There are three lotteries but you have the chance to spend 1

There are three lotteries, but you have the chance to spend $10 for only one of them. The question is which one?

Tickets cost $5 each and 100 tickets are sold. The prize is $100.

Using expected value:

Tickets cost $10 each and 1000 are sold. The prize is $1000.

Tickets cost $2 each and 10,000 are sold. There is one prize of $10,000.

Assuming that you spend the whole $10 on one of them, what is the expected value of each lottery and which option is the best net value? Note that you would spend the same amount regardless of which lottery you choose, but the odds, the number of tickets and the potential payoff changes with each lottery.

Rather than deciding intuitively (I like blue lottery tickets), try to come at this problem more systematically.

Solution

Solving It. Please Wait.