Suppose you work for Allstate, and insurance company and the data shows the following for auto insurance claims in Chicago. An average of 1 in 50 policyholders will file a claim of $5,000. An average of 1 in 20 policyholders will file a claim of $2,000. An average of 1 in 10 policyholders will file a claim of $500. Allstate charges me $500 for an auto insurance policy. Assuming that the I could file any of the three claims above, what is the expected value to the company for my policy.
E(X) = 500 - (1/50 * 5000 + 1/20 * 2000 + 1/10 * 500)
= 250
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Suppose you work for Allstate, and insurance company and the data shows the following for auto...
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