Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50.
-Refer to the scenario above.What is the expected value of the gamble?

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the probability of each outcome by the payoff of that outcome and adding them together. In this case, the probability of heads and tails is equal (0.5), and the payoff for heads is $50 and the payoff for tails is -$50. So the expected value is: (0.5 x $50) + (0.5 x -$50) = $0. Therefore, the best choice would be to not take the gamble as the expected value is $0, meaning there is no gain or loss overall.

Scenario: an Unbiased Coin Is Tossed, and If the Outcome