Probability Distributions

A probability distribution is a mathematical function that describes the values a random variable can take and their corresponding probabilities. It reveals that outcomes of events are not fixed, but instead spread across a range with varying likelihoods. By understanding probability distributions, we can quantify how likely different outcomes are—for example, investment returns may follow a normal distribution, where high returns have low probability and low returns have high probability. This allows decision-makers to move beyond simple averages and more comprehensively assess risk and uncertainty, leading to wiser judgments and choices.