What does the law of large numbers suggest?

The law of large numbers indicates that as the size of a sample increases, the average of that sample will get closer to the expected value of the entire population from which the sample is drawn. This principle is foundational in the field of statistics and insurance, as it suggests that larger data sets yield more reliable estimates and predictions.

When it comes to insurance, the law of large numbers allows insurers to predict losses more accurately because they can pool together a significant number of similar risks. With a larger number of policyholders, any unpredictable fluctuations among individual claims tend to average out, leading to more stable and reliable forecasts of future claims. This principle underscores the importance of gathering extensive data to improve decision-making and financial outcomes.

In contrast, smaller samples may not capture the full picture and can lead to erroneous conclusions, highlighting that larger data sets do not yield less reliable information. Instead, they enhance reliability, making the correct answer clear.