Discrete Approximations of Probability Distributions

Allen C. Miller, III and Thomas R. Rice
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Allen C. Miller, III: Practical Innovations, Inc., Sunnyvale, California
Thomas R. Rice: ANR Technology Co., Detroit

Management Science, 1983, vol. 29, issue 3, 352-362

Abstract: Practical limits on the size of most probabilistic models require that probability distributions be approximated by a few representative values and associated probabilities. This paper demonstrates that methods commonly used to determine discrete approximations of probability distributions systematically underestimate the moments of the original distribution. A new procedure based on gaussian quadrature is developed in this paper. It can be used to decrease the error in the approximation to any desired level.

Keywords: decision analysis; approximations; approximate probability distributions (search for similar items in EconPapers)
Date: 1983
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Citations: View citations in EconPapers (65)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:29:y:1983:i:3:p:352-362

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