Compare Strategies Using Expected Value
Statistics and Probability · Flashcards
STATISTICS AND PROBABILITY · FLASHCARDS
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QUESTION
Identify the break-even major-accident probability
p
p
p
if low ded costs
500
500
500
more in premium but saves
2500
2500
2500
in major loss.
QUESTION
Which plan is cheaper in expectation? A:
P
=
400
,
E
(
X
)
=
300
P=400,E(X)=300
P
=
400
,
E
(
X
)
=
300
; B:
P
=
650
,
E
(
X
)
=
80
P=650,E(X)=80
P
=
650
,
E
(
X
)
=
80
.
QUESTION
Compute the expected out-of-pocket cost with deductible
d
=
500
d=500
d
=
500
for loss
L
=
1200
L=1200
L
=
1200
.
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ANSWER
700
700
700
. Loss
1200
−
500
1200 - 500
1200
−
500
deductible =
700
700
700
out-of-pocket.
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