The Bayes Decision Rule is a statistical framework used to make optimal decisions under uncertainty by combining prior knowledge with new evidence to calculate posterior probabilities. In quantitative finance, Bayesian models are applied in algorithmic trading, portfolio optimisation, credit risk assessment, and fraud detection. The rule minimises expected loss by choosing the action with the highest posterior probability of a favourable outcome. As machine learning and AI-driven investing grow in India's capital markets, Bayesian methods are increasingly used by quant funds and fintech platforms to build adaptive models that continuously update predictions as new market data arrives.
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