Question

Find the expected value of the winningsfrom a game that has the followingpayout probability distribution:Payout ($)024610Probability 0.5 0.2 0.15 0.1 0.05Expected Value = [?]Round to the nearest hundredth.i

Answer 1

We would find the expected value by multiplying each of the possible outcomes by their probabilities and summing them. The formula is

EV = xP(x)

x = possible outcomes

P(x) = probabilities

Thus,

EV = (0 x 0.5) + (2 x 0.2) + (4 x 0.15) + (6 x 0.1) + (10 x 0.05)

EV = 0 + 0.4 + 0.6 + 0.1 + 0.5 = 1.6

Thus, the expected value is 1.60