You are on page 1of 26

# 1. Overview - What is Econometrics? (S-W Ch1)

Reasoning
and
conjecture

Observed and
stylized facts

### pressure shock cases 7 in coma, 4 death…?

data
+ statistical tools/methods
Theory (Model)

## (f) And many, many more interesting issues awaiting… “H1N1 Flu pandemic hoax(scam)”, “Renewal of the contract hosting the F1 race in SG”,

Econometrics = Economics + Metric
theory
data

# 2. Review of Probabilities (S-W Ch2) whydowecare?

2.1 Probability Space
Ω
E
.
ω
Probability Space (Sample Space), Ω

Event, E

• ## (i) a partition w/ multiple cuts (into mutually exclusive events)

E 1
E 2
E 3
F 1 F 2 F 3
F n
Ω
Ω
An example: Rolling a dice into
An example: … ?

Spring 2010

EC3303

10

• ## (i) a partition w/ multiple cuts (into mutually exclusive events)

E 1
E 2
E 3
F 1 F 2 F 3
F n
Ω
Ω
An example: Rolling a dice into
An example: … ?

• ## (b) P(Ω) = 1 for any E Ω, and

E F P(E) ≤ P(F),
P(E c ) =
1 – P(E),
P(E F) = P(E) +P(F) – P(E∩F),…
E 1 E 2
,
,

11

Spring 2010

EC3303

## (ii) multiple (overlapping) partitions (each w/ multiple cuts)

E 1
E 2
F 1
Ω
F 2
Joint probability

## (ii) multiple (overlapping) partitions (each w/ multiple cuts)

E 1
E 2
F 1
Ω
F 2
Joint probability

## P(E 1∩F 1), P(E 1∩F 2), P(E 2∩F 1), P(E 2∩F 2)

Marginal probability

E 1
E 2
F 1
Ω
F 2

## From these…

Joint probability

## P(E 1∩F 1), P(E 1∩F 2), P(E 2∩F 1), P(E 2∩F 2)

Marginal probability

## P(E 1) and P(E 2) (or likewise, P(F 1), P(F 2) )

Conditional probability
P(E 1 ∩F 1 )
P(E 1 |F 1 ) =
P(F 1 )

## (likewise, P(E 2|F 1), P(E 1|F 2), P(E 2|F 2))

### “how likely E 1to happen is oblivious of F 1”

bet n E 1 and F 1

## Statistical Independence P(E1)=P(E1|F1)( P(E 1∩F 1) = P(E 1)P(F 1))

Statistical Independence
bet n the two paritions

tested positive

tested negative

E 1
E 2
infected
99
1
F 1
not‐infeced
1,998
97,902
F 2

Ω

E
E c
• # Ω

where p = P(E)

F 1 F 2 F 3
F n

y 1

EC3303

Spring 2010

16

Y
0
1
1 – p
p
P(E c )
P(E)

## Discrete random variable finite(or countably many) values(“events”)

(Discrete dist n of a r.v.)

## Continuous random variable uncountably infinitely many values(“events”)

(Continuous dist n of a r.v.)
Expressing/Describing a prob. distribution (of a r.v. Y) :

## (i) tabulation feasible only in finite cases!

p.d.f.(probability density function)

## (iii) c.d.f.(cumulative distribution function) “range‐wiseprobability(expression)”

Expressing/Describing a prob. distribution (of a r.v. Y) :
p.m.f.(probability mass function)

## only for discrete Y!

p.d.f.(probability density function)
p
1 – p
0
1
pmf of Bernoulli(p)

## The height of pdf ≠ prob. why?

Spring 2010

EC3303

### μ

pdf of N(μ,1)

18

Expressing/Describing a prob. distribution (of a r.v. Y) :
p.m.f.(probability mass function)

## only for discrete Y!

p.d.f.(probability density function)
p
1 – p
0
1
pmf of Bernoulli(p)
“continuous version of pointwise probability ”
For each possible value x of Y
f Y (x) (≠ Pr{Y = x})
The height of pdf ≠ prob. why?
b
Rather, Pr{a ≤ Y ≤ b} = ∫ a f Y (x)dx
a
b
μ
pdf of N(μ,1)
Spring 2010
EC3303
19

|

x

## more convenience b/c always well‐defined

Expectations/Moments (of a r.v. Y)

## discrete Y with k outcomes

= ∑ y yf Y (y) ( ∫ –∞ yf Y (y)dy continuous version)
p
1 – p
0
1
μ
Spring 2010
EC3303
21
Expectations/Moments (of a r.v. Y)

Spring 2010

EC3303

22

## μ Y

Expectations/Moments (of a r.v. Y)

## the variance of Y (= the expected value of the“squared-deviations of Y from μ Y”)

discrete Y with k outcomes
continuous version)

## σ² Y=

σ Y =
√Var(Y)
the standard deviation of Y

Spring 2010

EC3303

23

Y

Y

Y

Y

# 2.3 Multiple RandomVariables (“More than one r.v.?”)

Remember! A “random variable”, Y

E
E c

where p = P(E)

F 1 F 2 F 3
F n