Consider a lottery with four possible outcomes, A, B, C, and D. The associated payoffs are: A - $10, B - $30, C - $70, and D - $150. The probabilities are $P ( A ) = 0.40$ , $P ( B ) = 0.20$ , $P ( C ) = 0.30$ , and $P ( D ) = 0.10$ . The variance of this lottery is
A) 912
B) 1,824
C) 1,618
D) 3,326

Question

Quizplus · Accepted Answer

The variance of this lottery can be calculated as follows: 
Var(X) = (10-60.5)^2(0.4) + (30-60.5)^2(0.2) + (70-60.5)^2(0.3) + (150-60.5)^2(0.1) 
= 2450.5 
Therefore, the variance of this lottery is 2450.5. 
The answer is B, 1,824.

Consider a Lottery with Four Possible Outcomes, A, B, C P(A)=0.40P ( A ) = 0.40P(A)=0.40

Consider a Lottery with Four Possible Outcomes, A, B, C $P ( A ) = 0.40$