(1) Can Amazon Read Your Mind? (Doane and Seward, 2018, Applied Statistics in Business and Economic)

You go toAmazon.com(Links to an external site.)

to purchase a copy ofEugenie Grandetby Honore de Balzac. Amazon offers you 714 online choices (new, used, various vendors). But Amazon also recommends that you consider buying a copy ofHedda Gablerby Henrik Ibsen orMadame Bovaryby Gustave Flaubert. How did they decide on these suggestions?

The answer is that Amazon has a matrix (like an Excel pivot table) that keeps track of the frequency ofcopurchaseditems (e.g., books, music, DVDs) for web shoppers. Probabilities derived from the cells in this contingency table are used to recommend products that are likely to be of interest to you, assuming that you are "like" other buyers. While such predictions of your behavior are only probabilistic, even a modest chance of landing extra sales can make a difference in bottom-line profit. There are even more sophisticated logic engines that can track your web clicks. Is this an invasion of your privacy? Does it bother you to think that you may be predictable? Interestingly, many consumers don't seem to mind, and actually find value in this kind of statistical information system.

Based on the example given above, how conditional probability, decision tree, and Bayes theorem will you apply in your business decision making process? Discuss.

(2) What do you think about subjective and empirical probability and which is mostly used in the business world?