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Bayesian Statistics

Prior and posterior distributions, conjugate families, MCMC, and Bayesian estimation.

Bayesian statistics provides a framework for updating beliefs as new data arrives. In actuarial science, Bayesian methods are used for credibility pricing, parameter estimation, and predictive modeling.

Key Concepts

  • •Bayes theorem: posterior proportional to likelihood times prior
  • •Prior distributions: informative, non-informative, and conjugate priors
  • •Conjugate families: beta-binomial, gamma-Poisson, normal-normal
  • •Posterior distributions: analytical solutions for conjugate families
  • •Predictive distributions: averaging over parameter uncertainty
  • •Loss functions: squared error, absolute error, and zero-one loss
  • •Bayes estimators: posterior mean, median, and mode under different losses
  • •Credibility as Bayesian estimation: the connection between credibility and posterior means
  • •MCMC methods: Gibbs sampling and Metropolis-Hastings for complex posteriors
  • •Bayesian model comparison: Bayes factors and posterior model probabilities

Study Tips

  • 1.Master conjugate prior calculations, as these appear frequently on exams.
  • 2.Practice deriving posterior distributions step by step.
  • 3.Understand the connection between Bayesian estimation and credibility theory.
  • 4.Work through predictive distribution problems for Poisson-gamma and other conjugate pairs.
  • 5.Focus on analytical solutions for exam preparation rather than MCMC implementation.

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