A Priori Probability

Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated September 30, 2020

What is A Priori Probability?

A priori probability is a method to determine the likelihood an asset's price will behave a certain way based on odds, not history.

How Does A Priori Probability Work?

A priori is Latin for "deductive" or "presumptive." An a priori probability is deduced rather than based on past behavior. In other words, the method looks to logic rather than history to determine the probability that something will happen.

For example, let's assume that Company XYZ's stock closed at $10 yesterday. Based on the last several days of trading history, the stock seems like it's on a hot streak, so investors give the stock a 66% chance of increasing again tomorrow. 

However, a priori probability, Company XYZ's stock can only do one of three things: Go up, go down or stay the same. Accordingly, there is only a 33% chance that the stock will go up tomorrow.

Why Does A Priori Probability Matter?

Generally, in the investing world, a priori probability refers to probability based on reason alone rather than perception, insight, memory or history.

Ask an Expert about A Priori Probability
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about A Priori Probability.
Be the first to ask a question

If you have a question about A Priori Probability, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about A Priori Probability, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about A Priori Probability

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms