Jacob is thinking of buying a $1 lottery ticket.In Lottery A,his odds of winning are 1 out of 1,000,and he may win $500.In Lottery B,his odds of winning are 1 out of 5,000,but he may win $5,000.What will Jacob choose to do based on expected value theory

Question

Quizplus · Accepted Answer

To determine the expected value of each lottery, we multiply the probability of winning by the amount that can be won:
Expected value of Lottery A = (1/1000) x $500 = $0.50 
Expected value of Lottery B = (1/5000) x $5000 = $1.00

Based on expected value theory, Jacob should choose the lottery with the higher expected value, which is Lottery B. Therefore, the best choice for Jacob is to buy a ticket from Lottery B.

Jacob Is Thinking of Buying a $1 Lottery Ticket