Consider a lottery with four equally likely outcomes, A, B, C, and D. The associated payoffs are: $10, $30, $70, and $150, respectively. The expected value of this lottery is what?
A)$30
B)$65
C)$130
D)$260

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying each outcome by its probability and then summing those products. With equal probabilities for each outcome (1/4), the expected value is (1/4)*$10 + (1/4)*$30 + (1/4)*$70 + (1/4)*$150 = $2.50 + $7.50 + $17.50 + $37.50 = $65.

Consider a Lottery with Four Equally Likely Outcomes, A, B