You can buy a lottery ticket for $500. The odds are as follows: 1 in 10...

Question

Question

You can buy a lottery ticket for $500.

The odds are as follows:

1 in 10 tickets will pay $750.

1 in 100 tickets will pay $1000.

1 in 1000 tickets will pay $200,000.

1 in 10,000 tickets will pay $1,000,000.

1 in 100,000 tickets will pay $10,000,000.

a. What is the expected value of the ticket to you?

b. Should you buy the ticket? Explain your decision.

Answer 1

Answer #1

(a)

Expected value = ∑x * P(x) = $-70.53

(b) Since the expected value < 0, you should not buy the ticket

Answer 2

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