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Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara
Edition 13ISBN: 978-0134082578Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara
Edition 13ISBN: 978-0134082578 Exercise 2
Define chance of loss.
b. What is the difference between objective probability and subjective probability?
b. What is the difference between objective probability and subjective probability?
Explanation
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a.Chance of loss can be defined as the probability of occurrence of loss. It is also related to the concept of loss. It can also be defined as the probability that an event will occur in the future. Probability has also both objective as well as subjective aspects. The objective probability is related with long-run relative frequency of an event whereas the subjective is related with the chance of loss estimated by an individual on his/her personal experience or intuition.
b.The difference between the objective and subjective probability is explained below.
• Objective Probability is defined as the relative frequency in the long run which is based on the fact of infinite occurrence of observation and there is no change in the given factors.
• On the other side subjective probability can be define as the estimation of chance of occurrence of loss by the individual person. It is not necessary that subject probability coincide with objective probability.
• The objective probability is related with long-run relative frequency of an event whereas the subjective is related with the chance of loss estimated by an individual on his/her personal experience or intuition.
b.The difference between the objective and subjective probability is explained below.
• Objective Probability is defined as the relative frequency in the long run which is based on the fact of infinite occurrence of observation and there is no change in the given factors.
• On the other side subjective probability can be define as the estimation of chance of occurrence of loss by the individual person. It is not necessary that subject probability coincide with objective probability.
• The objective probability is related with long-run relative frequency of an event whereas the subjective is related with the chance of loss estimated by an individual on his/her personal experience or intuition.
Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara
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