Problema Solution
A person spins the pointer and is awarded $2 , $5 , 0r $12. It cost $8.00 to play the game. determine 1. the expectation of a person who plays the game 2. the fair price to play the game
Answer provided by our tutors
Amount on spinner wheel $2 $8 $12 Probability 1/2 1/4 1/4 Net Value $2-$8= -$6 $8-$8= $0 $12-$8= $4
From the above table, one can observe that (1/2)
chance of losing $6 (1/4)
chance of nothing $0 (1/4)
chance of winning $4.
Thus expected value is E = (1/2)(-$6)+(1/4)($0)+(1/4)($4) = -$3 + $0 +$1 E = -$2,
The fair price to play the game Fair price = Expected value + Cost to play = -$2 + $8 Fai