1. Calculate the expected value of the consumption prize in each lottery. 2. Calculate the variance of consumption for each lottery.

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter10: Sequences, Series, And Probability
Section10.8: Probability
Problem 31E
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Consider two lotteries. Lottery A is such that an individual receives a prize of 1 unit
of a consumption good with 80% probability and 100 units of the consumption good with
20% probability. Lottery B presents the winner with a prize of 10 units of a consumption
good with 99% probability and a prize of 1090 units of the consumption good with 1%
probability.
Transcribed Image Text:Consider two lotteries. Lottery A is such that an individual receives a prize of 1 unit of a consumption good with 80% probability and 100 units of the consumption good with 20% probability. Lottery B presents the winner with a prize of 10 units of a consumption good with 99% probability and a prize of 1090 units of the consumption good with 1% probability.
1. Calculate the expected value of the consumption prize in each lottery.
2. Calculate the variance of consumption for each lottery.
Transcribed Image Text:1. Calculate the expected value of the consumption prize in each lottery. 2. Calculate the variance of consumption for each lottery.
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