## ABSTRACT

This chapter discusses the role of theory in historical reasoning and considers some of the problems of quantifying and testing historical hypotheses. It briefly explains the reference to "the Bayesian approach" and examines more closely some of the technical aspects of statistical explanation in history. The basic theorem in the inductive system is the progeny of an eighteenth-century dissenting minister, Thomas Bayes, of Tunbridge Wells. Thomas Bayes's fundamental theorem, which is sometimes referred to as the "Principle of Inverse Probability," tells that the probability to be assigned to an unknown or hypothesized event, after some evidence has been observed. The probability of finding parallel prices is greater in general than it would be under the specific condition of inefficiency. Each revision has been a posterior probability in the Bayesian sense, posterior to the observation of a specific, singular piece of historical evidence.