Econometrics is the art of using data to understand economic relationships, but the real world is rarely predictable. Economic outcomes are full of uncertainty. Will an interest rate hike slow down investment? By how much? We can’t know for sure. Probability gives us the language and the tools to measure this uncertainty.

Think of it this way: an economic theory is like a map, but the real-world economy is the actual, unpredictable terrain. Probability provides the rigorous language we need to navigate that terrain, allowing us to quantify the uncertainty in our data and formally test whether our ‘map’ (economic theory) is a reliable guide to reality. This guide will use the simple experiment of tossing coins to demystify several foundational probability concepts that are essential for your journey into econometrics.