Base Rate and False Alarms

From the book, Chapter 14. The book’s fraud alert: 1 payment in 1,000 is fraud, the system catches 99% and wrongly flags 1%. Of 100,000 payments, 99 frauds and 999 honest payments are flagged, so only about 9% of alerts are fraud. A second, independent check lifts that to about 91%. The same arithmetic applies to any screening test; if a result matters to you, ask the person who ordered it how common the condition is to begin with.