Question

In: Finance

A cab drives down a pedestrian and leaves the scene. There are two taxi companies in...

A cab drives down a pedestrian and leaves the scene. There are two taxi companies in the city: green taxis and blue taxis.

85% of taxis are green, 15% are blue.

A witness has identified the taxi as blue. It is assumed that witnesses are able to identify the correct taxi color in 80% of the cases and mistake 20% of the cases.

What is the likelihood that the taxi involved was blue? What mistakes are common to do in this type of problem? commentary.

Solutions

Expert Solution

We know that 85% of taxis are green, 15% are blue in the city

A witness has identified the taxi as blue.

It is assumed that witnesses are able to identify the correct taxi color in 80% of the cases and mistake 20% of the cases

Therefore the chances of four possible situations

  1. There is a Green taxi and correctly identified as Green; the chance = 85% * 80% = 68%
  2. There is a Green taxi and mistaken as Blue; the chance = 85% * 20% = 17%
  3. There is a Blue taxi and correctly identified as Blue; the chance = 15% * 80% = 12%
  4. There is a Blue taxi and mistaken as Green; the chance = 15% * 20% = 3%

Therefore the likelihood that the taxi involved was blue

= Chances of Blue taxi and correctly identified as Blue / (Chances of Blue taxi and correctly identified as Blue + chance a Green taxi and mistaken as Blue)

= 12 %/( 12% + 17%)

= 12% / 29%

= 41.38%

The common mistakes in this type of problem-

  • There is a Green taxi and mistaken as Blue
  • There is a Blue taxi and mistaken as Green

As the majority (85%) of taxis are green in the city therefore the chances of green taxi is more.


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