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Uncertainty
Uncertainty
Classical
Frequentist
Subjectivist
Probability of a union
P(A B) = P(A) + P(B) P(A B)
Formula
P(A B) = P(B|A)P(A) = P(A|B)P(B)
Example
+ P(B Ek)
= P(B|E1)P(E1) + P(B|E2)P(E2)
+ + P(B|Ek)P(Ek)
P( A B) P( A) P( B)
P( A B) P( A) P( B)
NOT mutually exclusive
P( A B) P( A) P( B) P( A B)
Dont know about independence
P( A B) P( A) P( B)(?)
Mutually exclusive
P( A B) P( A) P( B)
Implication: P( A B) 0
NOT independent
Formula:
Basic interpretation: P(B | A) P(A | B)
P( A | B)
P( B | A) P( A)
P( B)
for
P( B) 0
Uncertainty means
The goodness outcomes are uncertain depending
on some other factors
Examples
Buy a stock or not (do not know the future)
Choose transportation to airport (do not know the
exact travel time of each transportation)
Dry (2)
-$100,000
$90,000
3 in 4
Comments:
0.4(0.25)
1
0.4(0.25) 0.8(0.75) 7
P 2 | S 0
6
7
0.6(0.25)
1
0.6(0.25) 0.2(0.75) 2
P 2 | S 1
1
2
670
-130
60
Optimal Policy
Do the seismic survey
If S = 0, sell the land.
If S = 1, drill for oil.
The expected payoff is 123
670
-130
60
700
-100
90
27