Wednesday, 10 April 2013

statistics - Geometric distribution probability of no success at all



From S. Broverman, 2006:




A town's maintenance department has estimated that the cost of snow removal after a major

snowstorm is 100,000. Historical information suggests that the number of major snowstorms in
a winter season follows a geometric distribution for which the probability of no major
snowstorms in a season is .4.
The town purchases an insurance policy which pays nothing if
there is one or less major snowstorms in the season, but the insurance pays 50% of all seasonal
snow removal costs for major snowstorms if there are 2 or more major snowstorms. Find the
expected payout by the insurer.




I am confused by the bolded line "a geometric distribution for which the probability of no major
snowstorms in a season is .4". That sounds like it is saying the probability of no success at all is .4.




How does one find the probability of no success in a geometric distribution? From here it seems that one simply takes (1p) to the power of the nth attempt for which there is no success. However, according to that, how does one find the probability of no success at all, no matter how many attempts? Wouldn't that be limn(1p)n=0? If so, how would one understand the probability of no success being .4?


Answer



From saulspatz's comment, I gather that the way to interpret the geometric distribution here is that success is "the point at which the snowstorms stop", and p is the probability of the snowstorms stopping. Failure is that there was a snowstorm, therefore making it that the snowstorms did not yet stop.



Hence one can use the definition p(1p)k, and at k=0, this would mean that there was no failure because the snowstorms never started.



One can also use the definition p(1p)k1 and at k=1, this would mean that on the first attempt, the snowstorm stopped, never starting.



See also my question here for an analogous case.



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