Question

An auction website charges $1 for a bid. The bidding starts at 1¢ and goes up 1¢ at a time. A television that is worth $2000 is won, on average, with a bid of $160. You make one bid at random.

Find the expected value of the outcome of the bid. (Write as an exact decimal, with a negative sign, if necessary.)

Expected Value: $ _____

Answer 1

$12.50/-$12.50, if I am wrong i am sorry

Answer 2

The answer is: expected value is -$0.88

Explanation:

Given is, the he bidding starts at 1¢ and goes up 1¢ at a time. A television that is worth $2000 is won, on average, with a bid of $160. So, $160 in 1¢ steps means 16000 bids.

Therefore, a person invest $1 with a 1/16000 probability of a $2000 return.

Noe, the expected value will be =
`-1+((1)/(16000))*2000`

= -1+0.125 = -0.875 ≈ -$0.88

Hence, the answer is -$0.88