00:01
The probability that a 28 -year -old male in the us will die in a year is a very small value.
00:08
An insurance company sells a one -year life insurance policy for $275.
00:13
What is the company's expectation? so we want the expected value of this bet for the company.
00:22
The expected value, you take each outcome, you multiply it by the probability of the outcome, and you add them up.
00:29
It's a lot like taking the mean of a frequency table, and it is the mean.
00:34
Expected value, mean, same thing.
00:37
So we need to find every possible outcome and the probability of those outcomes.
00:44
So for the company, if this person dies, they lose out.
00:51
If this person dies, they lose out.
00:53
If this person lives, they win.
00:55
So if the person wins, they get paid.
00:59
This $275 that the person bought the policy for, and they don't have to pay anything out, so they gain $275.
01:09
Probability of that happening is 1 minus the probability of them dying, so that's 0 .998605.
01:20
The other outcome is the person dies, probability 0 .0 .0 .1 -395...