Questions / Quant trading, Information & Bayes
A rare signal fires
An event occurs 5% of the time. A detector flags 80% of events and 10% of non-events. Given a flag, what is the event probability? Enter a percentage.
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Answer: 29.63% (8/27)
- Imagine 2,000 observations. There are 100 events and 1,900 non-events.
- The detector flags 80 events and 190 non-events: 270 flags in total.
- Among flagged observations, the event fraction is 80/270 = 0.296296…, or 29.6296%.
Interview shortcut. Natural frequencies: out of 2,000, 80 true flags against 190 false ones, so 80/270.
Takeaway. Count true and false flags in a common population.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.