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.