Cal has two choices.The first offers a 50% chance of winning $20 and a 50% chance of losing $20.The second option offers a 20% chance of winning $100 and an 80% chance of losing $20.Which choice has the larger expected value?

Question

Quizplus · Accepted Answer

To find the expected value of each option, we multiply the probability of winning by the amount won and the probability of losing by the amount lost, and then sum these products.

For the first option, the expected value is: 
(0.5)(20) + (0.5)(-20) = 0

For the second option, the expected value is: 
(0.2)(100) + (0.8)(-20) = 16

Therefore, the second option has a higher expected value and would be the better choice for Cal.

Cal Has Two Choices