Suppose you work for Allstate, and insurance company and the data shows the following for auto...
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.
Homework Answers
E(X) = 500 - (1/50 * 5000 + 1/20 * 2000 + 1/10 * 500)
= 250
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