Question

A player at a fair pays Rs. 100 to roll a dice. The player receives Rs. 50 if the number of dots facing up is equal to 5, Rs. 200 if the number is 6, but nothing otherwise. Find the expected value of the reward Y. What is the expected value of the gain? Find out the standard deviation of Y.

Answer 1

The dice has 6 options:

if the outcome is 5, player wins 50

if the outcome is 6, player wins 200

if the outcome is another number, the player does not win anything.

Now, remember that the expected value can be written as:

E = ∑xₙpₙ

where xₙ is the event n, and pₙ is the probability of that event.

for a dice, the probabilty for each number is 1/6

The expected value is:

E = (1/6)*(0 + 0 + 0 + 0 + 50 + 200) = 41.66

The expected gain will be E - 100 (because the player pays 100 in order to play)

Then the expected gain is:

G = 41.66 - 100 = -58.33

The standard deviation can be written as:

s = √( ∑(x - x)^2/n)

where x is the mean, in this case the mean is:

(200 + 50 + 4*0)/6 = 41.66 and n = 6.

s = √( (1/6)*(4*(0 - 41.66)^2 + (50 - 41.66)^2 + (200 - 41.66)^2) ) = 73

So we have a lot of standard deviation on Y.