Random Variables. 8.1 What is a Random Variable? Announcements: Chapter 8

Similar documents
Chapter 5 Student Lecture Notes 5-1

II. Random Variables. Variable Types. Variables Map Outcomes to Numbers

Random Variables. b 2.

PhysicsAndMathsTutor.com

Probability Distributions. Statistics and Quantitative Analysis U4320. Probability Distributions(cont.) Probability

Measures of Spread IQR and Deviation. For exam X, calculate the mean, median and mode. For exam Y, calculate the mean, median and mode.

Mathematical Thinking Exam 1 09 October 2017

MgtOp 215 Chapter 13 Dr. Ahn

Financial mathematics

Midterm Exam. Use the end of month price data for the S&P 500 index in the table below to answer the following questions.

Homework 9: due Monday, 27 October, 2008

Linear Combinations of Random Variables and Sampling (100 points)

Likelihood Fits. Craig Blocker Brandeis August 23, 2004

Problem Set 6 Finance 1,

Chapter 3 Student Lecture Notes 3-1

Final Exam. 7. (10 points) Please state whether each of the following statements is true or false. No explanation needed.

Analysis of Variance and Design of Experiments-II

Notes on experimental uncertainties and their propagation

Survey of Math Test #3 Practice Questions Page 1 of 5

OCR Statistics 1 Working with data. Section 2: Measures of location

Quiz on Deterministic part of course October 22, 2002

Number of women 0.15

Chapter 3 Descriptive Statistics: Numerical Measures Part B

occurrence of a larger storm than our culvert or bridge is barely capable of handling? (what is The main question is: What is the possibility of

Data Mining Linear and Logistic Regression

Standardization. Stan Becker, PhD Bloomberg School of Public Health

Consumption Based Asset Pricing

Mode is the value which occurs most frequency. The mode may not exist, and even if it does, it may not be unique.

UNIVERSITY OF VICTORIA Midterm June 6, 2018 Solutions

THIRD MIDTERM EXAM EC26102: MONEY, BANKING AND FINANCIAL MARKETS MARCH 24, 2004

COS 511: Theoretical Machine Learning. Lecturer: Rob Schapire Lecture #21 Scribe: Lawrence Diao April 23, 2013

CHAPTER 3: BAYESIAN DECISION THEORY

3: Central Limit Theorem, Systematic Errors

Lecture Note 2 Time Value of Money

ECE 586GT: Problem Set 2: Problems and Solutions Uniqueness of Nash equilibria, zero sum games, evolutionary dynamics

Correlations and Copulas

Elements of Economic Analysis II Lecture VI: Industry Supply

iii) pay F P 0,T = S 0 e δt when stock has dividend yield δ.

Tests for Two Correlations

THIS PAPER SHOULD NOT BE OPENED UNTIL PERMISSION HAS BEEN GIVEN BY THE INVIGILATOR.

Problems to be discussed at the 5 th seminar Suggested solutions

02_EBA2eSolutionsChapter2.pdf 02_EBA2e Case Soln Chapter2.pdf

Introduction to PGMs: Discrete Variables. Sargur Srihari

Education Maintenance Allowance (EMA) 2018/19

OPERATIONS RESEARCH. Game Theory

Which of the following provides the most reasonable approximation to the least squares regression line? (a) y=50+10x (b) Y=50+x (d) Y=1+50x

3/3/2014. CDS M Phil Econometrics. Vijayamohanan Pillai N. Truncated standard normal distribution for a = 0.5, 0, and 0.5. CDS Mphil Econometrics

Understanding Annuities. Some Algebraic Terminology.

Digital assets are investments with

4. Greek Letters, Value-at-Risk

Examining the Validity of Credit Ratings Assigned to Credit Derivatives

Money, Banking, and Financial Markets (Econ 353) Midterm Examination I June 27, Name Univ. Id #

Chapter 5 Bonds, Bond Prices and the Determination of Interest Rates

Simple Regression Theory II 2010 Samuel L. Baker

Solutions to Odd-Numbered End-of-Chapter Exercises: Chapter 12

FM303. CHAPTERS COVERED : CHAPTERS 5, 8 and 9. LEARNER GUIDE : UNITS 1, 2 and 3.1 to 3.3. DUE DATE : 3:00 p.m. 19 MARCH 2013

Lecture 7. We now use Brouwer s fixed point theorem to prove Nash s theorem.

