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Explain the concept "law of large numbers." How does it work? is it an effective way...

Explain the concept "law of large numbers." How does it work? is it an effective way to mitigate risks?

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Expert Solution

Law of large number will be indicating that when the overall population will be growing, the mean gets closer to the average of the whole population.

it works that when there will be a large number of population available and there will be an experiments which will be repeated for a large number of time than expected value will be getting to the mean of the population.

it helps in mitigating the risk because it will be used in various industries like insurance industry is in which as the population will be growing,insurance company will be trying to adopt it in order to estimate the expected loss which will be average of the population so it will be trying to estimate the the the loss related to the entire portfolio by using the law of large numbers and it would be providing with the better expected value so it will be helping in proactively analysing the risk and thus it will help in mitigation of the risk.


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