Question

A "Pick 2" lottery game involves drawing 2 numbered balls from separate bins each containing balls labeled from 0 to 9. So there are 100 possible selections in total: 00, 01, 02, ..., 98, 99. Players can choose to play a "straight" bet, where the player wins if they choose both digits in the correct order. Since there are 100 possible selections, the probability a player wins a straight bet is 1/100. The lottery pays $50 on a successful $1 straight bet, so a player's net gain if they win this bet is $49. Let X represent a player's net gain on a $1 straight bet. Calculate the expected net gain E(X). Hint: The expected net gain can be negative. E(X) = dollars

Answer 1

The probability of winning a straight bet is 1/100, and the payout is $50, so the expected value of a winning bet is (1/100) * $50 = $0.50.

The probability of losing a straight bet is 99/100, and the cost of the bet is $1, so the expected value of a losing bet is (99/100) * -$1 = -$0.99.

Therefore, the expected value of a straight bet is $0.50 - $0.99 = -$0.49.