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 her decision to play is

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the probability of winning by the amount won and adding all possible outcomes. 
Expected value = (0.05)($100) + (0.95)(0) 
Expected value = $5 
Therefore, Alison should only play if the enjoyment of playing is worth less than $5 to her. Otherwise, the expected value is not in her favor.

Alison Decides to Play the Lottery