An Application of Alternative Weighting Matrix Collapsing Approaches for Improving Sample Estimates

Trivial lump sum R5.0

Chapter 11: Optimal Portfolio Choice and the Capital Asset Pricing Model

Survey of Math: Chapter 22: Consumer Finance Borrowing Page 1

Economic Design of Short-Run CSP-1 Plan Under Linear Inspection Cost

Trivial lump sum R5.1

ISyE 512 Chapter 9. CUSUM and EWMA Control Charts. Instructor: Prof. Kaibo Liu. Department of Industrial and Systems Engineering UW-Madison

EXAMINATIONS OF THE HONG KONG STATISTICAL SOCIETY

Tests for Two Ordered Categorical Variables

2. Compute Compound Interest

Finance 402: Problem Set 1 Solutions

Scribe: Chris Berlind Date: Feb 1, 2010

CS 286r: Matching and Market Design Lecture 2 Combinatorial Markets, Walrasian Equilibrium, Tâtonnement

Elton, Gruber, Brown, and Goetzmann. Modern Portfolio Theory and Investment Analysis, 7th Edition. Solutions to Text Problems: Chapter 9

Teaching Note on Factor Model with a View --- A tutorial. This version: May 15, Prepared by Zhi Da *

Welsh Government Learning Grant Further Education 2018/19

Education Maintenance Allowance (EMA) 2017/18 Notes to help you complete the Financial Details Form

15-451/651: Design & Analysis of Algorithms January 22, 2019 Lecture #3: Amortized Analysis last changed: January 18, 2019

FORD MOTOR CREDIT COMPANY SUGGESTED ANSWERS. Richard M. Levich. New York University Stern School of Business. Revised, February 1999

Supplementary material for Non-conjugate Variational Message Passing for Multinomial and Binary Regression

Graphical Methods for Survival Distribution Fitting

/ Computational Genomics. Normalization

Hewlett Packard 10BII Calculator

Option pricing and numéraires

Applications of Myerson s Lemma

Economics 1410 Fall Section 7 Notes 1. Define the tax in a flexible way using T (z), where z is the income reported by the agent.

PASS Sample Size Software. :log

Multifactor Term Structure Models

Spatial Variations in Covariates on Marriage and Marital Fertility: Geographically Weighted Regression Analyses in Japan

Merton-model Approach to Valuing Correlation Products

Interval Estimation for a Linear Function of. Variances of Nonnormal Distributions. that Utilize the Kurtosis

TCOM501 Networking: Theory & Fundamentals Final Examination Professor Yannis A. Korilis April 26, 2002

YORK UNIVERSITY Faculty of Science Department of Mathematics and Statistics MATH A Test #2 November 03, 2014

General Examination in Microeconomic Theory. Fall You have FOUR hours. 2. Answer all questions

Sequential equilibria of asymmetric ascending auctions: the case of log-normal distributions 3

Using Conditional Heteroskedastic

AS MATHEMATICS HOMEWORK S1

A Bootstrap Confidence Limit for Process Capability Indices

Facility Location Problem. Learning objectives. Antti Salonen Farzaneh Ahmadzadeh

2) In the medium-run/long-run, a decrease in the budget deficit will produce:

Chapter 6 Risk, Return, and the Capital Asset Pricing Model

Members not eligible for this option

Bid-auction framework for microsimulation of location choice with endogenous real estate prices

Transcription:

Announcements: Quz starts after class today, ends Monday Last chance to take probablty survey ends Sunday mornng. Next few lectures: Today, Sectons 8.1 to 8. Monday, Secton 7.7 and extra materal Wed, Secton 8.4 and extra materal Homework (Due Mon, Feb 11): Chapter 8: #14abc, 18, 6 Chapter 8 Random Varables 8.1 What s a Random Varable? Random Varable: assgns a number to each outcome of a random crcumstance, or, equvalently, to each unt n a populaton. Two dfferent broad classes of random varables: 1. A contnuous random varable can take any value n an nterval or collecton of ntervals.. A dscrete random varable can take one of a countable lst of dstnct values. Notaton for ether type: X, Y, Z, W, etc. Examples of Dscrete Random Varables Assgns a number to each outcome n the sample space for a random crcumstance, or to each unt n a populaton. 1. Couple plans to have chldren. The random crcumstance ncludes the brths, specfcally the sexes of the chldren. Possble outcomes (sample space): {BBB, BBG, etc.} X = number of grls X s dscrete and can be 0, 1,, For example, the number assgned to BBB s X=0. Populaton conssts of UCI students (unt = student) Y = number of sblngs a student has Y s dscrete and can be 0, 1,,?? 4 Examples of Contnuous Random Varables Assgns a number to each outcome of a random crcumstance, or to each unt n a populaton. 1. Populaton conssts of UC female students Unt = female student W = heght W s contnuous can be anythng n an nterval, even f we report t to nearest nch or half nch. You are watng at a bus stop for the next bus Random crcumstance = when the bus arrves Y = tme you have to wat Y s contnuous anythng n an nterval Today: Dscrete Random Varables X = the random varable (r.v.), such as number of grls. k = a number the dscrete r. v. could equal (0, 1, etc). P(X = k) s the probablty that X equals k. Example (shown on board): Two Clcker questons wth 4 choces each X = ponts earned f you are just guessng. What are the possble values for k? Probablty dstrbuton functon (pdf) for a dscrete r.v. X s a table or rule that assgns probabltes to possble values of X. 1

