Chapter 5.2 Flashcards
What is the Expected Value?
The expected average result of an experiment; Possible results must be single numbers
Finding the average of the results
pg. 259
What is the meaning of results of expected values?
Positive, Negative or Zero
If Expected Value is positive then the experiment is favorable
If Expected Value is negative then the experiment is unfavorable
If Expected Value is zero then the experiment is neither favorable or unfavorable
pg. 260
What is the formula for Expected Value?
E=E(XxP(X))
do for the win and lose then add
experiment=sigma/summation(x times probability of x)
pg. 261
How do customers interpret Insurance Expected Values?
It may be negative but that dosen’t mean it’s unfavorable, they may want to buy to cover risk of having an issue, having dependents or some financial responsibility then it could be needed or having something that makes them high risk
It’s complicated and depends on the person
pg. 265
What is a Random Variable?
A variable which represents the outcome of an experiment; the value is unknown and the value will be determined by chance when the experiment is performed; It must be a single number and only have one possible option
e.g. a single die is rolled. Let x=the outcome; X is random variable
pg. 280-281
What is Unusual?
P(x or more) is lower that 0.05 x is unusually high
P(x or fewer) is lower that 0.05 x is unusually low
pg. 285
What is the equation for mean of Probability Distribution?
U=E[XxP(X)]
Same as Expected Value
pg. 287
What is the equation for Standard Deviation of Probability Distribution
@=`/E[X^2xP(x)]-u^2
sigma=square root of the [summation of x squared times P(x)]-mu squared
pg. 288
Equation for range of usual values
Max=u+2x@
Min=u-2x@
outside of this range is unusual
Max=mu+2 times segma
Min=mean-2 times standard deviation
pg. 291
