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. An Introduction To Value at Risk (VAR)

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

  6. 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".

  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. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center