Investopedia

Continue to Site »

A Priori Probability

Filed Under » ,
Dictionary Says

Definition of 'A Priori Probability'

Probability calculated by logically examining existing information. A priori probability can most easily be described as making a conclusion based upon deductive reasoning rather than research or calculation. The largest drawback to this method of defining probabilities is that it can only be applied to a finite set of events.
Investopedia Says

Investopedia explains 'A Priori Probability'

Priori probabilities are most often used within the deduction method of calculating probability. This is because you must use logic to determine what outcomes of an event are possible in order to determine the number of ways these outcomes can occur.

For example, consider how the price of a share can change. Its price can increase, decrease or remain the same. Therefore, according to a priori probability, we can assume that there is a 1-in-3, or 33%, chance of one of the outcomes occurring (all else remaining equal).

Articles Of Interest

  1.

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.

  2. Beta: Gauging Price Fluctuations

    Learn how to properly use this measure that can help you meet your criteria for risk.

  3. Using Logic To Examine Risk

    Know your odds before you put your money on the table.

  4. Understanding Volatility Measurements

    How do you choose a fund with an optimal risk-reward combination? We teach you about standard deviation, beta and more!

  5. How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".

  6. An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".

  7. Pursuing Alpha In A Well-Diversified IRA

    This strategy is not as complex as some investment gurus would like you to believe.

  8. A Deeper Look At Alpha

    The Jensen index helps investors compare realized returns to what should've been achieved.

  9. Financial Concepts

    Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear.

  10. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center