Empirical Probability Definition
Empirical probability refers to an estimated probability that considers the number of occurrences that an outcome has in a sample set. This is further used for knowing the probability of that very outcome. In simpler words, if the event X occurs a given number of times out of 100 trials, it will be the probability that event X will take place. The concept of empirical probability is associated with an event’s relative frequency.
Empirical proofs need to be obtained for proving or disproving a theory. The empirical study uses the real market data for further analysis. For instance, the empirical research performed on the capital asset pricing model provides somewhat mixed outcomes.
There are some cases that state this empirical approach is not applicable in real world scenarios. Most of the researchers have rejected this model for predicting returns on investments. Though the model is not totally authenticated, but it doesn’t mean that the CAPM model doesn’t offer any advantage. For example, the CAPM ascertains the weighted average cost of capital of a business organization.