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Introduction to Business Statistics
Lecture 4
Bayes
’
Theorem
Probability Table:
Two sets of mutually exclusive and collectively
exhaustive events with their joint probabilities cross listed in a table.
Probability Tree:
1.
Events forming the first set of branches must have known marginal
probabilities and are mutually exclusive and collectively exhaustive.
2.
Event forming the second set of branches must be entered at the tip of
each of the sets of first branches. Conditional probabilities, given the
relevant first branch, must be entered. Again, the branches must be
mutually exclusive and collectively exhaustive.
3.
If there are further sets of branches, the probabilities must be
conditional on all preceding events. The branches must be mutually
exclusive and collectively exhaustive.
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How to revise prior probabilities in light of new information?
Start with a set of mutually exclusive and collectively exhaustive events,
which correspond to “
states of nature
”. Probabilities of different states
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 Fall '08
 HU
 Business, Conditional Probability, Probability, Joint Probability Probability

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