Nonlinearity In Probability

In probability and statistics, you are often asked to look for the relationship between two or more variables. For example, you might expect there to be a relationship between exercise and weight -- the more you exercise, the lower your weight. It is unlikely, however, that this relationship is perfectly linear. It could be possible that weight will drop with some exercise, but that the amount it drops will decrease as you exercise more. This is an example of a nonlinear relationship that can be applied to probability.
  1. Linear Relationships

    • Before moving on to nonlinear relationships, it would be helpful to briefly discuss linear probabilities. Consider the example of flipping a coin. When flipping a coin twice, the probability of getting heads is 1/2, or 50 percent on a given flip. If you flip the coin 10 times, the probability of getting heads is 5/10, or 50 percent on a given flip. In this case, the probability of getting heads increases linearly with the number of flips, but the overall probability -- 50 percent -- remains unchanged.

    Example 1: Poisson Distributions

    • One common kind of nonlinear probability distribution is the Poisson distribution. The Poisson distribution assumes that events are clustered toward small numbers. For example, if you run an insurance company, you will be interested in the distribution of sick claims among your clients. Most people make a number of small claims, but a few make very big claims. The Poisson distribution captures this result.

    Example 2: Logistic Distributions

    • Another common example of a nonlinear probability distribution is the logistic distribution. The logistic distribution assumes that events are rare up to a certain threshold, and after that threshold, they increase, forming an S-shaped curve. The adoption of certain products follows this distribution. For example, when Google was competing with Yahoo! and Alta Vista early in its history, its user base was indistinguishable from those other search engines. The user base rapidly grew once Google's product superiority became well-known. If you wanted to design a probability model of what search engine consumers used, a logistic distribution might be a suitable choice.

    Example 3: Probit Distributions

    • The probit distribution is sometimes used in conjunction with the logistic distribution, but only uses binary variables. For example, imagine rolling dice, but only winning if you role a six. In this case, the results will be clustered into two groups, winning and losing, and the probability of losing will be much greater than winning. If you wanted to know the probability of winning, a probit model might be a good fit.

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