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An economist asks you the probability that the central bank will reduce the interest rate. You...

An economist asks you the probability that the central bank will reduce the interest rate. You survey other economists and the results indicate a 70% chance the interest rate will fall. You believe the interest rate to be 50% accurate. Prior research has also told you that in similar situations, the central bank has lowered the interest rate 20% of the time.

1) Find the posterior probability the bank will lower the interest rate.

2) Suppose you have more confidence in the survey results being right and place a false positive ratio of 0.1, what is the new posterior probability?

Math   Statistics-And-Probability   
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