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# Markov Chains Notes

This is a sample of our (approximately) 3 page long **Markov Chains** notes, which we sell as part of the **Operational Research Techniques Notes** collection, a 1st Class package written at LSE in 2011 that contains (approximately) ** 104 pages** of notes across **17 different documents.**

### Markov Chains Revision

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Lecture 15: Markov Chains Summary

• Introduction

• Markov Chains

Introduction

• Stochastic Processes = Processes that evolve over time in a probabilistic manner

○ Most processes are stochastic

If not, the future is fully determined

• We make the assumption that stochastic processes are fully described by two sets of information:

○ The current state

○ Transition probabilities

• Stochastic processes with such assumptions are Markov Processes

• The simplifying assumption is that history does not matter

• Markov Chain = Markov Process in discrete time (i.e. weeks or generations) Example of modelling a Markov Chain We can use a Markov Chain to model the future class structure of a society

•

• Current state = current class structure (what proportion of individuals are in each class)

• Transition probabilities = i.e. the probability that the son will be each class given that his father was upper class etc.

• ∴ future class structure depends on current and we do not need to know about the past

• Another assumption that is commonly made:

○ Stationary transition probabilities = That the transition probabilities stay the same

○ With this we can model the long run equilibrium state

○ These determine the long run outcomes

Not the current distribution

• Good at modelling market share in the short run

Markov Chains

• Examples include:

○ Brand switching in consumer purchases

○ Changes in social class over generations

○ Changes in staff employed at different levels in firms

○ Progress of a disease in populations

• Models movement between different states over time

• In any time period (stage) a unit will be in one and only one state

• Between states there can be a transition to any of a number of other states

Transition Probabilities

○ Transition probability from state to :

In Markov chains, it depends on and and not on how state was reached Course Notes Page 37

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