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Cons30 S Probability Expected Value

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Cons30 S Probability Expected Value

  1. 1. EXPECTED VALUE
  2. 2. EXPECTED VALUE: Either a GAIN or a LOSS based on the probability of winning and losing a  game. There are certain games / situations that cost money to play and these  are the situations that we are interested in.
  3. 3. You pay $3 to play this game.  You get one chance to pick the Ace  of clubs.  If you get it you win $10.  Is this is a good (financial $)  idea to play?
  4. 4. EXPECTED VALUE =  PROB(WIN) * GAIN   +   PROB(LOSING) * GAIN ...if there are only a win and a lose situations... OR EXPECTED VALUE =  PROB(WIN) * GAIN   +   PROB(WIN) * GAIN   +   PROB(WIN) * GAIN + ... ...if there are more than one winning situation...
  5. 5. PROB(WIN) * GAIN   +   PROB(LOSING) * GAIN
  6. 6. PROB(WIN) * GAIN   +   PROB(LOSING) * GAIN
  7. 7. EX   There is a bag with 10 marbles in it, 5 red, 3 blue and 2 yellow.  The game    is to blindly pick one from the bag.     If it's:     red ­ win $2 blue ­ win $5 yellow ­ win $10   The game costs $3 to play.  What is your expected value?
  8. 8. HOMEWORK pg.353; #1­7

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