Bayes’ theorem, named after 18th-century British mathematician Thomas Bayes, is a mathematical formula for determining conditional probability. Conditional probability is the likelihood of an outcome occurring, based on a previous outcome occurring. Bayes’ theorem provides a way to revise existing predictions or theories (update probabilities) given new or additional evidence. In finance, Bayes’ theorem can be used to rate the risk of lending money to potential borrowers.
Bayes’ theorem is also called Bayes’ Rule or Bayes’ Law and is the foundation of the field of Bayesian statistics.