Question

A game has an expected value to you of $2000. It costs $2000 to play, but if you win, you receive $100,000 (including your $2000 bet) for a net gain of $98,000. What is the probability of winning? Would you play this game? Discuss the factors that would influence your decision. The probability of winning is (Type an integer or a decimal.)

Answer 1

Let the probability of winning be p.

Expected value = Winning amount x P(winning) - Betting amount

2000 = 100,000 x p - 2000

p = (2000 + 2000)/100,000

p = 0.04

The probability of winning is 0.04

Here, the expected outcome of the game is positive. This means, that if I play the game many times, I am more likely to make profit. Even if it is more likely to make profit, I will still not play this game because the betting amount is very large and probability of winning on just one play is very low.

The factors that would influence my decision are the following

1. Betting amount
2. Probability of winning (thereby probability of losing also)
3. Winning amount