Bayes' theorem

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Related to Bayes theorem: conditional probability
  • noun

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(statistics) a theorem describing how the conditional probability of a set of possible causes for a given observed event can be computed from knowledge of the probability of each cause and the conditional probability of the outcome of each cause

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SAGA Capital's proprietary model was created by Luis M Sanchez, drawing on over 18 years' experience of building models incorporating Monte Carlo simulations, Bayes Theorem, expert systems, and other techniques developed for risk/return evaluation for investment banks, hedge funds, and securities firms.
Bayesian analysis makes use of prior and conditional probabilities and is based upon Bayes theorem for calculating the probability of an outcome given additional evidence.
He does this by first specifying a normal likelihood function to express his opinion about the experts' knowledge and then using Bayes Theorem.
Using Bayes theorem it was then possible to update the values of all the other probabilities in the BN.
The following chapters focus on the application of the methods in decision analysis and their limits: sensitivity analysis, simulation, probability assessment and Bayes theorem, the value of information, and behavioral aspects.