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Carl Has Two Choices: a 50% Chance of Winning $20

Question 65

Multiple Choice

Carl has two choices: a 50% chance of winning $20 and a 50% chance of losing $20,versus a 20% chance of winning $100 and an 80% chance of losing $20.Which choice has the larger expected value?


A) Both choices have the same expected value and thus are equally attractive.
B) The 50%-50% choice.
C) Both choices have negative expected values and neither should be selected.
D) The 20%-80% choice.
E) Both choices have the same expected value,but the 50%-50% choice is better because the chance of a payoff is greater.

Correct Answer:

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