Probabilistic Methods for Financial and Marketing Informatics

Chapter 3

Bayesian Networks

The Reverend Thomas Bayes (1702–1761) developed Bayes’ Theorem in the 18th century. Since that time the theorem has had a great impact on statistical inference because it enables us to infer the probability of a cause when its effect is observed. In the 1980s, the method was extended to model the probabilistic relationships among many causally related variables. The graphical structures that describe these relationships have come to be known as Bayesian networks. We introduce these networks next. Applications of Bayesian networks to finance and marketing appear in Parts II and III. In Sections 3.1 and 3.2 we define ...