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in the previous few videos we have been discussing different types of decisions and how to approach them if you recall in the most recent video I talked about how to approach a low hard decision the basic idea was that in such situations we try to maximize the expected value the example we discussed had to do with a very simple gambling problem so one of the probabilities of the outcomes were known in this video I would like to discuss this issue with an example that is more applicable to everyday life suppose you buy a new camera and a company offers insurance with a warranty on the camera say the camera costs $200 and the company sells a 3-year warranty for $50 so if you buy the warranty and the camera breaks in the next three years they will replace it how do they come up with the price of $50 based on their own available statistics the company estimates the probability of a camera being broken say in this case it is 1 over 5 or 20% if they sell the camera to 1000 people on average