What does a larger pool size typically do in terms of risk assessment according to the law of large numbers?

Selecting a larger pool size in risk assessment aligns with the principle of the law of large numbers, which states that as the size of a sample increases, the sample mean will get closer to the expected value, or true average, of the population. This principle is particularly relevant in insurance and financial contexts, where a greater number of observations allows for more reliable predictions regarding events and outcomes.

When dealing with a larger pool, fewer fluctuations or anomalies occur, thus leading to enhanced accuracy in estimating risks. This improved accuracy results from having a wider array of data points, which smooths out irregularities and helps establish a clearer understanding of underlying patterns. Consequently, this increases the reliability of forecasts and decision-making processes in risk management.

Additionally, larger sample sizes can help mitigate the effects of outliers or rare events, further reinforcing the accuracy of risk assessments. Overall, the larger the group involved, the more predictable the results become, which is why increasing the pool size is beneficial in risk assessment scenarios.