FAQ About Stats related questions

One real-world application of a probability distribution is in the insurance industry. Insurance companies use probability distributions to estimate the cost of claims and set premiums. For example, an insurance company might use the normal distribution to model the distribution of claims for car accidents. The mean of the distribution would represent the average claim amount, and the standard deviation would represent the variation in claim amounts. The insurance company could then use this information to set premiums that are high enough to cover the cost of claims, but not so high that they are unaffordable for customers.