Risk Guesstimation from Factor Ranges

minima

maxima

n

500

800

n multiplier

1

10

100

1,000

p

1

0.2

0.7

p

2

0.2

0.6

p

3

0.2

0.5

p

4

0.6

0.8

p

5

0.8

0.9

p

6

0.9

1.

guesstimated solution = 14.457 (round to 14)

analytical solution = 14.633 (round to 15)

analytical logarithmic mean = 2.994

analytical logarithmic standard deviation = 0.557

In "risk guesstimation", the magnitudes of the guessed factors are multiplied to find an estimate. In this Demonstration, each factor's guessed value is the geometric mean of the lower and upper limits of its probable range. The result is compared with the analytically calculated value based on the assumption of uniform probability distribution within each factor's range. The analytical result is the mode of the displayed lognormal distribution expected from the central limit theorem.