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Statistics 4 ExpectedValue
Statistics 4 ExpectedValue
Statistics 4 ExpectedValue
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Fair Games
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American Roulette
18 Red numbers
18 Black numbers
2 Green numbers
(0,00)
Part 4: Expected Value
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http://en.wikipedia.org/wiki/Roulette
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Its not that bad. Its closer to 2.5% based on a simple betting strategy.
http://wizardofodds.com/caribbeanstud
http://www.foxnews.com/us/2014/09/09/decades-standing-pat-made-atlanticcity-loser-say-veteran-workers/
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Insurance policy
You pay premium = F
If you collect on the policy, the payout = W
Probability they pay you = P
Expected profit to them is
E[Profit] = F - P x W > 0 if F/W > P
When is insurance fair? E[Profit] = 0?
Applications
Automobile deductible
Consumer product warranties
Health insurance
Part 4: Expected Value
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Since Hamman founded the Dallas-based company in 1986, SCA has grown into
the world's go-to insurer of stunts that give fans the opportunity to win piles of
dough if they make a hole-in-one, kick a field goal or sink a half-court shot. SCA
determines the odds for each contest and charges event sponsors a fee based
on the probability of someone succeeding, prize value and number of
contestants. If the contestants win, SCA pays them the full prize amount. If they
don't, SCA pockets the premium. "The primary distinction between us and
[traditional] insurance businesses is that they restore something economically
when something bad happens," Hamman says. "When you put on a promotion,
you're simply taking a position on the likelihood of an event occurring."
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Summary