5: Discrete Probability Functions

Question 1

What is a discrete random variable versus a continuous random variable?

Answer 1

Discrete is where there are a countable number of distinct values.

Continuous are uncountable values (such as weight or height).

Question 2

What is a probability mass function?

Answer 2

A table showing all the possible values of the function against their associated probabilities

Question 3

What doing standard deviation on discrete random variables, what is something that you need to remember?

Answer 3

That you multiply each outcomes square by the probability (instead of dividing by n)

Question 4

What is the difference between risk neutrality and risk aversion?

Answer 4

If someone is risk neutral, they ignore risk and focus on expected gains.

A risk averse consumer depends on compensation for taking risk.

Risk loving is willing to have a negative expected gain for risk (casino)