Normative and frequency forms of Bayesian calculations in managerial studies

Simona Ha?ková ()
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Simona Ha?ková: University of Economics in Prague, Faculty of Management

No 2304419, Proceedings of Business and Management Conferences from International Institute of Social and Economic Sciences

Abstract: The calculations based on Bayesian statistics are a part of many decision-making problems. Their solution relies in most cases on an exact approach based on Bayesian formula, in which the values of occurrences of examined phenomena in the form of prior and posterior probabilities are supplied. The findings of evolutionary biologists confirm that such an approach is less psychologically acceptable for untrained individuals in the field of mathematics and logic, and results in many wrong solutions. The paper proposes the way how to increase the correctness of solutions based on conditional probabilities by means of the calculation procedure of a frequency form represented by Venn diagram. This is based on an adaptation of the task presentation in a way more natural to human understanding. Its demonstration is performed in a managerial task focusing on the evaluation of the probability model of the project relating to the potential oil field deposit. The Bayesian formulas are here replaced by simpler Laplace probabilities that are comprehensible to managers and economists without prejudice to the accuracy of the result.

Keywords: Bayesian formula; normative form; frequency form; Venn diagram; probability model of a project (search for similar items in EconPapers)
JEL-codes: A12 C51 D81 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2015-06
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Published in Proceedings of the Proceedings of the 1st Business & Management Conference, Vienna, Jun 2015, pages 130-140

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