial resources to take maximum advantage.
Buisness And Finance
• For Extending Credit
Under the Bayes Theorem conditional probability model, financial companies can make better
decisions and better evaluate the risk of lending cash to unfamiliar or even existing borrowers.

For example, an existing client may have had a good previous track record of repaying loans, but
lately the client has been slow in playing.

This additional information, based on probability theory, can lead the company to treat the slow
payment history as a red flag, and either hike interest rates on the loan or reject it altogether.
Example

• A bag I contains 4 white and 6 black balls while another Bag II contains 4

white and 3 black balls. One ball is drawn at random from one of the bags,
and it is found to be black. Find the probability that it was drawn from Bag
I.
Solution
Let E1 be the the event of choosing Bag 1,
E2 the event of choosing bag 2 and A be the event of drawing a black
ball

Then P(E1)=P(E2) =1/2

P(A/E1)=P ie (drawing a black ball from bag 1)= 6/10 =3/5

P(A/E2)=P ie (drawing a black ball from bag 2)


= 3/7
Solution
By using Baye's Theorem,the probability of drawing a black ball from Bag
1

P(E1/A)=P(E1)P(A/E1)/P(E1)P(A/E1)+P(E2)P(A/E2)

= (1/2 x 3/5) / (1/2x3/5 + 1/2+3/7)

= 7/12
Thank You
For Being A Patient Listener

SUBMITTED TO :- DR. PAVAN KUMAR


SIR

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