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RULE
Applied
Sta+s+cs
and
Compu+ng
Lab
Indian
School
of
Business
"The essence of the Bayesian approach is to provide a mathema5cal rule explaining how you should change your exis5ng beliefs in the light of new evidence. In other words, it allows scien5sts to combine new data with their exis5ng knowledge or exper5se. The canonical example is to imagine that a precocious newborn observes his rst sunset, and wonders whether the sun will rise again or not. He assigns equal prior probabili5es to both possible outcomes, and represents this by placing one white and one black marble into a bag. The following day, when the sun rises, the child places another white marble in the bag. The probability that a marble plucked randomly from the bag will be white (i.e., the child's degree of belief in future sunrises) has thus gone from a half to two-thirds. AHer sunrise the next day, the child adds another white marble, and the probability (and thus the degree of belief) goes from two-thirds to three- quarters. And so on. Gradually, the ini5al belief that the sun is just as likely as not to rise each morning is modied to become a near-certainty that the sun will always rise. The Economist [Ar+cle "In praise of Bayes , Sept. 30 2000]
Learning
Goals
Why
we
need
Bayes
Rule
Understand
the
rule
Learn
to
apply
the
rule
An
Example
An
electronics
retailer
adverEses
his
products
through
two
media:
Social
Networking
sites
and
Television
AdverEsements.
Through
a
market
research,
he
learns
that
of
the
people
that
have
viewed
his
ad
70%
viewed
it
on
a
Social
Networking
site
and
30%
on
the
TV.
Apart
from
this
informaEon,
he
knows
that
20%
of
the
people
who
view
his
ads
on
Social
Networking
sites
buy
his
products
and
30%
of
the
people
who
view
his
ads
on
TV
buy
his
products.
Now
he
wants
to
know
which
of
the
two
media
is
more
eecEve
in
promoEng
his
products?
Where
should
he
adverEse
more
to
increase
his
sales?
Applied
Sta+s+cs
and
Compu+ng
Lab
4
SoluEon
Let
us
rst
separate
this
informaEon
into
small
pieces
Several
Events:
S:
The
ad
is
viewed
on
a
Social
networking
site
T:
The
ad
is
viewed
on
TV
Buy:
A
person
aware
of
the
ad
buys
the
product
P(S)=0.7
P(T)=0.3
P(Buy|S)=0.2
P(Buy|T)=0.3
InformaEon given:
SoluEon
(Contd)
To
decide
as
to
which
medium
of
adverEsing
is
more
eecEve
we
must
rst
have
an
idea
of
how
likely
it
is
that
a
person
who
purchases
the
product
has
viewed
the
ad
through
that
medium
i.e.
we
must
know
the
following
probabiliEes:
P(S|Buy)
P(T|Buy)
Applied
Sta+s+cs
and
Compu+ng
Lab
6
SoluEon
(Contd)
Consider
P(S|Buy),
from
our
tutorial
on
CondiEonal
Probability
we
have
learnt
that:
P(S Buy) P(S | Buy) =
P( Buy) Similarly,
P
(
S
Buy
)
can
be
wri_en
as
P(S Buy) = P( Buy | S ) P(S )
P( Buy | S ) P(S ) P ( S | Buy ) = So
,
P( Buy)
|
S The
numerator
is:
P
(
Buy
)
P
(
S
)
=
0.7
0.2
=
0.14
.
(1)
We
are
now
half
way
to
the
answer
7
SoluEon
(Contd)
Now,
we
need
the
value
of
P(Buy)
Since
Social
Networking
sites
and
TV
ads
are
the
only
media
the
retailer
uses,
the
events
S
&
T
form
a
parEEon
of
the
Sample
Space
Consider
the
following
Venn-diagram:
It is clear from this diagram that we can write Buy in the following manner: Buy=(Buy S) U (Buy T) [ Note that, (Buy S) (Buy T) = ]
P(Buy) = P((Buy S) + P(Buy T) [Law of Total Probability] P(Buy) = P(Buy|S) * P(S) + P(Buy|T)*P(T) (2) (from deniEon of condiEonal probability )
SoluEon (Contd) We now have the denominator as well: P(Buy) = P(Buy|S) * P(S) + P(Buy|T)*P(T) = 0.2*0.7+0.3*0.3 =0.23 There fore, the required probability is: | S ) P(S ) P( Buy | S ) P(S ) 0.14 (S | Buy) = P(Buy P = = 0.61 P( Buy) P( Buy | S ) P(S ) + P( Buy | T ) P(T ) 0.23 P( Buy | S ) P(S ) P ( S | Buy ) = Incidentally ( Buy | S ) P ) + P ( Buy | T ) P ( T ) is called P (S the Bayes Rule Applied Sta+s+cs and Compu+ng Lab
SoluEon
(Contd)
Let
us
now
calculate
P(T|Buy)
in
a
similar
manner:
P( Buy | T ) P(T ) P( Buy | T ) P(T ) 0.09 P(T | Buy) = = = 0.39
P( Buy) P( Buy | S ) P( S ) + P( Buy | T ) P(T ) 0.23 We
now
have
both
P(S|Buy)
&
P(T|Buy)
So
61%
of
the
people
who
buy
the
products
have
viewed
the
ad
on
a
social
networking
site
and
39%
on
TV
ads
Clearly,
the
retailers
adverEsements
on
Social
Networking
sites
were
more
eecEve
This
gives
the
retailer
a
good
idea
of
where
to
concentrate
his
adverEsement
budget
to
increase
his
sales
10
Consider the parEEon {Bj} of the Sample Space, then the Bayes rule can be extended as follows: P( A | Bi ) P( Bi ) P( Bi | A) =
P( A | B ) P( B )
j j j
11
Thank you