Question

Mega City Hospital is selling lottery tickets. All proceeds go to its cancer research program. Each ticket costs $ 100 but the campaign catchphrase promises a 1-in-1000 chance of winning the first prize. The first prize us a "dream" house, which is worth $ 250 000. On the basis of decision tree analysis, is buying a ticket worthwhile?

Answer 1

Expected payoff = probability x payoff

Expected payoff = 0.999 x -100 + 0.001 x (250000 - 100) = $ 150

Since expected payoff > 0, buying the ticket is worthwhile .