Probability Models for Economic Decisions by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 2021-06-19T16:00:00+00:00

Stdev(Y|X) = σ

where Stdev(Y|X) denotes the conditional standard deviation of Y given X. Then the marginal probability distribution of Y satisfies

These equations are applied to compute these parameters in L2:M5 of figure 6.7. These computed parameters have been used with CORAND (in O5:P5) to make a simulation of X and Y (in cells O7:P7) that is completely equivalent to the simulation that we made with regression in cells A12:B12. That is, no statistical test could distinguish between data taken from cells A12:B12 and data taken from cells O7:P7.

Notice in figure 6.7 that the standard deviation of Y (10, in cell L5) is greater than the conditional standard deviation of Y given X (the value 8 in cell B8). This inequality holds because the standard deviation is a measure of uncertainty, and learning the value of the explanatory variable X would reduce our uncertainty about the dependent variable Y.

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