The Law of Large Numbers

At one time, for reasons that are too long to explain here, I acquired my NJ Insurance License for Health and Life.  As part of the course we had to learn what it is that keeps insurance companies in business particularly because we see large settlements paid out in the news and many of us know people that are insurance agents that make a fortune…or so we have been told.

The reason for this is the Law of Large Numbers.  Yes, compulsory insurance like auto and medical are requiring everyone to pay a premium regardless of their risk.  There are still far fewer claims that are paid than money collected.  Insurance profits.

In high school, when I went on my senior trip to Florida, it was my first experience with this concept although I didn’t know that I was actually learning what should be a valuable lesson.  I was told by my parents that they had exhausted their funds paying for my trip and that any money that I wanted to spend, I would have to supply for myself.  I had nothing of value to sell, and at the time, no job.  I did have a face full of facial hair (as high school males tend to get).  I had no desire to go to the Florida sun with all this hair and the day before Florida was usually Senior Crazy Day.  My craziness was to shave my face, but only half of it.  Most people didn’t believe me and since I needed money, I tried to bet people $100 that I would go through with it.

Now, the fact that no single person would bet $100 was clear, but I could get 100 people to bet me a dollar.  Although I never got to approach 100 people, I did get 30 people. There were 1600 people in my school and 30 of them paid me to do something that didn’t cost me a thing.  That was less than 2% of the population.  I didn’t even get the word out to most of them.

Today, we have access to a larger population and social media is the key.  Marketers for major companies are exploiting this through ads on these sites.  So, let’s think.  What do I have?  What can I do?  What would be valuable enough so that someone would pay me a buck for something.  If only one person in 100 would pay for something, then we need to find way more than 100.  How many more people would I have to expose my value to, to make that 1% put me in the top 1%?  It is a good question.  Why isn’t it asked more often?

Law of Large Numbers in it’s simplest form–If you take a very small percentage from a very large number, you get another very large number.

Is it possible to teach an old dog new tricks?  It is possible to make this concept pay?  I’ll get back to you on that.

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