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Decision Theory

M

maryam

Member
Dear All,
Please can anyone explain to me if am going to use transition matrix and how to get the transition matrix to solve the example am quoting below on page 19 of the course note.

I have tried to relate it to the example worked on the core reading but am making no headway and its really disturbing me from reading ahead.

A statistician is observing values from a Bin(2,p ) distribution. He knows that p is equal either to ¼ or to ½, and he is trying to choose between these two values. He observes a single value x from the distribution. He proposes to use one of the following four decision functions: etc.......
 
maryam, if you can be a bit more specific about which bit of the question it is that you can't work out, I can definitely help. But at the moment I'm not sure which bit it is you are struggling with - is it the decision functions or the risk functions? Which particular value are you having problems with? I don't want to write an essay on the subject!!!

Anna
 
I have also the same dought regarding the same question.
I am not able to resolve the que. given in Question Answer Bank,
Ch.1, Que. no.1.6 Solu. of (ii) page no.7 of solution.

Plzzzzzzzzzz. help me to resolve.
 
Q&A 1.6

Here's the question: A statistician has to decide on the basis of a single observation from a Bin(1, theta) distribution whether the value of theta is ¼, ½ or ¾ . The loss suffered in the event of a wrong decision is 200 times the absolute value of the error made.

Solution


Loss matrix

Actual value of theta
1/4 1/2 3/4

0 50 100 (if statistician decides theta = 1/4)

50 0 50 (if statistician decides theta = 1/2)

100 50 0 (if statistician decides theta = 3/4)


For example, take the loss of 50 in the first row. This comes from 200 times the error made = 200 * (1/2 - 1/4) = 50.

Observations

The statistician must make a decision based on a single observation from
Bin (1, theta). Call that observation X. The values that X can take from this distribution are 0 and 1.

Now, according to a Bin(1, theta) distribution:

P(X = 0) = theta^0 x (1-theta)^1 = 1 - theta
and P(X = 1) = theta^1 x (1-theta)^0 = theta


So note, the lower theta is, the bigger the P(X = 0).

Decision table

Suppose the observation is X = 0. A sensible decision would be that theta = 1/4. Suppose the observation is X = 1. A sentible decision would be that theta = 3/4.

But this is just one of many decisions. In fact there are nine possible decisions:

Observation
X = 0 X = 1

1/4 1/4 (d1)
1/2 1/2 (d2)
3/4 3/4 (d3)
1/4 1/2 (d4)
1/4 3/4 (d5)
1/2 1/4 (d6)
1/2 3/4 (d7)
3/4 1/4 (d8)
3/4 1/2 (d9)

The sensible decision we referred to earlier is decision 5 (d5).

Risk function

A risk function is defined as the expected loss given a particular decision and a particlar actual value of theta. Call the risk function R.

R(d1, 1/4) = expected loss given the statistician makes decision 1 and the actual value of theta is 1/4.

How do we work out an expected loss? Expected loss is the sum of the losses times the associated probabilities.

If the statistician makes decision d1 then he decides (from the decision table) that theta is 1/4 if X = 0 and theta is 1/4 if X = 1.

If the actual value of theta is 1/4 then the loss the statistician makes (from the loss table) in both cases is 0.

So R(d1, 1/4) = 0 x P(X = 0) + 0 x P(X = 1)
= 0 x (1 - theta) + 0 x theta
= 0 x 3/4 + 0 x 1/4
= 0

Let's try another:

R(d4, 3/4) means the statistician has made decision 4 and the actual state of theta is 3/4.

If the statistician makes decision d4 then he decides (from the decision table) that theta is 1/4 if X = 0 and theta is 1/2 if X = 1.

If the actual value of theta is 3/4 then the loss the statistician makes (from the loss table) is 100 if X = 0 and 50 if X = 1.

So R(d4, 3/4) = 100 x P(X = 0) + 50 x P(X = 1)
= 100 x (1 - theta) + 50 x theta
= 100 x 1/4 + 50 x 3/4
= 62.5

There are 27 risk functions in total, since there are 9 decisions and 3 possible actual values of theta.

In the table below, I've highlighted in red the two numbers we've calculated.

The completed risk function table is as follows:

Actual value of theta
1/4 1/2 3/4

0 50 100 (d1)
50 0 50 (d2)
100 50 0 (d3)
12.5 25 62.5 (d4)
25 50 25 (d5)
62.5 25 12.5 (d6)
37.5 25 87.5 (d7)
75 50 75 (d8)
87.5 25 37.5 (d9)

Minimax

The max expected loss for each decision (reading from the above risk function table) is:

d1 100
d2 50
d3 100
d4 62.5
d5 50
d6 62.5
d7 87.5
d8 75
d9 87.5

The decisions that minimises the max expected loss are d2 and d5.

Bayes criterion solution

Prob (theta = 1/4) = 1/3
Prob (theta = 1/2) = 1/3
Prob (theta = 3/4) = 1/3

Actual value of theta
1/4 1/2 3/4

0 50 100 (d1)
50 0 50 (d2)
100 50 0 (d3)
12.5 25 62.5 (d4)
25 50 25 (d5)
62.5 25 12.5 (d6)
37.5 25 87.5 (d7)
75 50 75 (d8)
87.5 25 37.5 (d9)

To find the Bayes criterion solution, we need to work out the expected value of the risk function for each decision.

Eg, decision 1

E[R] = 0 x 1/3 + 50 x 1/3 + 100 x 1/3 = 50

etc

Then find the decision that minimises E[R]. This turns out to be a tie between decisions 2, 4, 5 and 6.

Are you sorted on this question now? Try the similar ones in the notes and in the X assignment and let me know. :confused:

Anna
 
Last edited:
Thanks SO MUCH! I've actually been trying to figure this out since before the April session of CT6 and there was a BIG decision function ques. in that paper, so that was a big reason I didn't pass.
Thanks again.
 
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