Consider a lottery with four possible outcomes, A, B, C, and D. The associated payoffs are: $10, $30, $70, and $150, respectively. The probabilities are $P ( A ) = 0.40$ , $P ( B ) = 0.20$ , $P ( C ) = 0.30$ , and $P ( D ) = 0.10$ . The expected value of this lottery is
A) $23
B) $46
C) $65
D) $260

Question

Quizplus · Accepted Answer

The expected value of a lottery is found by multiplying each outcome by its probability and then adding the products. In this case, the expected value is:

Expected value = (0.40 x $10) + (0.20 x $30) + (0.30 x $70) + (0.10 x $150)
Expected value = $4 + $6 + $21 + $15
Expected value = $46

Therefore, the best choice is to choose option B, which has an expected value of $46.

Consider a Lottery with Four Possible Outcomes, A, B, C P(A)=0.40P ( A ) = 0.40P(A)=0.40

Consider a Lottery with Four Possible Outcomes, A, B, C $P ( A ) = 0.40$