Probability Tree and Conditional Expectation Flashcards
What is the “expected value” of a random variable?
The probability-weighted average of the possible outcomes of a random variable.
What is the “variance” of a random variable?
The expected value (the probability-weighted average) of squared deviations from a random variable’s expected value.
What is a “Conditional Expected Value”?
The expected value of a stated event given that another event has occurred
What is a “Probability Tree Diagram”?
A diagram with branches emanating from notes representing either mutually exclusive chance events or mutually-exclusive decisions.
[With respect to a probability tree]
What is a node?
Each value on a binomial tree from which successive moves or outcomes branch.
What are conditional variances?
the variance of one variable, given the outcome of another.
What is Bayes’ formula?
What are “Prior Probabilities”?
Probabilities reflecting beliefs prior to the arrival of new information.
What does “Likelihood” mean?
The probability of an observation, given a set of conditions.
What does “Posterior Probability” mean?
An updated probability that reflects or comes after new information.
What does “Diffuse Prior” mean?
The assumption of equal prior probabilities.
