What is 'A Priori Probability'

A priori probability is calculated by logically examining a circumstance or existing information regarding a situation. It usually deals with independent events where the likelihood of a given event occurring is in no way influenced by previous events. An example of this would be a coin toss. The largest drawback to this method of defining probabilities is that it can only be applied to a finite set of events as most events are subject to conditional probability to at least a small degree.

BREAKING DOWN 'A Priori Probability'

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

Example of A Priori Probability

For example, consider flipping a coin. A fair coin has two different sides and each time you flip it has an equal chance of landing on either side, regardless of the previous toss' outcome. The a priori probability of landing on the "heads" side of the coin is 50%. Another example is 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).

RELATED TERMS
  1. Priori Loss Estimates

    Priori loss estimates are techniques used by insurance companies ...
  2. Prior Probability

    A prior probability, in Bayesian statistical inference, is the ...
  3. Unconditional Probability

    An unconditional probability is the independent chance that a ...
  4. Gambler's Fallacy/Monte Carlo Fallacy

    The Gambler's Fallacy occurs with the erroneous belief that the ...
  5. Posterior Probability

    Posterior probability is the revised probability of an event ...
  6. Down Transition Probability

    Down transition probability is the probability, in the context ...
Related Articles
  1. Investing

    Scenario Analysis Provides Glimpse Of Portfolio Potential

    This statistical method estimates how far a stock might fall in a worst-case scenario.
  2. Investing

    Explaining Expected Return

    The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
  3. Investing

    Multivariate Models: The Monte Carlo Analysis

    This decision-making tool integrates the idea that every decision has an impact on overall risk.
  4. Trading

    The Math Behind Betting Odds & Gambling

    A betting odd opportunity should be considered valuable if the probability assessed for an outcome is higher than the implied probability estimated by the bookmaker. Read more on the math behind ...
  5. Investing

    Most Common Probability Distributions

    In this article, we'll go over a few of the most popular probability distributions and show you how to calculate them.
  6. Insights

    Obama's Scariest Moment? A Trillion-Dollar Question

    "There was this theory…"
  7. Managing Wealth

    Anticipate Trends to Find Profits

    Monitoring your trades in real time can help you anticipate their outcomes.
  8. Trading

    History Of Coinage In The U.S.

    From the barter system to commemorative coins, we look at the history of U.S. money.
  9. Investing

    Uncover The Next Real Estate Hot Spot

    Real estate land speculation is a way to get in on a hot investment before a boom hits.
RELATED FAQS
  1. How can I be paying more than what a stock is trading for?

    It might seem logical that the last traded price of a security is the price at which it would currently be trading, but this ... Read Answer >>
  2. What is the minimum number of simulations that should be run in Monte Carlo Value ...

    Find out how many simulations should be run at minimum for an accurate value at risk when using the Monte Carlo method of ... Read Answer >>
Trading Center