Risk and Uncertainty | The Role of Probability in Human Action
Автор: MRDeVinney
Загружено: 2024-12-20
Просмотров: 1106
Описание:
#economics #statistics #actuarialscience
Humans act because the future is uncertain. Every decision we make is a response to the unknown. Yet, not all risks are equal, nor are all outcomes predictable. At the heart of this uncertainty lies probability—a tool to navigate risk but never fully master it. However, the concept of probability often leads to confusion, particularly in economics, where misunderstanding its forms has caused widespread errors—sometimes deliberate. To grasp human action, it’s essential to distinguish between the two types of probability: class and case.
Class probability governs groups. It relies on patterns and frequencies, allowing predictions about how many within a group will experience certain outcomes. Insurance companies know the likelihood that a portion of computer programmers in a large pool will face health issues. By pooling resources and applying the law of large numbers, they manage risk without knowing which specific individuals will face these events. Class probability estimates group trends but stops short of identifying individual outcomes.
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