Dscrete random varables, contnued NOTE: Sometmes the probabltes are gven or observed, and sometmes you have to compute them usng rules from Ch. 7. Probablty dstrbuton functon (pdf) for clcker ponts, shown on board, computed usng rules from Chapter 7. Cumulatve dstrbuton functon (cdf) s a rule or table that provdes P(X k) for every real number k. (More useful for contnuous random varables than for dscrete, as we wll see.) Condtons for Probabltes for Dscrete Random Varables Condton 1 The sum of the probabltes over all possble values of a dscrete random varable must equal 1. Condton The probablty of any specfc outcome for a dscrete random varable, P(X = k), must be between 0 and 1. Note: The possble values of k are mutually exclusve Ex: For clcker questons, you can t earn both ponts and 4 ponts. Another example of computng the PDF and CDF from Chapter 7 Rules Example: You buy tckets for the Daly lottery (dfferent days) Probablty that you wn each tme s 1/1000 =.001 Results on the two days are ndependent. X = number of wnnng tckets you have X could be 0, 1,. P(X = 0) = (.999) =.998001, (Rule b), 998,001 n a mllon P(X = ) = (.001) =.000001, (Rule b), 1 n a mllon P(X = 1) = 1 P(X = 0 or X = ) = 1 (.998001 +.000001) =.001998 (Rule 1), 1998 n a mllon PDF and CDF for Buyng Two Lottery Tckets k pdf P(X=k) cdf P(X k) 0.998001.998001 1.001998.999999.000001 1.0 For example, probablty of exactly one wnnng tcket s.001998, but probablty of less than or equal to one wnnng tcket s.999999. Example of usng observed proportons to create a pdf Survey of 17 students n ntroductory statstcs: k Number wth k sblngs pdf P(X=k) cdf P(X k) 0 14 14/17 =.08.08 1 68 68/17 =.9.9 +.08 =.47 5.1.47 +.1 =.78 1.1.90 4 8.05.95 5 6.0.98 6.0 1.00 Clcker data collecton (non credt) How many sblngs (brothers and ssters) do you have? Count half-sblngs (share one parent), but not step sblngs. A. 0 B. 1 C. D. E. 4 or more

Graph of pdf for number of sblngs (wth frequency nstead of relatve frequency) Compare class results. proporton k P(X=k) 0.08 1.9.1.1 4.05 5.0 6.0 More Complcated Examples for Dscrete R.V.s Probablty dstrbuton functon (pdf) X s a table or rule that assgns probabltes to possble values of X. Usng the sample space to fnd probabltes: Step 1: Lst all smple events n sample space. Step : Fnd probablty for each smple event. Step : Lst possble values for random varable X and dentfy the value for each smple event. Step 4: Fnd all smple events for whch X = k, for each possble value k. Step 5: P(X = k) s the sum of the probabltes for all smple events for whch X = k. Example: Sblng blood types Suppose: Father has OO (type O blood) Mother has OA (type A blood; A s domnant) They have chldren. Let X = number wth Blood type A. Each chld equally lkely to nhert: Father Mother Chld blood type O O Blood type O O A Blood type A So, each chld has Type O or Type A, each wth probablty ½, ndependent across chldren. Example: Sblng blood types Famly has chldren. Probablty of type A s ½ for each chld. What are the probabltes of 0, 1,, or wth type A? Sample Space: For each chld, wrte ether O or A. There are eght possble arrangements of O and A for three brths. These are the smple events. S = {OOO, OOA, OAO, AOO, OAA, AOA, AAO, AAA} Sample Space and Probabltes: The eght smple events are equally lkely. Each has probablty (1/)(1/)(1/) = 1/8 Random Varable X: number of Type A n three chldren. For each smple event, the value of X s the number of A s lsted. How Many Chldren wth Type A? Value of X for each smple event: Smple Event OOO OOA OAO AOO OAA AOA AAO AAA Probablty 1/8 1/8 1/8 1/8 1/8 1/8 1/8 1/8 X = # Type A 0 1 1 1 Probablty dstrbuton functon for X = # of Type A: Cumulatve Dstrbuton Functon for number of Type A: Cumulatve dstrbuton functon (cdf) provdes the probabltes P(X k) for any real number k. Cumulatve probablty = probablty that X s less than or equal to a partcular value. /8 Example: Cumulatve Dstrbuton Functon for the Number of Kds wth Type A Graph of the pdf of X: Probablty /8 1/8 0 For example, the probablty s 7/8 that kds have Type A. 0 1 Numbe r of Ty pe A

