Probabability and Stats For Profit

[ojsimon]

Hi

I am doing a research project on how maths can be used to maximise profit and was wondering if anyone knows any examples applications of probability used to maximise profit. E.g. banks insurance etc?

Thanks

 

[Math Is Hard]

Gambling?

 

[ojsimon]

yeah but how can it be used in this application?

 

[Math Is Hard]

For instance, playing Blackjack by "basic strategy". "This strategy is simply the best way to play every possible situation, without any knowledge of the distribution of the rest of the cards in the deck."

http://wizardofodds.com/blackjack

This site is written by an actuary who looks at games and calculates expected returns for all the possible plays for a situation. You might find it interesting.

 

[ojsimon]

Thanks for that, V. Useful. Anything else, especially applications in banks/insurance/industry

thanks

 

[statdad]

You may want to look at discussions of expected profit/loss, as well as discussions of "decision theory" (decision making) with probability.

 

[John Creighto]

Expanding on the last post with regards to decision theory when it comes to probability you have to know what you want to maximize. Do, you want to maximize the average return, do you operate on the principle of least regret? One method I believe investment people use is called the box method. I'm not sure how that method fits into risk/reward but when dealing with probability you have to base your objective function based on the probability of each type of event.