Thursday, March 24, 2005

Why it is hard to insure wooden houses against fire

I learned something today, while it is known that Pareto's law seems to apply only to the very rich only. (a linear scale instead of a log-log scale can be found here), what is less well known is that there are instances such as occurences of fire in wooden houses that have Pareto distribution with exponents less than one. What it means is that the expectation (average) of this distribution is unknown (since the integral diverges.) What this really means is that it is impossible to insure wooden houses against fire since there is no way to do any statistics on this type of event.....

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