After 200 feet of drilling on the first well, a soil test is taken. The probabilities of finding the particular type of soil identified by the test are as follows.
P(soil | high-quality oil) = 0.20
P(soil | medium-quality oil) = 0.80
P(soil | no oil) = 0.20
How should the firm interpret the soil test?
The probability of finding oil is good. Given the probability of finding good soil, the oil company is more likely to find
medium-quality
oil.
What are the revised probabilities?
Let S = Soil test results
Events P(Ai) P(S | Ai) P(Ai ∩ S) P(Ai | S)
High Quality (A1)




Medium Quality (A2)




No Oil (A3)




P(S)=


What is the new probability of finding oil?