12 terms

# Mathematics

#### Terms in this set (...)

Bayes Theorem
describes the probability of an event, based on conditions that might be related to the event. For example, suppose one is interested in whether a person has cancer, and knows the person's age. If cancer is related to age, then, using Bayes' theorem, information about the person's age can be used to more accurately assess the probability that they have cancer.

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Power Law
a power law is a functional relationship between two quantities, where a relative change in one quantity results in a proportional relative change in the other quantity, independent of the initial size of those quantities: one quantity varies as a power of another.

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Law of large numbers
describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value, and will tend to become closer as more trials are performed.

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Compounding
Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

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Probability Theory
the analysis of random phenomena. The central objects of probability theory are random variables, stochastic processes, and events: mathematical abstractions of non-deterministic events or measured quantities that may either be single occurrences or evolve over time in an apparently random fashion.

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Permutations
relates to the act of arranging all the members of a set into some sequence or order, or if the set is already ordered, rearranging (reordering) its elements, a process called permuting.

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Combinations
a way of selecting items from a collection, such that (unlike permutations) the order of selection does not matter. In smaller cases, it is possible to count the number of combinations. For example, given three fruits, say an apple, an orange, and a pear, there are three combinations of two that can be drawn from this set: an apple and a pear; an apple and an orange; or a pear and an orange.

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Variability
The extent to which data points in a statistical distribution or data set diverge from the average or mean value. Variability also refers to the extent to which these data points differ from each other. There are four commonly used measures of variability: range, mean, variance and standard deviation.

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Standard Deviation
a measure that is used to quantify the amount of variation or dispersion of a set of data values. A low standard deviation indicates that the data points tend to be close to the mean (also called the expected value) of the set, while a high standard deviation indicates that the data points are spread out over a wider range of values.

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Normal Distribution
a function that represents the distribution of many random variables as a symmetrical bell-shaped graph.

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Regression to the mean
the phenomenon that if a variable is extreme on its first measurement, it will tend to be closer to the average on its second measurement—and if it is extreme on its second measurement, it will tend to have been closer to the average on its first. To avoid making incorrect inferences, regression toward the mean must be

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Inversion
it is in the nature of things that many hard problems are best solved when they are addressed backward. So what does this mean in practice? Spend less time trying to be brilliant and more time trying to avoid obvious stupidity. The kicker? Avoiding stupidity is easier than seeking brilliance.

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