Oil explorers order seismic tests to determine whether oil is likely to be found in a certain drilling area. These seismic tests have a known reliability: When oil exists the tests indicate so 85% of the time and when oil does not exist the tests will erroneously indicate that it exists 10% of the time. The explorer believes that there is a 40% chance oil exists in the test area. If a test is conducted and indicates the presence of oil, what is the probability that oil really exists?
- According to http://www.gasandoil.com/goc/news/ntl50398.htm , accessed on Feb 2, 2005,
“17-12-04 Jamaica has found signs of oil in 10 exploratory wells drilled into deep underground structures. Now it's come to Houston looking for oil companies willing to help the island nation, which depends heavily on tourism, bauxite and alumina, to become the world's next oil and natural gas producer. Hopeful Jamaican officials traveled to Houston promoting the nation's first formal license round, offering 22 offshore blocks and four on-shore blocks. "There are plenty of reserves yet to be found -- exploration in new frontiers is now warranted," said Raymond Wright of the Petroleum Corporation of Jamaica, reflecting on the world's supply dilemma.
Oil explorers order seismic tests to determine whether oil is likely to be found in a certain drilling area. These seismic tests have a known reliability: When oil exists the tests indicate so 85% of the time and when oil does not exist the tests will erroneously indicate that it exists 10% of the time. The explorer believes that there is a 40% chance oil exists in the test area. If a test is conducted and indicates the presence of oil, what is the probability that oil really exists?
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