45-733 PROBABILITY AND STATISTICS I
Answer to Problem 3
Let A1 = Devalue the Currency,
A2 = Not Devalue the Currency,
B = News Report
A Diagram of this is:
P(A1) = .3
P(A2) = .7
P(B | A1) = .7 = P("News Report of Devaluation before Actual Devaluation")
P(B | A2) = .25 = P("News Report of Devaluation before No Actual Devaluation")
Hence:
P(A1|B) =
[P(A1)P(B|A1)]/
[åj=1,2 P(Aj)P(B|Aj)] =
.3*.7
P(A1 | B) = -------------- = .5455
.3*.7 + .7*.25