MPS and Probability: Difference between pages

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Marginal propensity to save.
The study of chance providing an objective measure of uncertainty.
 
 
Probabilities range between 1 (=100%) and 0 (=0%). 
 
A probability of 100% means that an event is considered certain to occur.
 
A probability of 0% means that an event is considered certain not to occur. 
 
 
For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.
 
 
This simple model of a coin flip assumes that the only two possibilities are a head or a tail.  Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:
 
#The coin landing on its edge 'more often than it's supposed to'.
#The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.




== See also ==
== See also ==
* [[Marginal propensity to save]]
* [[Black swan]]
* [[Conditional probability]]
* [[Confidence interval]]
* [[Frequency distribution]]
* [[Mutually exclusive]]
* [[Poisson distribution]]

Revision as of 15:19, 8 June 2016

The study of chance providing an objective measure of uncertainty.


Probabilities range between 1 (=100%) and 0 (=0%).

A probability of 100% means that an event is considered certain to occur.

A probability of 0% means that an event is considered certain not to occur.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


This simple model of a coin flip assumes that the only two possibilities are a head or a tail. Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:

  1. The coin landing on its edge 'more often than it's supposed to'.
  2. The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.


See also