Question

Consider the following bet: heads I pay you a dollar, tails you pay me a dollar. What is the expected payoff (return) of this bet? (Assume a fair coin.)

Answer 1

Expected Payoff  = Probability of Heads * Payoff to you + Probability of Tails * Payoff

Expected Payoff to you = 50% * $2 + 50% * -$1 = $1 + (-$0.5) = $0.50.

$0.50 is the expected payoff (return) of this bet.

Expected value is a measure of what you can expect in the long run for each game. The game payment is the expected value of the game minus the cost. If you play the game repeatedly and get an average of about $ 2.20, and it costs only $ 2 to play, the expected payment is $ 0.20 per game.

To calculate the expected payoff, you need to multiply each result by an estimate of its probability and then sum the products. In this example, there is a 10% chance of a 5% drop with a -0.5% result.

Learn more about the expected payoff here: brainly.com/question/14209505

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