Question

Suppose that, in an experimental setting, 100 students are asked to choose between Gamble A and Gamble B, where: Gamble A: The student will receive $5,100 with a 70 percent probability and $200 with a 30 percent probability. Gamble B: The student will receive $5,100 with a 50 percent probability, $200 with a 25 percent probability, and $0 (nothing) with a 25 percent probability. What is the expected value (EV) of Gamble B

Answer 1

Answer: $2600

Focus on Gamble B only. Multiply each winnings with their corresponding probabilities.

5100*0.50 = 2550

200*0.25 = 50

0*0.25 = 0

Add up those results: 2550+50+0 = 2600

The expected value of gamble B is $2600