Permutation

AAA

DEFINITION of 'Permutation'

In mathematics, one of several ways of arranging or picking a set of items. The number of permutations possible for arranging a given a set of n numbers is equal to n factorial (n!). So, a set of three numbers can be arranged as: 3x2x1 = 6 permutations. Another type of permutation involves choosing a set of i items out of n choices. In this case, the number of permutations for choosing i items given n choices is given by n!/[(n-i)!]. Permutations are applicable to sets where the order matters; order does not matter in combinations.

INVESTOPEDIA EXPLAINS 'Permutation'

The study of permutations applies to finance in a broad sense because a good understanding of probability is sometimes necessary to make rational financial choices. The Allais paradox problem shows that on their own, people do not instinctually choose the higher expected financial reward. Given the choice between a sure amount of money and a small gamble with a higher expected value, most people choose the guaranteed amount due to behavioral biases. Financial professionals must be able to rationally evaluate such situations and make the correct choices on behalf of shareholders or clients.

RELATED TERMS
  1. Maurice Allais

    A French economist who won the 1988 Nobel Prize in Economics ...
  2. Daniel Kahneman

    A professor emeritus of psychology and public affairs at Princeton ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that ...
  4. Behavioral Economics

    The study of psychology as it relates to the economic decision ...
  5. Prospect Theory

    A theory that people value gains and losses differently and, ...
  6. Probability Distribution

    A statistical function that describes all the possible values ...
Related Articles
  1. Can something as simple as a coin toss be effectively applied to the market?
    Investing Basics

    What Are The Odds Of Scoring A Winning ...

  2. Fundamental Analysis

    Find The Right Fit With Probability ...

  3. Markets

    Get A Richer Picture With The Penman-Nissim ...

  4. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  5. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  6. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
Trading Center