Question

Suppose you want to play a carnival game that costs 4 dollars each time you play. If you win, you get $100. The probability of winning is 1⁄100. What is the expected value of the amount the carnival stands to gain?

Answer 1

The answer is: -3

Explanation:

The expected value is given by adding the values of posible gain mutiplied by the probability of getting that gain so you lose the $4 you pay to play the game with probability 1-1/100=99/100 and you gain 100-4=96 dollars if you win with probability 1/100, so

`E(X)=(-4)(99)/(100)+(100-4)(1)/(100)=-3`