Question

You must pick one of two​ wagers, for an outcome based on flipping a fair coin. 1. You win ​$440 if it comes up heads and lose ​$110 if it comes up tails. 2. You win ​$770 if it comes up heads and lose ​$220 if it comes up tails. Find the expected outcome for each wager. Which wager is better in this​ sense?

Answer 1

Answer:

See Below

Explanation:

Expected value is the sum of the products of the probability and payoff of each.

Wager 1:

probability of heads and tails, both is 0.5

Win = 440

Loose = 110

So,

Expected Value = 440(0.5) + (-110)(0.5) = 220 - 55 = $165

Wager 2:

Similar to wager 1

Win = 770

Loose = 220

So,

Expected value = 770(0.5) + (-220)(0.5) = 385 - 110 = $275

2nd wager is better, in this sense.