Suppose you sell insurance to a 21-year-old friend. The probability that a man aged 21 will die in the next year is about 0.0015. You decide to charge $2000 for a policy that will pay $1,000,000 if your friend dies. Why would you be foolish to sell a single such policy only to your friend?
(A) You have a 50-50 chance of either gaining a moderate amount of money, or losing a great deal of money.
(B) The Central Limit Theorem implies that it is a foolish decision.
(C) The law of large numbers will not apply if only a single policy is sold.
(D) It is never wise to mix friendship with business.
Answer: (C) The law of large numbers will not apply if only a single policy is sold.
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