Consider the following scenario when answering the following questions:
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 $50 with a 70 percent probability and $100 with a 30 percent probability.
Gamble B: The student will receive $50 with a 50 percent probability,$200 with a 25 percent probability,and $0 (nothing)with a 25 percent probability.
-What is the expected value of Gamble B?
A) $0
B) $75
C) $50
D) $500
E) $25

Question

Quizplus · Accepted Answer

To find the expected value of Gamble B, we multiply each payoff by its respective probability and sum up the results: 
Expected Value of Gamble B = (0.5 * $50) + (0.25 * $200) + (0.25 * $0) 
Expected Value of Gamble B =$37.50+$50+$0 =$87.50.

Answer:It depends on the preferences of the individual student. 
 The best choice between the two gambles is subjective and depends on the preferences of the individual student. Some students may prefer the higher probability of winning money with Gamble A, while others may prefer the potentially larger payout of Gamble B despite its higher risk.

Consider the Following Scenario When Answering the Following Questions