When to use Central Limit Theorem or Cramers Theorem

616 Views Asked by At

In for example this paper the authors say

The central limit theorem provides an estimate of the probability \begin{align} P\left( \frac{\sum_{i=1}^n X_i - n\mu}{\sigma \sqrt{n}} > x \right) \end{align} ... the CLT estimates the probability of $O(\sqrt{n})$ deviations from the mean of the sum of random variables ... On the other hand, large deviations of the order of the mean itself, i.e., $O(n)$ deviations, is the subject of this section [Cramer-Chernoff Theorem].

It is not clear to my why the CTL can't be used to calculate large deviations. Following the answer of my previous question for large $n$, the CTL tells me, that the mean is approximately normally distributed as $$P\left(|\sum_{i=1}^n X_i - n\mu| \geq x\right) \approx 2\Phi\left(-\frac{x \sqrt{n}}{\sigma}\right)$$

Why (and in which cases) should Cramers theorem be used if $x$ is large and not the CTL?

1

There are 1 best solutions below

2
On

Large deviation gives you an estimate of the probabilities in the non-typical regime, whereas CLT gives you an estimate of the probabilities in the typical regime. Suppose $X_i$ have finite variance and are a.s. positive. Then CLT gives, $$ |P(\frac{\sum_i X_i - n\mu}{\sigma \sqrt{n}} \ge x) - \Phi(-x)| \to 0. $$ But CLT does'nt say anything if you let $x$ grow with $n$ as well. Say you want to know $P(\sum_i X_i - n\mu >\mu n)$ and $X_i$'s are all positive a.s. Then replacing $x$ by $\sqrt{n} \mu/\sigma$ would give you an approximation of this probability as $e^{-cn}$ from some $c>0$. But this would not be correct. Lets say, $X_i$ have a very heavy tail, $P(X_i > n) \ge n^{-4}$. Then if $X_1 >2n\mu$ then $\sum_{i \le n}X_i > 2n\mu$ and hence $$ P(|\sum_{i \le n}X_i - n\mu| > n\mu) \ge P(\sum_{i \le n}X_i > 2n\mu) \ge P(X_1 > 2n\mu) \ge (2n\mu)^{-4} $$ and you do not get an exponential bound, but a polynomial bound.