What's the Chance That the Patient Has the Disease? - The Answer

(Solution Hidden)

Most people answer that the chance of the patient having the disease is 95%, since the test has 5% false positives.

The correct answer, however, is that the patient has about a 2% chance.

This is because, out of 1,000 people, 1 person would actually have the disease. Out of the other 999, 50 will be falsely identified as having the disease (the 5% false positives).

So, the chance that the patient actually has the disease is 1/51 (about 2%).

This kind of probability mistake could have consequences because a doctor who thinks a patient has a 95% chance (as opposed to 2% chance) of getting a disease might recommend a drug with side effects.

Taleb is an options trader/mathematician/philosopher who likes to discuss markets, mathematics, and probability. He has gotten famous during the financial crisis, because he feels that economists and Wall Street underestimate financial risk.

Besides "Fooled by Randomness", he wrote the best-selling book "The Black Swan: The Impact of the Highly Improbable".

On my trading blog, I have a post about Taleb.