Question

Suppose that you roll two dice. You will be paid $20 if you roll a double. You will not receive anything

for any other outcome. How much should you be willing to pay for the privilege of rolling the dice?
Please round your answer to the nearest cent.

Answer 1

There are 36 possible outcomes when rolling two dice, and only 1 of those outcomes results in a double. Therefore, the probability of rolling a double is 1/36, or approximately 0.028.

If you are willing to pay $20 to roll the dice, then you are effectively paying a premium of $20 for a probability of 0.028 of winning. This means that the expected value of rolling the dice is 0.028 * $20 = $0.56.

Therefore, you should be willing to pay up to $0.56 for the privilege of rolling the dice. Rounded to the nearest cent, this is $0.56.