I suppose spring break will be a good time to start getting in the habit of posting regularly. In any case, fact of the day: Ezra Klein recently complained that no one knows what ‘stochastic’ means, so economists should stop using it when communicating to the public. So here I am to tell you that stochastic refers to random processes, which are determined by random variables, as opposed to deterministic processes, which contain no randomness. Stochastic processes, therefore, require descriptions based on probability; i.e., a stochastic process could develop in many different directions as time goes by, some more likely than others. Stochastic calculus provides a way to integrate the functions describing stochastic processes. Analysis of stochastic processes is often used by financial experts and insurance companies, and the underlying theories have applications in physics, music, etc. There, I just saved you ten minutes of checking Google and Wikipedia. I could tell you more, but I haven’t got any formal economics education so I’m not sure you’d want me to.

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