<p>Not going into Risk-Adverse case as this is sensitive to how we define the Government's utility function</p>

<p>$\mathbb{E}[xpnse] = 0.05*(0.07*1000)+0.95*(0.6*(0.07*1000))$</p>

<p>Follows from Law of Large Numbers</p>

CC BY-SA 3.0
2017-01-31T16:26:51.473Z
2017-01-31T16:26:51.473Z
hipHopMetropolisHastings
<p>This a really basic one and logic says: Yes given enough iterations.
But I am looking for validation</p>

<p>Situation: There is a 7% probability of expenses of 1000 occurring. I have a tool that then applied to the process has a 95% probability to reduce the chance of expenses occurring by 58-78% (mean at 60%). 
How do I calculate savings?</p>

CC BY-SA 3.0
2017-01-31T16:16:47.850Z
This needs to be better phrased. How much agent's save will be determined by their preferences for risk. A more risk-adverse agent will save to cover more than the expected loss, while the risk-neutral agent will save to cover his expected loss.
hipHopMetropolisHastings
CC BY-SA 3.0
2017-01-31T16:23:21.010Z
Fair point. In this instance it's government... I would classify as risk-neutral. Could you please give samples for both?
PovilasID
<finance><probability><saving>
Is lowered probability of spending equals savings?
PovilasID
# Is lowered probability of spending equals savings?

(Asked by: username_0 on 2017-01-31)

This a really basic one and logic says: Yes given enough iterations.
But I am looking for validation

Situation: There is a 7% probability of expenses of 1000 occurring. I have a tool that then applied to the process has a 95% probability to reduce the chance of expenses occurring by 58-78% (mean at 60%).
How do I calculate savings?

**Tags:** finance, probability, saving

> **Comments:**
> **username_1**: This needs to be better phrased. How much agent's save will be determined by their preferences for risk. A more risk-adverse agent will save to cover more than the expected loss, while the risk-neutral agent will save to cover his expected loss.  
> **username_0**: Fair point. In this instance it's government... I would classify as risk-neutral. Could you please give samples for both?  

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## 1 answers

### Answer by username_1 on 2017-01-31. Score: 0 | Accepted answer

Not going into Risk-Adverse case as this is sensitive to how we define the Government's utility function

$\mathbb{E}[xpnse] = 0.05\*(0.07\*1000)+0.95\*(0.6\*(0.07\*1000))$

Follows from Law of Large Numbers


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