UNIVERSITY OF ILLINOIS

Department of Economics

Course: Econ 532, Fall 2017 August 29, 2017

Instructor: Anil K. Bera (abera@illinois.edu), 225E DKH
Office Hours: 10:00 - 11:00am TuTh
Class Hours: 8:00 - 9:50am TuTh
Class Room: 123 DKH
Discuss Session: 1:00 - 2:20pm Friday
TA: Chang Lu (changlu4@illinois.edu)

Prologue
April 1242
Baghdad, Iraq

Baghdad took no note of the arrival of Shams (Sun) of Tabriz, a wondering Sufi
Saint, from Samarkand to the city’s famous Dervish Lodge. Shams told the master of
the lodge, Baba Zaman, that he wanted to share his accumulated knowledge to the
most competent student. Why? Because, Shams said, “Knowledge is like brackish
water at the bottom of an old vase unless it flows somewhere.” Baba Zaman got serious
and asked a bizarre question:“ You say you are ready to deliver all your knowledge
to another person. You want to hold the Truth in your palm as if it were a precious
pearl and offer it to someone special. That is no small task for a human being. Are
not you asking too much! What are you willing to pay in return?”
Raising an eyebrow, Shams of Tabriz said firmly, “ I am willing to give my head.”

This is an introductory course in mathematical statistics, and its purpose is to

prepare you for the econometrics course, Econ 507 (Spring 2013). To carry out a
good applied econometrics study, it is necessary to master the econometric theory.
Econometric theory requires a good knowledge of statistical theory which in turn has
its foundation on probability theory. Finally, one cannot study probability without
set theory. Therefore, we will begin at the beginning. We will start with the set
theory, and discuss probability and the basic structure for statistics. Then we will
slowly move into different probability distributions, asymptotic theory, estimation
and hypothesis testing.
After doing all these, the whole course will be just like a candle.“ It will provide
us much valuable light. But let us not forget that a candle will help us to go from one
place to another in the dark. If we, however, forget where we are headed and instead
concentrate on the candle, what good will it be?”
As you have guessed the course materials will be highly theoretical. No statistical
background will be assumed. However, I will take it for granted that you already
know differential and integral calculus and linear algebra. Good Luck!

Course Outline:
1. Introduction
(a) Why statistics?
(b) Statistical data analysis: Life by numbers
2. Probability Theory
(a) Algebra of sets

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 (b) Random variable
(c) Distribution function of a random variable
(d) Probability mass and density functions
(e) Conditional probability distribution
(f) Bayes theorem and its applications
(g) More on conditional probability distribution
(h) Mathematical expectation
(i) Bivariate moments
(j) Generating functions
(k) Distribution of a function of a random variable
3. Univariate Discrete and Continuous Distributions
(a) The basic distribution–hypergeometric
(b) Binomial distribution (as a limit of hypergeometric)
(c) Poisson distribution (as a limit of binomial)
(d) Normal distribution
(e) Properties of normal distribution
(f) Distributions derived from normal (χ2 , t and F )
(g) Distributions of sample mean and variance
4. Asymptotic Theory
(a) Law of large numbers
(b) Central limit theorems
5. Estimation
(a) Properties of an estimator
(b) Cramér-Rao inequality
(c) Sufficiency and minimal sufficiency
(d) Minimum variance unbiased estimator and Rao-Blackwell theorem
(e) Maximum likelihood estimation
(f) Nonparametric method and density estimation
6. Hypothesis Testing
(a) Notion of statistical hypothesis testing
(b) Type I and II errors
(c) Uniformly most powerful test and Neyman-Pearson lemma
(d) Likelihood ratio (LR) test
(e) Examples on hypothesis testing
(f) Rao’s score or the Lagrange multiplier (LM) test
(g) Wald (W) test

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Recommended Text:
A First Course in Probability and Statistics by B.L.S. Prakasa Rao, 2008, World
Scientific.
However, I will not follow this book closely. For your convenience detailed notes
(in four volumes) on the whole course will be made available in the course web-
page. As you will notice, the lecture notes, given the subject matter, are very
dry and mechanical. We will try to make things more lively by analyzing some
interesting data (some even depicting your lives) sets and contemporary real
world problems.

Chang Lu, TA for this course will meet with the class on Fridays, 1:00 - 2:20pm,
123 DKH. Her office hour is TBD.

Course Webpage: Please check Compass regularly for Announcements/ Updates

on Homeworks, Exams etc.
Assessment: There will be two closed book examinations. You will also receive four
homework assignments. The grading of the course will be based on:

Homework 20%
First Exam (around mid-semester on a Th) 40%
Second Exam(on the last day of the class) 40%

Epilogue
In late October of 1244 in Konya, Turkey, Shams found the student he was looking
for: Jalaluddin Rumi, already a famous Islamic scholar in Turkey. Under the tutelage
of Shams, Rumi became one of the most revered poets in the world, as Rumi said,
“ I was raw. I was cooked. I was burned.”

March 1248
Konya, Turkey

Rumi’s son Aladdin hired a killer who did not require much convincing.
It was a windy night, unusually chilly for this time of the year. A few nocturnal
animals hoofed and howled from afar. The killer was waiting. Shams of Tabriz came
out of the house holding an oil lamp in his hand and walked in the direction of the
killer and stopped only a few steps away from the bush where the killer was hiding.
“It is a lovely night, isn’t it?” Shams asked.
Did he know the killer was there? Soon six others joined the killer. The seven
of them knocked Shams to the ground, and the killer pulled his dagger out of his
belt......
Together they lifted Shams’ body which was strangely light, and dumped him into
a well. Gasping loudly for air, each of them took a step back and waited to hear the
sound of Shams’ body hitting the water.
It never came.
Taken from: Elif Shafak (2010), The Forty Rules of Love, Penguin Books.

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About me: Anil K. Bera

My family name stands for:

Business Economics Research Advisor (BERA).

However, my family history goes back to Biblical times: (Genesis 14:2) “ That
these made war with Bera king of Sodom, and with Birsha king of Gomorrah...”
Naturally, I am not at all proud of this.

I also have solid business experience - “run” an Internet Kafe in Turkey (below). I
wanted to have my email address as @nil@uiuc.edu, but unfortunately, the university
didn’t allow it. I also run a hotel (below) in Ankara, capital of Turkey.

What about AB? These are first two English letters. Also think of first two
alphabets in Arabic: alif and ba There is a . (dot) below ba, which embodies the
entire universe:

Finally, the line below is from Bera’s Bible:

(Matthew 19:26):“ But Jesus beheld them, and said unto them: With professors
this is impossible, but with Students all things are possible.”