Suppose Chris is offered the following gamble: with probability 0.1 he will win $90, with probability 0.4 he will win $50, and with probability 0.5 he will lose $60. The expected value of this gamble is found by solving:
A)0.1 × ($90 - $60)+ 0.4 × ($50 - $60)
B)0.1 × $90 + 0.4 × $50
C)0.1 × $90 + 0.4 × $50 - 0.5 × $60
D)($90 + $50 - $60)/3

Question

Suppose Chris is offered the following gamble:  with probability 0.1 he will win $90, with probability 0.4 he will win $50, and with probability 0.5 he will lose $60. The expected value of this gamble is found by solving:
A)0.1 × ($90 - $60)+ 0.4 × ($50 - $60)
B)0.1 × $90 + 0.4 × $50
C)0.1 × $90 + 0.4 × $50 - 0.5 × $60
D)($90 + $50 - $60)/3

Quizplus · Accepted Answer

The expected value of a gamble is the sum of all the possible outcomes multiplied by their respective probabilities.

Suppose Chris Is Offered the Following Gamble: with Probability 0