Measure Theory

Jes us Fernandez-Villaverde
University of Pennsylvania
1
Why Bother with Measure Theory?
Kolmogorov (1933).
Foundation of modern probability.
Deals easily with:
1. Continuous versus discrete probabilities. Also mixed probabilities.
2. Univariate versus multivariate.
3. Independence.
4. Convergence.
2
Introduction to Measure Theory
Measure theory is an important eld for economists.
We cannot do in a lecture what it will take us (at least) a whole
semester.
Three sources:
1. Read chapters 7 and 8 in SLP.
2. Excellent reference: A User's Guide to Measure Theoretic Proba-
bility, by David Pollard.
3. Take math classes!!!!!!!!!!!!!!
3
oAlgebra
Let S be a set and let S be a family of subsets of S. S is a oalgebra
if
1. 0, S S.
2. S =
c
= S\ S.
3.
a
S, a = 1, 2, ..., = '
o
a=1

a
S.
(S, S): measurable space.
S: measurable set.
4
Borel Algebra
Dene a collection , of subsets of S.
oalgebra generated by ,: the intersection of all oalgebra contain-
ing , is a oalgebra.
oalgebra generated by , is the smallest oalgebra containing ,.
Example: let B be the collection of all open balls (or rectangles) of R
|
(or a restriction of).
Borel algebra: the oalgebra generated by B.
Borel set: any set in B.
5
Measures
Let (S, S) be a measurable space.
Measure: an extended real-valued function j : S R
o
such that:
1. j(0) = 0.
2. j() 0, V S.
3. If
a

o
a=1
is a countable, disjoint sequence of subsets in S, then
j

'
o
a=1

=
P
o
a=1
j(
a
).
If j(S) < o, then j is nite.
(S, S, j): measurable space.
6
Probability Measures
Probability measure: j such that j(S) = 1.
Probability space: (S, S, j) where j is a probability measure.
Event: each S.
Probability of an event: j().
1(S, S): space all probability measures on (S, S) .
7
Almost Everywhere
Given (S, S, j), a proposition holds almost jeverywhere (ja.e.), if
a set S with j() = 0, such that the proposition holds on
c
.
If j is a probability measure, we often use the phrase almost surely
(a.s.) instead of almost everywhere.
8
Completion
Let (S, S, j) be a measure space.
Dene the family of subsets of any set with measure zero:
t = C S : C for some S with j() = 0
Completion of S is the family S
t
:
S
t
=
n
1
t
S : 1
t
= (1 ' C
1
) \C
2
, 1 S, C
1
, C
2
t
o
S
t
(j): completion of S with respect to measure j.
9
Universal oAlgebra
| =
j1(S,S)
S
t
(j) .
Note:
1. | is a oalgebra.
2. B |.
Universally measurable space is a measurable space with its universal
oalgebra.
Universal oalgebras avoid a problem of Borel oalgebras: projection
of Borel sets are not necessarily measurable with respect to B.
10
Measurable Function
Measurable function into R: given a measurable space (S, S), a real-
valued function ) : S R is measurable with respect to S (or
Smeasurable) if
c S : ) (c) o S, V o R
Measurable function into a measurable space: given two measurable
spaces (S, S) and (T, T ), the function ) : S T is measurable if:
c S : ) (c) S, V T
If we set (T, T ) = (R, B), the second denition nests the rst.
Random variable: a measurable function in a probability space.
11
Measurable Selection
Measurable selection: given two measurable spaces (S, S) and (T, T )
and a correspondence of S into T, the function I : S T is a
measurable selection from is I is measurable and:
I(c) (c) , V c S
Measurable Selection Theorem: Let S R
|
and T R
n
and S
and T be their universal oalgebras. Let :S T be a (nonempty)
compact-valued and u.h.c. correspondence. Then, a measurable
selection from .
12
Measurable Simple Functions
A (S, S): space of measurable, extended real-valued functions on S.
A
+
(S, S): subset of nonnegative functions.
Measurable simple function:
(c) =
a
X
i=1
o
i

i
(c)
Importance: for any measurable function ),
a
such that
a
(c)
) pointwise.
13
Integrals
Integral of with respect to j:
Z
S
(c) j(oc) =
a
X
i=1
o
i
j(
i
)
Integral of ) A
+
(S, S) with respect to j:
Z
S
) (c) j(oc) = sup
(c)A
+
(S,S)
Z
S
(c) j(oc)
such that 0 ).
Integral of ) A
+
(S, S) over with respect to j:
Z

) (c) j(oc) =
Z
S
) (c)

(c) j(oc)
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Positive and Negative Parts
We dene the previous results with positive functions.
How do we extend to the general case?
)
+
: positive part of a function
)
+
(c) =
(
) (c) if ) (c) 0
0 if ) (c) < 0
)

: negative part of a function

)

(c) =
(
) (c) if ) (c) 0
0 if ) (c) 0
15
Integrability
Let (S, S, j) be a measure space and let ) be measurable, real-valued
function on S. If )
+
and )

both have nite integrals with respect

to j, then ) is integrable and the integral is given by
Z
)oj =
Z
)
+
oj
Z
)

oj
If S, the integral of ) over with respect to j:
Z

)oj =
Z

)
+
oj
Z

oj
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Transition Functions
Transition function: given a measurable space (Z, 2), a function Q :
Z 2 [0, 1] such that:
1. For V : Z, Q(:, ) is a probability measure on (Z, 2).
2. For V 2, Q(, ) is 2measurable.

Z
t
, 2
t

= (Z ... Z, 2 ... 2) (t times).

Then, for any rectangle 1 =
1
...
t
2
t
, dene:
j
t
(:
0
, 1) =
Z

1
...
Z

t1
Z

t
Q(:
t1
, o:
t
) Q(:
t2
, o:
t1
) ...Q(:
0
, o:
1
)
17
Two Operators
For any 2measurable function ), dene:
(T)) (:) =
Z
)

:
t

:, o:
t

, Vc S
Interpretation: expected value of ) next period.
For any probability measure A on (Z, 2), dene:
(T
+
A) () =
Z
Q(:, ) A(o:) , V 2
Interpretation: probability that the state will be in next period.
18
Basic Properties
T maps the space of bounded 2-measurable functions, 1(Z, 2) , into
itself.
T
+
maps the space of probability measures on (Z, 2) , (Z, 2) , into
itself.
T and T
+
are adjoint operators:
Z
(T)) (:) A(o:) =
Z
)

:
t

(T
+
A)

o:
t

, VA (Z, 2)
for any function ) 1(Z, 2).
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Two Properties
A transition function Q on (Z, 2) has the Feller property if the asso-
ciated operator T maps the space of bounded continuous function on
Z into itself.
A transition function Q on (Z, 2) is monotone if for every nondecreas-
ing function ), T) is also non-decreasing.
20
Consequences of our Two Properties
If Z R
|
is compact and Qhas the Feller property, then a probability
measure A
+
that is invariant under Q:
A
+
= (T
+
A
+
) () =
Z
Q(:, ) A
+
(o:)
Weak convergence: a sequence A
a
converges weakly to A (A
a
= A)
if
lim
ao
Z
)oA
a
=
Z
)oA, V) C (S)
If Q is monotone, has the Feller property, and there is enough \mixing"
in the distribution, there is a unique invariant probability measure A
+
,
and T
+a
A
0
= A
+
for VA
0
(Z, 2).
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