Chapter

Making sense of probabilities

in Probability

Published in print April 2012 | ISBN: 9780199588480
Published online September 2013 | e-ISBN: 9780191777943 | DOI: https://dx.doi.org/10.1093/actrade/9780199588480.003.0005

Series: Very Short Introductions

Making sense of probabilities

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‘Making sense of probabilities’ shows how decisions can be made from correctly interpreting probabilities. Fair gambles are ones that give no advantage to either party. All commercial bets, however, suffer from house advantage. Assessing risk involves distinguishing between absolute and relative risks. Tiny probabilities can be combined using Borel–Cantelli Lemmas. These show that small risks will build until they are much larger, so safety standards must be continuously strengthened to prevent catastrophes. Many misconceptions cloud the public's understanding of probabilities. One important concept that will help people to assess probability and risk in everyday life is that of utility.

Keywords: central limit theorem; conditional probability; Fréchet distribution; law of large numbers; number needed to treat; probability; relative risk; risk; sense; uniform distribution; utility

Chapter.  3068 words.  Illustrated.

Subjects: Probability

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