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What is stochastic modelling?

MEU 173

3 1 ST J U L Y 2 0 1 8

What is statistics?

y Science of learning of data

y What we do?
{ We design experiment
Ù Environment
Ù Variables or factors
Ù Causal relationships

{ Collect and summarize relevant information

{ Apply appropriate model
{ Determine inferences
{ Estimate and conclude

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Descriptive and inferential statistics

Population

Sample

Descriptive statistics

y To summarize and organize data

y Describe observations

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Inferential statistics

y Make decisions
y To test theories
y To infer, predict and forecast
y To establish the causal linkages

Data and models

LECTURE 1 – MEU 173

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What are models?

y Representation of part of the reality

y Real world phenomenon
{ Water quality and decay of water supply infrastructure

{ Urban development and social equity

{ GDP growth rate and purchasing power

y Steps involved –
{ Collect data from real world

{ Apply techniques

Why we need models?

To develop
To describe
understanding
phenomenon
of behaviour

To forecast
To measure
and predict

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Type of models

Mathematical models

y Black box (input-output

models)
{ Large number of variables
{ Complex relationship
{ High uncertainty
{ Unknown structure
y White box
{ Simplified reality
{ Limited variables
{ Clear conceptual model
definition

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Stages in models

Select
concepts
Explain Develop
reality or conceptual
concepts model

Build
Test and
statistical
check reality
model

Describe and
Model output
forecast

Infer model
outputs

Data typology

y Categorical data
{ Nominal
Ù Categories
{ Ordinal
Ù Ranking
y Quantitative data
{ Ratio / scale

{ Interval

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Nominal data

y Unordered
y Names??
y String variable or text
y Examples
{ Names of people
{ Gender
{ Names of locality or cities
{ Si.No. or ID

y The variable itself does not tell about the difference

between categories
y Lowest level of data categories

Nominal data

y Can also be converted into numerical scale

y But number also does not quantify the difference
y Example
{ Vegetation = 1

{ Buit up land = 2

{ Water body = 3

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Ordinal data

y Ordered category variable

y Example –
{ High income
{ Middle income
{ Low income

y It can be string or text but can be converted into

numbers as –
{ Middle income = 1
{ High income = 2
{ Low income = 3
y Therefore, 1 > 3 and 2 > 3

Ordinal data

y Limitations –
{ Cannot add

y Example,
{ Cannot add 1 + 2

{ i.e. Middle income + High income

y This is used to rank people, cities, services

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Interval scale

y Continuous, scale variable

y Example
{ Time
{ Temperature

y Difference in the number is the true difference

y But can be considered as not a true value
y It is with respect to scale, Equal intervals are always
considered
y In interval data the zero point is a matter of convention or
convenience and not a natural or fixed zero point. Zero is just
another point in the scale and does not mean the absence of
the phenomenon.
y Likert scale, examples

Ratio data

y All properties of interval data

y In addition
{ Actual difference in the variables is the true difference

{ Can apply mathematics operand: + , - , *, /

{ True zero is there, zero means there is absence of phenomenon

{ Examples –
Ù Height
Ù Volume
Ù Area
Ù Length

{ True quantitative data

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Exercise

y Give examples of y Give examples of

variables with variables defining
{ Nominal data following figure
{ Ordinal data
{ Interval data

Exercise

y Open dataset
{ Browse variables
{ Identify variables –
Ù Nominal
Ù Ordinal
Ù Interval
Ù Ratio
{ Convert variables
Ù String Nominal to number nominal
Ù Interval to ordinal
Ù Ratio to Interval
Ù Number nominal to string nominal

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