Application of Bayes

Theorem
Assignment 01
Submitted by:-
Name - Kishan jaiswal
Branch - CSE(AI) Btech 3rd sem
Roll no- 300012721019
UTD-CSVTU BHILAI
Bayes' Theorem: What It Is, the
Formula, and Examples
 What Is Bayes' Theorem?
Bayes' Theorem, named after 18th-century British mathematician
Thomas Bayes, is a mathematical formula for determining
conditional probability. Conditional probability is the likelihood of
an outcome occurring, based on a previous outcome having occurred
in similar circumstances. Bayes' theorem provides a way to revise
existing predictions or theories (update probabilities) given new or
additional evidence.
n finance, Bayes' Theorem can be used to rate the risk of lending
money to potential borrowers. The theorem is also called Bayes'
Rule or Bayes' Law and is the foundation of the field of Bayesian
statistics.
 • KEY TAKEAWAYS
• Bayes' Theorem allows you to update the predicted probabilities of
an event by incorporating new information.
• Bayes' Theorem was named after 18th-century mathematician
Thomas Bayes.
• It is often employed in finance in calculating or updating risk
evaluation.
• The theorem has become a useful element in the implementation of
machine learning.
• The theorem was unused for two centuries because of the high
volume of calculation capacity required to execute its transactions.
 Understanding Bayes' Theorem
Applications of Bayes' Theorem are widespread and not
limited to the financial realm. For example, Bayes' theorem
can be used to determine the accuracy of medical test results
by taking into consideration how likely any given person is to
have a disease and the general accuracy of the test. Bayes'
theorem relies on incorporating prior probability
distributions in order to generate posterior probabilities.

Prior probability, in Bayesian statistical inference, is the

probability of an event occurring before new data is collected
• In other words, it represents the best rational assessment of
the probability of a particular outcome based on current
knowledge before an experiment is performed.
• Posterior probability is the revised probability of an event
occurring after taking into consideration the new
information. Posterior probability is calculated by updating
the prior probability using Bayes' theorem. In statistical
terms, the posterior probability is the probability of event A
occurring given that event B has occurred.
Special Considerations
• Bayes' Theorem thus gives the probability of an event based
on new information that is, or may be, related to that event.
The formula can also be used to determine how the
probability of an event occurring may be affected by
hypothetical new information, supposing the new
information will turn out to be true.
• For instance, consider drawing a single card from a
complete deck of 52 cards.
• The probability that the card is a king is four divided by 52,
which equals 1/13 or approximately 7.69%. Remember that
there are four kings in the deck. Now, suppose it is revealed
that the selected card is a face card. The probability the
selected card is a king, given it is a face card, is four divided
by 12, or approximately 33.3%, as there are 12 face cards in
a deck.
 Formula for Bayes' Theorem
• P(A∣B)=P(B)P(A⋂B)​=P(B)P(A)⋅P(B∣A)​
where:P(A)= The probability of A occurringP(B)= The proba
bility of B occurringP(A∣B)=The probability of A given BP(B
∣A)= The probability of B given AP(A⋂B))= The probability
of both A and B occurring​
Examples of Bayes' Theorem
Below are two examples of Bayes' Theorem in which the first example
shows how the formula can be derived in a stock investing example using
Amazon.com Inc. (AMZN). The second example applies Bayes' theorem to
pharmaceutical drug testing.
Deriving the Bayes' Theorem Formula
Bayes' Theorem follows simply from the axioms of conditional probability.
Conditional probability is the probability of an event given that another
event occurred. For example, a simple probability question may ask: "What
is the probability of Amazon.com's stock price falling?" Conditional
probability takes this question a step further by asking: "What is the
probability of AMZN stock price falling given that the Dow Jones Industrial
Average (DJIA) index fell earlier?"
The conditional probability of A given that B has happened can
be expressed as:
If A is: "AMZN price falls" then P(AMZN) is the probability that
AMZN falls; and B is: "DJIA is already down," and P(DJIA) is the
probability that the DJIA fell; then the conditional probability
expression reads as "the probability that AMZN drops given a
DJIA decline is equal to the probability that AMZN price declines
and DJIA declines over the probability of a decrease in the DJIA
index.
P(AMZN|DJIA) = P(AMZN and DJIA) / P(DJIA)
P(AMZN and DJIA) is the probability of both A and B occurring. This is also the same as the
probability
of A occurring multiplied by the probability that B occurs given that A occurs, expressed as
P(AMZN) x P(DJIA|AMZN).

The fact that these two expressions are equal leads to Bayes' theorem, which is written as:
if, P(AMZN and DJIA) = P(AMZN) x P(DJIA|AMZN) = P(DJIA) x P(AMZN|DJIA)
then, P(AMZN|DJIA) = [P(AMZN) x P(DJIA|AMZN)] / P(DJIA).
Where P(AMZN) and P(DJIA) are the probabilities of Amazon and the Dow Jones falling,
without regard to each other.

The formula explains the relationship between the probability of the hypothesis before
seeing the evidence that P(AMZN), and
the probability of the hypothesis after getting the evidence P(AMZN|DJIA), given a
hypothesis for Amazon given evidence in the Dow.
Numerical Example of Bayes' Theorem
As a numerical example, imagine there is a drug test that is 98% accurate, meaning that
98% of the time, it shows a true positive result for someone using the drug, and 98% of the
time, it shows a true negative result for nonusers of the drug.
Next, assume 0.5% of people use the drug. If a person selected at random tests positive for
the drug, the following calculation can be made to determine the probability the person is
actually a user of the drug.
(0.98 x 0.005) / [(0.98 x 0.005) + ((1 - 0.98) x (1 - 0.005))] = 0.0049 / (0.0049 + 0.0199)
= 19.76%
Bayes' Theorem shows that even if a person tested positive in this scenario, there is a
roughly 80% chance the person does not take the drug.
• What Is the History of Bayes' Theorem?
• The theorem was discovered among the papers of the English Presbyterian minister and
mathematician Thomas Bayes and published posthumously by being read to the
Royal Society in 1763. Long ignored in favor of Boolean calculations, Bayes' Theorem has
recently become more popular due to increased calculation capacity for performing its
complex calculations.
• These advances have led to an increase in applications using Bayes' theorem. It is now
applied to a wide variety of probability calculations, including financial calculations,
genetics, drug use, and disease control.
• What Does Bayes' Theorem State?
• Bayes' Theorem states that the conditional probability of an event, based on the
occurrence of another event, is equal to the likelihood of the second event given the first
event multiplied by the probability of the first event.
• What Is Calculated in Bayes' Theorem?
• Bayes' Theorem calculates the conditional probability of an event, based on the values of
specific related known probabilities.
• What Is a Bayes' Theorem Calculator?
• A Bayes’ Theorem Calculator figures the probability of an event A conditional
on another event B, given the prior probabilities of A and B, and the
probability of B conditional on A. It calculates conditional probabilities based
on known probabilities.
• How Is Bayes' Theorem Used in Machine Learning?
• Bayes Theorem provides a useful method for thinking about the relationship
between a data set and a probability. In other words, the theorem says that
the probability of a given hypothesis being true based on specific observed
data can be stated as finding the probability of observing the data given the
hypothesis multiplied by the probability of the hypothesis being true
regardless of the data, divided by the probability of observing the data
regardless of the hypothesis.
Thankyou