Alison decides to play the lottery. She has a 5% probability of winning $100 and a 95% probability of winning zero. The expected value of playing the lottery is:

Question

Quizplus · Accepted Answer

The expected value is the sum of each possible outcome multiplied by its probability:

Expected value = (0.05)($100) + (0.95)(0) = $5

This means that if Alison played the lottery many times, the average amount she would win per play is $5. Therefore, it is not worth it to play the lottery in this situation since the expected value is less than the cost of playing.

Alison Decides to Play the Lottery