Problem Exercises (Bayes Theorem) from the book of Anderson, et al.

42 page 174] A local bank is reviewing its credit card policy with a view toward recalling some of its credit cards. In the past approximately 5% of cardholders have defaulted and the bank has been unable to collect the outstanding balance. Hence, management has established a prior probability of .05 that any particular cardholder will default. The bank has further found that the probability of missing one or more monthly payments is .20 for customers who do not default. Of course, the probability of missing one or more payments for those who default is 1. a. Given that a customer has missed a monthly payment, compute the posterior probability that the customer will default. b. The bank would like to recall its card if the probability that a customer will default is greater that .20. Should the bank recall its card if the customer misses a monthly payment? Why or why not? 43 page 175] Small cars get better mileage, but they are not as safe as bigger cars. Small cars accounted for 18% of the vehicles on the road, but accidents involving small cars led to 11,898 fatalities during a recent year. The probability of an accident involving a small car leading to a fatality is .128 and the probability of an accident not involving a small car leading to a fatality is .05. Suppose you learn of an accident involving a fatality. What is the probability a small car was involved? 45 page 175] M. D. Computing describes the use of Bayes theorem and the use of conditional probability in medical diagnosis. Prior probabilities of diseases are based on the physicians assessment of such things as geographical location, seasonal influence, occurrence of epidemics, and so forth. Assume that a patient is believed to have one of two diseases, denoted D1 and D2 with P(D1) = .6 and P(D2) = .40 and that medical research has determined the probability associated with each symptom that may accompany the diseases. Suppose that, given diseases D1 and D2, the probabilities that the patient will have symptoms S1, S2 or S3 are as follows: S1 .15 .80 Symptoms S2 .10 .15 S3 .15 .03

Disease

D1 D2

After a certain symptom is found to be present, the medical diagnosis may be aided by finding the revised probabilities of each particular disease. Compute the posterior probabilities of each disease given the following medical findings. a. The patient has symptom S1 b. The patient has symptom S2 c. The patient has symptom S3 d. For the patient with symptom S1 is part (a), suppose we also find symptom S2. What are the revised probabilities of D1 and D2?