To ascertain: The reason for expecting a fair coin to come up heads about half the time and whether to expect the fraction of heads getting closer to half when more coins are flipped along with the way law of large numbers applying to risk faced by casinos and insurance companies.
Explanation of Solution
Whenan individual tosses fair coin, the chances of getting a heador getting a tail equals to “1/2”. As the number of tosses increase, the probability of getting tails and heads starting to become same.
As the
Law of large numbers states that as the size of sample grows the observation start to scatter around the means.
In insurance, as the number of people with health insurance increases with a large number of policyholders, the loss of the company due to insurance claim starts to become equal to the loss which has been expected by the firm.
In the casino industry, the law large number works in the same way as in the insurance industry.As the number of players increases in the actual loss of casino, due to winning of player start to become equal to expected loss which means casinos can increase the odds of the loss of a player by introducing the new rules which increase the odds of a player to lose.
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Chapter 4 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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