Homework SourseYou have been offered a chance to purchase a lottery ticket
You have been offered a chance to purchase a lottery ticket with a 10% chance of making $500; 20% chance of making $25. The price of the ticket is $10.
Should you buy it or you shouldn’t? Why?
Solution
Considert the table:
As
E(x) = Sum (x P(x)) = 45 > 0, then I should BUY THE TICKET, as it is profitable by an average of $45 a ticket. [ANSWER]
| Prize | Profit (x) | Probability P(x) | x P(x) |
| 500 | 490 | 0.1 | 49 |
| 25 | 15 | 0.2 | 3 |
| 0 | -10 | 0.7 | -7 |
