1.3.2 Law of Large Numbers
Do you see how the action of pooling risks and utilizing the law of large numbers work hand-in-hand?
The law of large numbers involves the study of collected statistical data on the history of death (mortality) and sickness (morbidity) incidents and the likelihood of occurrence. In other words, how often do people die at what age, and how often and to what degree do people get sick and at what age? The larger the numbers involved in the calculations (the bigger the group studied), the more accurate the predictions.
The law of large numbers is based on the science of probability and the experience of mortality and morbidity tables.
The concept founded on the ability to predict the approximate number of deaths or frequency of disabilities within a certain group during a specific time is the basic premise of the law of large numbers.
- What is the difference between mortality and morbidity?
