The math for parts (a) and (b) is just Bayes' theorem.
First, compute the confusion matrix using the given prevalence, sensitivity, and specificity. Then calculate the positive predictive value (PPV) and negative predictive value (NPV). Finally, discuss how these metrics change with prevalence and the implications for base rates.
Pro tip: Always relate the result to the business context: a low PPV means many false positives, which can be costly or annoying to users, so consider precision-recall trade-offs.
Clarify that sensitivity (true positive rate) = 95%, specificity (true negative rate) = 95%, and prevalence = 5%.
Assume a population of 10,000: 500 bad, 9,500 good. Calculate true positives (475), false negatives (25), true negatives (9,025), false positives (475).
PPV = TP / (TP + FP) = 475 / (475 + 475) = 50%. NPV = TN / (TN + FN) = 9025 / (9025 + 25) = 99.7%.
Show that as prevalence increases, PPV increases and NPV decreases. For example, if prevalence = 50%, PPV = 95% and NPV = 95%.
Explain that when prevalence is low, even a highly specific test yields many false positives, so PPV is low. This is the base rate fallacy.
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