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How can you tell if a question is Bayes Thereom? watch

    • Thread Starter

    A bank classifies borrowers as high risk or low risk. 15% of its loans are made to those classified as high risk. Of all loans, 5% are in default and 40% of those in default were made to high-risk borrowers. What is the probability that a high-risk borrower will default?

    Like how can you tell this question is Bayes Thereom?

    Bayes’ theorem usually raises its head when we know P(A given B) and need to find the value of P(B given A). This question is a case in point. Let P(H) be the probability that a borrower is in the high risk group and P(D) be the overall probability of default. The question gives us P(H given D) and asks us for P(D given H).
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