1-23-09 - Economic Statistics Class Notes 1/23/09 Numerical...

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Economic Statistics – Class Notes – 1/23/09 Numerical Example: The Importance of the Variance – Suppose you have two job offers: o Company A – Average starting salary is $35,000 o Company B – Average starting salary is $40,000
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Company B – has a larger variance: P(salary < $35,000) = 0.286 or 28.6% Riskier than company A because of the wider variance Company A – has a smaller variance: P(salary < $35,000) = 0.05 or 5.0% For those who are risk averse , COMPANY A is a safer choice because the probability of getting a salary that is less than $35,000 is 5% IDEA : Do NOT just look at the average, always look at the VARIANCE too! C. Random Variables and Probability Distributions 1. Probability – A number between 0 and 1 that indicates how likely an event will occur 2. Random Variable – A well defined rule for assigning a numerical value to the outcome of an experiment. a.
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This note was uploaded on 06/03/2009 for the course ECON 203 taught by Professor Casler during the Spring '09 term at Allegheny.

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1-23-09 - Economic Statistics Class Notes 1/23/09 Numerical...

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