How to Apply Bayes’ Theorem in Excel


Bayes’ Theorem states the following for any two events A and B:

P(A|B) = P(A)*P(B|A) / P(B)

where:

  • P(A|B): The probability of event A, given event B has occurred.
  • P(B|A): The probability of event B, given event A has occurred.
  • P(A): The probability of event A.
  • P(B): The probability of event B.

For example, suppose the probability of the weather being cloudy is 40%.  Also suppose the probability of rain on a given day is 20% and that the probability of clouds on a rainy day is 85%. 

If it’s cloudy outside on a given day, what is the probability that it will rain that day?

Solution:

  • P(cloudy) = 0.40
  • P(rain) = 0.20
  • P(cloudy | rain) = 0.85

Thus, we can calculate:

  • P(rain | cloudy) = P(rain) * P(cloudy | rain) / P(cloudy)
  • P(rain | cloudy) = 0.20 * 0.85 / 0.40
  • P(rain | cloudy) = 0.425

If it’s cloudy outside on a given day, the probability that it will rain that day is 0.425 or 42.5%.

The following example shows how to solve this exact problem using Bayes’ Theorem in Excel.

Example: Bayes’ Theorem in Excel

The following formula shows how to apply Bayes’ Theorem in Excel:

Bayes' theorem formula in Excel

For example, if we know the following probabilities:

  • P(cloudy) = 0.40
  • P(rain) = 0.20
  • P(cloudy | rain) = 0.85

Then we can simply plug these into the cells in Excel:

Bayes' rule example in Excel

This tells us that if it’s cloudy outside on a given day, the probability that it will rain that day is 0.425 or 42.5%.

Additional Resources

How to Calculate Conditional Probability in Excel
How to Apply the Empirical Rule in Excel
How to Apply the Central Limit Theorem in Excel

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