Question

Examine the usage of statistics and probability in vocations such as gambling and insurance. Be sure to include boot-strap methods of prediction, the law of large numbers, and certainty and uncertainty in your response.

Answer 1

ANSWER:

Given that,

statistics and probability are very much used for decision making in insurance and gambling.

For example, there is a saparate division called actuaries that uses probability to find the premium rates based on the historical death rates for insurance industry.

Let us say if we know the death rate is 0.01 irrespective of the causes, this 1% is fully going to affect the premium payees and insurance company.

Then this 1% has to be simulated in a large population (or close to large population) many times to find out how much will be deaths per million. This is nothing but bootstrapping methods.

Similarly in gambling we know the roulette and casino wheels use how much the winners will take and in turn how much it will cost the gambling company. It carefully chooses the numbers and the maximum winning amount so that the gambling doesn't go bankrupt.

The law of large numbers is used which will show the probability happening in real life. When 2 6-sided fair dice are rolled, the company knows the probability will work over a large number of rolls. It helps in finding the crooked players (or counting players in cards).

The certainty or uncertainty of a player winning at random is also determined if he plays for a long time. The certainty or uncertainty of a death (say poisson probability) is used in insurance industry that helps in quoting a competitive premium rates. In fact this number is available to the insurance industry after research so that they don't underquote.