A Situation Involving Certain Types of Perils Such as Earthquakes

question 50

Multiple Choice

A situation involving certain types of perils such as earthquakes and floods where only those people with high probabilities of loss will want to buy the coverage thereby violating the law of large numbers is called

• A)unaffordable risk.
• B)adverse selection.
• C)the large-loss principle.
• D)the risk of large numbers.

---

Definitions:

Central Limit Theorem

A statistical theory stating that the distribution of sample means approximates a normal distribution as the sample size becomes larger, assuming all samples are identical in size, regardless of the population's distribution.

Discrete Distribution

A type of probability distribution where the variable can take on a countable number of distinct values.

Probability Density Function

A function that describes the likelihood of a continuous random variable falling within a particular range of values.

Total Area

In statistical terms, often refers to the entirety of the area under a probability distribution curve, which equals 1 or 100%.