Conditional probability
The chance of something once you take into account what you already know. It depends not only on the evidence, but on how the evidence was produced.
In plain English
The chance that it rains is one thing; the chance that it rains given dark clouds is another. Conditional probability updates a chance using new information. The catch is that the same piece of information can mean different things depending on the rule that produced it: an empty door opened by a host who knows where the prize is tells you more than one opened at random.
Uncle Gary explains
At the school fete, cousin Kevin always lifts an empty bucket you didn't pick. Because he knows where the voucher is, switching wins 2 times in 3. If he lifted one at random and it happened to be empty, it would be 50/50.
Why it matters for your money
Investment information is rarely random: funds show their best results, newsletters show their best calls. What a number means depends on how it was chosen to be shown to you.
Where we tested it
- Lesson 11: Conditional Probability and Bayes, Explained With a Car Alarm
- The Monty Hall Problem Explained: Why You Should Switch Buckets
Related terms
All glossary terms. Educational content, not financial advice.