Billy Joe Bob thinks he will win $3 with probability P; otherwise he will win $11.His expected payoff is:
A) $3 + $8P.
B) $11 - $8P.
C) $7.
D) $3 + $11P.
E) $11 - $3P.

Question

Quizplus · Accepted Answer

The expected payoff is calculated by multiplying each outcome by its probability and then summing these products. If the probability of winning $3 is P, then the probability of winning $11 is 1-P. The expected payoff is $3*P + $11*(1-P) = $3P + $11 - $11P = $11 - $8P.

Billy Joe Bob Thinks He Will Win $3 with Probability