Which of the following gambles should be considered more attractive?
A)If heads, you win $200; if tails, you lose $198.
B)If heads, you win $5; if tails, you lose $10.
C)If heads, you win $6; if tails, you lose $4.
D)If heads, you win $9; if tails, you lose $6.

Question

Quizplus · Accepted Answer

To compare the attractiveness of the gambles, we need to look at the expected value (EV) of each gamble. 
EV of A = (0.5 * 200) + (0.5 * (-198)) = $1 
EV of B = (0.5 * 5) + (0.5 * (-10)) = -$2.50 
EV of C = (0.5 * 6) + (0.5 * (-4)) = $1 
EV of D = (0.5 * 9) + (0.5 * (-6)) = $1.50

The best choice is D because it has the highest expected value.

Which of the Following Gambles Should Be Considered More Attractive