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March 25, 2017

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Consider a simple game in which you will roll a six-sided die and receive $3.00 if you roll a 6. If it costs you $0.90 for each roll, what is the expected value?

  • math - ,

    You gain $3 if you get a 6, and always pay $0.90.

    E[X] = (1/6)*3 - $0.90

  • math - ,

    prob of rolling a 6 = 5/36
    ( ways to get a 6 : [5,1 ; 4,2 ; 3,3 ; 2,4 ; 1,5 ] )

    expected value = $3.00(5/36) = .41666 or 42 cents

    Would you pay 90 cents for a game that has an expected value of 42 cents?

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