Consider two individuals: Inga and Hunter.

Suppose that the probability of a car accident for each of them is 20 percent or 0.20 causing a loss of 2500 dollars.

Suppose that their accidents are uncorrelated.

Consider a pooling arrangement in which Inga and Hunter agree to split evenly any accident cost that occurs (we call this a pooling arrangement because Inga and Hunter are pooling their resources to cover their loss from possible accidents). Show that the pooling arrangement is beneficial to them. Show that in the last question pooling is not beneficial if the accidents are perfectly and positively correlated.

Looking to answer both questions