Concept explainers
To explain which of the wagers should prefer.
Answer to Problem 32PT4
a) Wager 1, because it has a higher
Explanation of Solution
Given:
I) Draw one card at random from the deck. You win $10 if the card drawn is an ace. Otherwise, you lose $1.
II) Draw one card at random from the deck. If the card drawn is a heart, you win 52. Otherwise, you lose SI.
Formula:
We need to find expected values for both the wagers.
Expected value for Wager 1:
Expected value for Wager 2:
Therefore, the expected value is higher for Wager 1 as compare to Wager 2. Hence, I would prefer Wager 1.
Chapter 12 Solutions
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