3.2 Random Variables

SW 2.1

A random variable is a numerical summary of some random event.

Some examples:

  • Outcome of roll of a die

  • A person’s height in inches

  • A firm’s profits in a particular year

  • Creating a random variable sometime involves “coding” non-numeric outcomes, e.g., setting hair=1 if a person’s hair color is black, hair=2 if a person’s hair is blonde, etc.

We’ll generally classify random variables into one of two categories

  • Discrete — A random variable that takes on discrete values such as 0, 1, 2

  • Continuous — Takes on a continuum of values

These are broad categories because a lot of random variables in economics sit in between these two.