Beruflich Dokumente
Kultur Dokumente
OUTLINE of Set 1
1.1 Overview: what is this course about: - subject matter - philosophical connections - prerequisites and HW1 - expected outcome of this course 1.2 Historical Perspective 1.3 Motivation for Empirical Knowledge 1.4 General Experimental Procedure for Estimating Models from Data
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Conceptual Issues
Any theory (or model) has two aspects:
1. explanation of past data (observations) 2. prediction of future (unobserved) data
Background: philosophy
William of Ockham: entities should not be multiplied beyond necessity
Epicurus of Samos: If more than one theory is consistent with the observations, keep all theories
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Background: philosophy
Thomas Bayes: How to update/ revise beliefs in light of new evidence
Karl Popper: Every true (inductive) theory prohibits certain events or occurences, i.e. it should be falsifiable
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Background: philosophy
George W. Bush: I am The Decider
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Background: philosophy
Bill Clinton: I told the Truth
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Homework 1
Purpose: testing background on probability and computer skills Goal: estimate pdf of a random variable X Real Data: X=daily price changes of SP500
i.e. X (t )
Z (t ) Z (t 1) 100 % where Z(t) = closing price Z (t 1)
(contd) Homework 1
Histogram = estimated pdf (from data)
Example: histograms of 5 and 30 bins to model N(0,1) also mean and standard deviation (estimated from data)
100 80 60 40 20 0 -3
-2
-1
-2
-1
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(contd) Homework 1
NOTE: histogram ~ empirical pdf, i.e. scale of y-axis scale is in % (frequency). See histogram of SP500 daily price changes in 1981:
1981
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%
-2.00%
-1.80%
-1.60%
-1.40%
-1.20%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
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Homework 1 (background)
Is the stock market truly random? - model daily price changes of SP500 as a random coin toss process - measure average trend duration, i.e. UP, DOWN,UP, DOWN,~ +1,-1,+1,-1, here average trend duration =1 day and the process is not random Calculate average trend duration for random coin toss process, compare it with the stock market, and draw conclusions
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OUTLINE of Set 1
1.1 Overview: what is this course about
Newton and causal determinism Probability theory and statistics (20th century) Modern science (A. Einstein) Goal of science: estimating a true model or system identification
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Human Generalization
All men by nature desire knowledge - Aristotle Example 1: continue given sequence 6, 10, 14, 18,. Example 2: Sceitnitss osbevred: it is nt inptrant how lteters are msspled isnide the word. It is ipmoratnt that the fisrt and lsat letetrs do not chngae, tehn the txet is itneprted corrcetly
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Human Generalization
Example 3:
The Dictator Emily Cherkassky
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c1 x
c2 y
c3 xy c4 x c5 y c6
0
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OUTLINE of Set 1
1.1 Overview: what is this course about 1.2 Historical Perspective 1.3 Motivation for Empirical Knowledge - human (scientific) knowledge - growth of empirical knowledge - the nature of human knowledge 1.4 General Experimental Procedure for Estimating Models from Data
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"The dollar saw an after-the-fact selloff following better-thanexpected retail-sales numbers for December," Naomi Fink, currency strategist at BNP Paribas, said. "More likely than not, investors felt as though the dollar's threeday rally preceding the release had compensated adequately for the upside surprise," she said
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Compare:
First Principle Knowledge Example: Newtons Law of Gravity Empirical Knowledge Example: my wifes successful betting Question for Discussion: What is the difference btwn the two approaches to knowledge discovery?
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Summary
First-principles knowledge (taught at school): deterministic relationships between a few concepts (variables) Importance of empirical knowledge: - statistical in nature - (possibly) many variables Goal of modeling: to act/perform well, rather than system identification
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