Bayes' Formula

Bayes' Theorem formulas an intuitive idea: we adjust our perspective (the probability set) given new, relevant information. Formally, Bayes' Theorem helps us move from an unconditional probability (what are the odds the economy will grow?) to a conditional probability (given new evidence, what are the odds the economy will grow?)

Category:

Education

Tags:

• Finance
• Quant

[apanapane]

Actually, it's statistically incorrect to say that "given that the stock went up the probability that the economy went up was x%".

You see, either the stock went up or it didn't, which would correspond to probabilities 100% or 0%. The correct term to use, to be a bit nitpicky, is "given that the stock went up, the the likelihood that the economy went up is x%".

It's important to separate probability from likelihood. Other than that, nice video. :) Sorry for being such a nit-picking person.

[bionicturtledotcom]

@apanapane thanks for correction! Candidly, I was not aware of distinction between probability/likelihood; i thought maybe it could implicitly be considered a posterior probability; or Gujarati seems to say that "posterior probability" would be okay here. Questions: 1. is posterior probability ~ likelihood, and 2. can you point me to reference? Thanks for your comment (no worries on nit-pick: being précise is good and you are polite about it). Thanks, David

[england7676]

sir, first great work. but you have an error at 6:38:( the denominator of the second formula is wrong, should be p(u AND g) + p(u AND g')

[bionicturtledotcom]

@england7676 yes, thank you, you are absolutely correct of course. I meant to use P(U | G)P(G) + P(U | G')P(G') which is equal to yours and equals P(U). I'll see if i can annotate a correction. thanks you

[bionicturtledotcom]

@england7676 okay, i annotated correction @ 2:01

[MsBrownieface]

that was very helpful. thanks!

[TheUntrueFantasy]

uffff this is really hard for me, i suck in math but i want to learn this and i am going to one way or another :)

[tallibba]

P(U) = 65% ????

[CatsMassage]

nice, thx for the video!

[diehardfanofmyself]

thanks a lot.. This video was very helpful when i was preparing for my stats exam.

[bezzer1185]

thanks alot David!

[scalpmaster]

Seems like it means it is easier for indices to go up than individual stocks?

[sam11samaz]

ممتاز

[dazzlepecs]

God bless you people, who post such well-presented videos for the casually curious!

[S2MichEl]

@apanapane So can you please explain the difference between probability and likelihood? Maybe adding in a short example? Thanks!