Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A gambling game requires people to place bets on either "Big" or
"Small" or "Seven" designating the result of two dice throws. Big
represents a sum of 8 to 12, while small is from 2 to 6. The special
space "seven" is reserved for, of course, 7. Betting on "Big"
provides a 1:1 betting win ratio amount. (Ex: Any bet amount of X,
will net the winner another amount X, and still get his bet amount X
back. ) Betting on "Small" also provides a 1:1 betting win ratio. The
space "Seven" gives a 1:5 win ratio amount: Betting 100 money
units on "Seven" and having a result of 7 nets the bettor 500 money
units, and still have his 100 money units returned to him. If your
bet does not appear, then the player loses his/her bet. What is the
net Expected value of the strategy of betting 100 money units on
"Big" ? Give your answer to two decimal places.
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