Sunday, August 18, 2013

A Practical View of Bayesian Inference

Bayes Theorem has practical applications. Use it to make real world decisions. [Updated 8 Sep 2013]

Bayes Theorem is not just an obscure artifact of the statistics of probability handed down to us from centuries ago. You can use it now to make decisions that will affect your financial well-being.

A relatively simple Excel-based tool helps you choose the right course of action in the face of uncertain probabilities and inexact test results. It is available for FREE.

[Presented to the Science-Technology Club, The Villages, FL, 9 September 2013. For a copy of my PowerPoint slide show, send an email to]

What can the Bayesian Inference Advisor Tool do for You?

I know you are probably not in the oil business (and neither am I), but the best way to understand an abstract concept is to go through a practical example. The example below has to do with oil exploration and drilling, but the Bayesian Inference Advisor can handle any problem where you know:

1) the probability of success if you take action without doing further testing,
2) the cost of further testing and the probability the test results will be reliable,
3) the cost of taking some action,
4) the financial benefit to you if the action is successful, and
5) the compensation you expect for taking the risk.

You can download the Bayesian Inference Advisor at:

The Bayesian Inference Advisor will compute the most likely financial implications of your actions. What if you proceed without further testing? What if you get a positive test result and proceed? What if you get a negative test result and proceed? Several other examples in very different domains are included later in this posting, but for now, put on your hard hat and let us imagine we are in the oil business!