Which best describes a probability distribution?

Which best describes a probability distribution?

• A. It is a table, chart or graph that shows how many of each type of identified loss will occur during the next 12-month period.
• B. It represents probability estimates for a particular set of circumstances and the probability of each possible outcome.
• C. It shows the likelihood of particular future events and an estimate of the financial consequences of each predicted event.
• D. It predicts future events based on the frequency and severity of past events.

Answer: (B)

Probabilities assigned to each possible outcome of a random variable define a probability distribution. It describes, for a given set of circumstances, how likely each outcome is, and the whole set of probabilities adds up to 1. The description that matches this idea is the one that states probability estimates for a particular set of circumstances and the probability of each possible outcome. The other descriptions mix outcomes with counts, financial consequences, or forecasts based on past frequency and severity, rather than listing the probability of every possible result. A probability distribution focuses on likelihoods for all outcomes, not just historical tallies or expected impacts.

Probabilities assigned to each possible outcome of a random variable define a probability distribution. It describes, for a given set of circumstances, how likely each outcome is, and the whole set of probabilities adds up to 1. The description that matches this idea is the one that states probability estimates for a particular set of circumstances and the probability of each possible outcome.

The other descriptions mix outcomes with counts, financial consequences, or forecasts based on past frequency and severity, rather than listing the probability of every possible result. A probability distribution focuses on likelihoods for all outcomes, not just historical tallies or expected impacts.