After 200 feet of drilling on the first well, a soil test is taken. The probabilities of finding the particular type of soil ide
ntified by the test are as follows. P(soil | high-quality oil) = 0.20 P(soil | medium-quality oil) =0.80 P(soil | no oil) = 0.20
How should the firm interpret the soil test? What are the revised probabilities?
Events P(Ai) P(S | Ai) P(Ai∩S) P(AiS)
High Quality (A1)
Medium Quality (A2)
No Oil (A3) P(S)=
What is the new probability of finding oil?
The firm can interpret the soil test by using Bayes’ Theorem to see what the posterior probabilities of seeing different of oil as wlel as no oil are. By using this, you can tell that it’s more likely that they are going to find medium quality oil.
If u take 12 divided by .20 you would get 60 because if u think of it as a dinner bill say it is $60.00 and I want to give a 10% tip it would be $6 but if u give a 20% tip u would give $12