8. Expected Value (Mean) for Random Varables The expected value of a random varable s the mean value of the varable X n the sample space, or populaton, of possble outcomes. If X s a random varable wth possble values x 1, x, x,..., occurrng wth probabltes p 1, p, p,..., then the expected value of X s calculated as X x p Example of expected value Number of sblngs for ntro stat students: x p x p 0 14/17 =.08.00 1 68/17 =.9.9.1.6.1.6 4.05.0 5.0.15 6.0.1 Sum = 1.0 Sum = 1.84 X = 1.84 x p = mean number of sblngs Expected value = mean value s where the pcture of the pdf balances 1.84 Other examples of expected value Example 1: How much better off are you dong clcker questons nstead of quz each week? Just guessng for questons on clcker, quz X = clcker, Y = quz; Clcker: 1 pont for answerng, 1 pont for gettng t rght. Quz: ponts for gettng t rght (no ponts for answerng) E(X)=.5, E(Y)=1, (on board) EXAMPLE : Raffle tcket costs $.00. You wn $5.00 wth probablty 10/100, so net gan = $ $100 wth probablty 1/100, so net gan = $98 Nothng wth probablty 89/100, so net gan = $ X = net gan. What s E(X)? X x p =$ (10/100) + $98 (1/100) $.00 (89/100) = $(0 + 98 178)/100 = $50/100 A loss of 50 cents on average for each $.00 tcket. People runnng the raffle gan 50 cents per tcket. Should you buy extended warrantes? You buy a new applance, computer, etc. Extended warranty for a year costs $10. Unknown to you, the probablty you wll need a repar s 1/50, and t wll cost $00 f you do. Is the warranty a good deal? X = your cost to repar the tem. k P(X = k) k P(X=k) $00 1/50 $00/50 $0 49/50 0/50 E(X) = $00/50 = $4.00 If you buy the warranty your cost s fxed at $10. If you don t, your cost s ether $00 or $0, but the long run average s $4.00 4

Notes about expected value It s the average or mean value of the random varable over the long run. It may not be an actual possble value for the random varable (usually t sn t; e.g. 1.84 sbs). In gamblng, lotteres, nsurance, extended warranty, etc., you can be pretty sure that your expected cost per event f you play or buy s more than f you don t the house wns! However, for nsurance, for example, you mght prefer the peace of mnd of knowng your fxed cost. For lottery, you mght want the thrll of the possblty of wnnng, even though you lose on average. Standard Devaton for a Dscrete Random Varable The standard devaton of a random varable s essentally the average dstance the random varable falls from ts mean over the long run. If X s a random varable wth possble values x 1, x, x,..., occurrng wth probabltes p 1, p, p,..., and expected value E(X) =, then Varance of X V Standard Devaton of X x p X x p Example 8.1 Gan for an nvestment Should you choose rsky nvestments? Investng $100 whch plan would you choose? Varablty over the years of nvestng Very dfferent standard devatons for the two plans: Same Expected Value for each plan: Plan 1: E(X ) = $5,000 (.001) + $1,000 (.005) + $0 (.994) = $10.00 Plan : E(Y ) = $0 (.) + $10 (.) + $4 (.5) = $10.00 Plan 1: Varance of X = $9,900.00 and = $17.9 Plan : Varance of X = $48.00 and = $6.9 The possble outcomes for Plan 1 are much more varable. If you wanted to nvest cautously, you would choose Plan, If you wanted to have the chance to gan a large amount of money, you would choose Plan 1. Notes about standard devaton Smlar to when we used standard devaton for data n Chapter, t s most useful for normal random varables (next week). In general, useful for comparng two random varables to see whch s more spread out. Examples: Compare two ctes temperatures over the year: Cty #1: Mean = 65, st. dev. = Cty #: Mean = 65, st. dev. = 0 Compare two nvestment funds: Fund #1: Mean rate of return = 8%, st. dev. = % Fund #: Mean rate of return = 10%, st. dev. = 0% HOMEWORK (due Mon, Feb 11): 8.14abc 8.18 8.6 5