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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: combjelly who wrote (833113)	1/28/2015 10:00:27 PM
From: i-node	Read Replies (2) \| Respond to of 1579315

>> It really isn't a difficult concept. It isn't, however, you're missing key elements. You are emphasizing the size of a given risk pool which is a factor but not the only factor or even the most important factor. After a pool reaches a certain size the risk will diminish only marginally with the addition of members to the pool. The important point you're missing is that the pool must consist of a sufficiently diverse cross section. As an example, if the risk pool contains only old people it doesn't matter how many people you have, you're not going to diversify the risk away. You ARE going to have an inordinate level of risk because of the selection of risks in the pool. Thus the number of risks in the pool is one thing but the distribution is of critical importance; a large number of risks won't be able to offset increased risk in a poor distributed pool. In auto insurance terms it is like having a huge risk pool full of drunk drivers. Not a situation you want to be in. This is why the Obamacare exchanges are in a critical mess (well, one reason): the young, healthy participants needed for stable premiums needed to be around 40% and thus far it is only around 24-25%. (This is worse than it sounds since some fraction of those 24-25% will be extremely sick placing high demands on the pool). While the sheer number of enrollees in Obamacare is low, the bigger problem is that those who DID enroll are going to be sicker than estimated because they're older. So, the Central Limit Theorem does apply as per your coin flips, but the mean payout will be higher and the standard deviation will be affected by the makeup of the pool.