Saw this question on another board, found it fascinating how many people got it wrong. 1. What has more value? A.) A contract that pays you $1,000 if the stock market goes down 10% on any given day in the next year B.) A contract that pays you $1,000 if the stock market goes down 10% on any given day in the next year due to a terrorist act. 2. A test of a disease has a 5% false positive rate. The disease strikes 1/1,000 of the population. A patient's test is positive. What is the probability of the patient being stricken with the disease? You must provide the answer no multiple choice question. with your answer, please give your highest level of education as well (MBA, BS, high school, etc)

A is more likely than B less likely due to the conditional propositon, and the probability of the disease in #2 is somewhere around 2%.

1a and 1b are of equal value. Probability has nothing to do with value. 2. Probability is 1/1,000 just like the question states. I'm a proud high school grad 40 years ago which is probably the equivalent of a PHD today. I did go to college a couple if times, but dropped out do to shear boredom.

Killthesunshine did just that to your pop-quiz, didn't he? First to respond got it right without really having to think about it. The first question iseasy for most adults and children alike, A (assuming they are equally efficiently price of course). The second question most people would get wrong. The answer is 1.9%. I have a BS and a BA.

Great answers bellman! I think those are the correct answers. Could you please show us how you calculated 1.9%? Thanks! PA

My answer assumed that the false positive rate was equal to the false negative rate. If the false negative rate is 0 (highly unlikely) then 1.96% is the answer. If the false negative rate is assumed to be equal to the false positive rate, then 1.86% is correct. Divide the actual number of false positives by the total number of positives. Or the frequency of false positives by the frequency of all positives. 0.95/((999*0.05)+0.95) = 1.86%