(Scenario: Health Costs)Use Scenario: Health Costs.Given the fact that Alan has a 40% chance of developing a health problem,what is the expected value of Alan's health care costs for the coming year? Scenario: Health Costs
Alan is hoping for a healthy year,meaning that he would have zero health costs.Given his habits,there is a 40% chance that Alan will develop a health issue resulting in $50,000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.
A)$0
B)$50,000
C)$20,000
D)$16,000

Question

Quizplus · Accepted Answer

The expected value of Alan's health care costs is calculated by multiplying the cost of each outcome by its probability and then summing these products. With a 40% chance of incurring $50,000 in costs, the expected value is 0.4 * $50,000 = $20,000.