An insurance company has 50% urban and 50% rural customers. If every year each urban customer has an accident with probability \(\mu\) and each rural customer has an accident with probability \(\lambda\). Assume that the chance of an accident is independent from year to year and from customer to costumer. This is another way to say, conditioned on being and urban or rural the chance of having an accident each year is independent.
A costumer is randomly chosen. Let \(A_n\) be the chance this customer has an accident in year \(n\). Let \(U\) denote the event that this costumer is urban and \(R\) the event that the customer is rural.
- Find \( \mathbf{P}(A_2|A_1) \).
- Are \(A_1\) and \(A_2\) independent in general ? Are there any conditions when it is true if not in general ?
- Show that \(\mathbf{P}(A_2|A_1) \geq \mathbf{P}(A_2) \).
To answer this question it is useful to know that for any positive \(a\) and \(b\), one has \( (a+b)^2 < 2(a^2 +b^2)\) as long as \(a \neq b\). In the case \(a = b\), one has of course \( (a+b)^2 = 2(a^2 +b^2)\). To prove this inequality, first show that \( (a+b)^2 +(a-b)^2= 2(a^2 +b^2)\) and then use that fact that \( (a-b)^2 >0 \). - Find the probability that a driver has an accident in the 3nd year given that they had one in the 1st and 2nd year.
- Find the probability that a driver has an accident in the \(n\)-th year given that they had one in all of the previous years. What is the limit as \(n \rightarrow \infty\) ?
- Find the probability that a diver is a urban diver given that they had an accident in two successive years.
