"You might sell insurance to a 20-year-old friend. The probability that a man aged 20 will die in the next year is about 0.0007. You decide to charge $2000 for a policy that will pay $1 million if your friend dies.

What is your expected profit on this policy? Although you expect to make a good profit, you would be foolish to sell a single policy only to your friend. Why? A life insurance company that sells thousands of policies, on the other hand, would do very well selling policies on exactly these same terms. Explain why."