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Steph asked in Social ScienceEconomics · 9 years ago

Question on calculating expected value?

Win $500 per week for life lottery.

A) What is the expected value of playing assuming you live 60 more years and there are 52 weeks in every year?

B) The cost of playing is $1. If your utility is U= V+Y where V= entertainment value in dollars how much V do you need to receive with certainty in order to play?

C) Consider a different structure where you pay $1 and the payout is $250 with odds of winning equal to 1 and 323. Also U = V+Y ^0.85 What is the minimum entertainment value?

Lottery odds table:

Payout (in $): Odds

1 1 and 10

2 1 and 15.15

4 1 and 62.5

5 1 and 125

10 1 and 100

20 1 and 166.67

40 1 and 2100

100 1 and 50400

250 1 and 126000

500/week 1 and 7938000

1 Answer

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  • Anonymous
    9 years ago
    Favorite Answer

    tough one for me too.

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