Question

suppose you pay $50 to enter into a raffle with $1,000 prize. If you have a 3% chance of winning comma the expected value of your ticket is_____?

Answer 1

Answer

ExpectedValue \(=\sum\) payoff \(*\) probability

here the winning is \(\$ 1000\) with cost of \(\$ 50\). So our actual gain will be if we enter into raffle is \(\$ 950\) with probability \(3 / 100\). The risk of losing 50 (which is negative payoff) is \(97 / 100\).

so Expected value of ticket \(=950^{*} .03+(-50)^{*} .97=-20\).