Sunday, November 2

Unconditional probabilities vs. Conditional probability

Unconditional probabilities
An independent chance that a single outcome results from a sample of possible outcomes, without reference to any other event.

P(A) = no of time of “A” occur / total no of possible outcomes

Conditional probability (or Mariginal probability)
Probability of an event or outcome is based on the occurrence of a previous event or outcome. Conditional probabilities are important in tests of market efficiency, where event B is some piece of public or private information that becomes available to the market at some point of time.

Probability of A if B occurred,


P(A│B) = Joint probability of A and B / Unconditional probability of B
= P(AB) / P(B),


where: P(B) is not equal to 0



1 comment:

Unknown said...

Great Blog...

I'm not entirely certain, however, I believe that marginal probability = Unconditional, as opposed to conditional...