Using Bayes' Rule to Update an Event's Probabilities Based on the Outcomes of Partially Similar Events

Authors:
Robert F. Bordley
Affiliations:
General Motors Technical Center, Warren, Michigan 48090/ and University of Michigan, Ann Arbor, Michigan 48019
Venue:
Decision Analysis
Year:
2011

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Abstract

There is a widely known Bayesian solution to the problem of updating the probability of an event occurring given information on the outcome of n completely similar events. But in many, if not most, cases, we only have information on partially similar events. For example, firms must assess the probability of a new product being successful given information on past products that are only partially similar to the new product. This paper shows how the well-known Bayesian solution for completely similar events can be extended to solve the problem with partially similar past events.