Interpret the Mean of a Discrete Random Variable as an Expected

question 29

Short Answer

Interpret the Mean of a Discrete Random Variable as an Expected Value
-An automobile insurance company estimates the following loss probabilities for the next year on a $\$ 25,000$ sports car:
$\begin{array} { l r } \text { Total loss: } & 0.001 \\ 50 \% \text { loss: } & 0.01 \\ 25 \% \text { loss: } & 0.05 \\ 10 \% \text { loss: } & 0.10 \end{array}$
Assuming the company will sell only a $\$ 500$ deductible policy for this model (i.e., the owner covers the first $\$ 500$ damage), how much annual premium should the company charge in order to average $\$ 450$ profit per policy sold?

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Definitions:

Social Penetration

A theory that describes how interpersonal relationships develop through gradual sharing of deeper and more personal information.

Filtering

Process of reducing the number of partners at each stage of relational development by applying selection criteria.

Dyadic Effect

The reciprocal nature of self-disclosure: “You disclose to me, and I’ll disclose to you.”

Self-Disclosure

The act of revealing personal information to others, which can strengthen relationships but also entails risk of vulnerability.