What is Bayes' theorem?

by Daniel J. Power
Editor, DSSResources.COM

Bayes' theorem is an equation to calculate the likelihood of event A occurring given that event B is true. For example, event A is purchase of product X and event B is the purchase of product Y. The Probability (X|Y) is a conditional probability and the Probability of Y is not equal to 0. Bayes' theorem states P (X|Y) = (P (Y|X) * P (X)) / (P(Y) . P (Purchase X | Purchase Y) = (P (Purchase Y | Purchase X) * P (Purchase X)) / (P(Purchase Y). If data indicates 20% of customers buy Y each week, 10% buy X, and 5% who buy X also buy Y, then what is P (X|Y)? P (X|Y) = (.05 * .10)/.20 = .025, so 2.5% is the likelihood of a customer buying Product X when they bought Product Y.

Last update: 2019-04-29 03:36
Author: Daniel Power

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